Across the country, in the recent recession, there has been a record-breaking number of mortgage defaults and foreclosures. What can you do if it happens to you?
Falling Behind: First of all, if your goal is to stay in your home, that bill needs to be paid before all others. Credit card companies can increase your interest, but if you’re really in the hole, a bankruptcy can wipe out your credit card debt, but falling behind on your mortgage reduces your options. If you know you can’t make a payment, contact your mortgage company immediately, before it’s due if possible and ask what your options are. Be persistent and get everything in writing. If you just have one bad month, they may work with you.
Increasing Payments: Millions of homeowners fell victim to zealous mortgage brokers who told them to sign an adjustable rate mortgage because their credit wasn’t good enough for a fixed rate. Frequently, they were assured that with two years of on time payments, they would have no problem refinancing, only to find out too late that they couldn’t refinance at all. If that is your situation, your only non-bankruptcy option for keeping your home may be a loan modification.
Loan Modification: First of all, know that these take a very long time, typically months longer than the estimate you’ll be given and they are frequently unsuccessful. Before you pursue trying to modify your mortgage, be sure you have a fallback position if it doesn’t succeed. Contact your mortgage holder to see what programs they’re offering and check the official government website at http://makinghomeaffordable.gov/ to educate yourself about the process. Be aware that there are people preying on vulnerable homeowners, who will charge you a fortune and make promises to save your home without having any real ability to do more for you than you can do yourself. To be eligible for a loan modification, you will usually need to show some hardship, but in this economy, that isn’t usually that hard to do.
Stopping a Foreclosure: Your options, if a foreclosure has already been filed are limited. If your mortgage company is willing to work with you, they may stop it or at least pause it, by agreement. You can file a response or hire a lawyer to do that for you, but unless you have a real defense involving inaccuracy of their records or abusive lending practices, which are both very hard to prove, all you will do is delay the inevitable. The only way to make a foreclosure stop is through an Order from a Bankruptcy Court saying a case has been filed.
Bankruptcy: If you have reached the point that you have fallen behind on your home, chances are pretty good that talking to an attorney about bankruptcy is a good plan. Chapter 13 has always provided a way to force mortgage companies to accept payments on past due amounts and if you have multiple mortgages and a home that has dropped in value, you may even be able to strip a second mortgage. In Cincinnati and Northern Kentucky, where I practice, home values have dropped by about 20%, so I have been able to strip more second mortgages in that past two years than I did in the previous twelve.
Finally, an ethical attorney will run through your budget with you and tell you honestly if your best financial option is to let your home go. We all realize that a home is more than a financial investment, but there are only so many sacrifices any family should make to avoid having to move and start over. These are painful decisions. Make sure you avoid anyone who tries to pressure you to make a decision this important too quickly and good luck to you.