January 13th, 2008 1:42 PM by Lehel Szucs
If you don't pay your monthly mortgage payments over a period of time, the mortgage company can foreclose. This means you will lose title to your property and may be evicted from your home.
A foreclosure becomes part of your credit report and may adversely affect your ability to obtain credit in the future. To avoid possible foreclosure, it is helpful to have money saved to cover several months of your housing costs in case of an unexpected emergency, like job loss, divorce or separation, serious illness, or the death of a loved one.
What if You Cannot Pay Your Mortgage?
What if You Can No Longer Afford to Keep Your Home?
Beware of Scam Artists
What if You Cannot Pay Your Mortgage?
1. Call your mortgage company now!As soon as you realize that you are unable to make your payments, talk about your circumstances with the mortgage company to which you send your monthly mortgage payment. Your options to retain your home are most effective when you are only one or two payments behind.
Too many people in financial trouble wait until the last minute to call their mortgage company. Some hope their problems will quickly resolve themselves. Others worry the mortgage company will rush to collection or foreclosure. The truth is: the longer you wait, the greater your chance of losing your home. If you are unable to make your mortgage payment, don't delay–call your mortgage company immediately. In a significant number of all foreclosures, the borrowers did not return their mortgage company's calls or written invitations to discuss payment options.
Depending upon your situation, your mortgage company may be able to provide you with temporary financial relief. Here are a number of alternatives to discuss with your mortgage company.
Forbearance is an agreement to temporarily let you pay less than the full amount of your mortgage payment, or pay nothing at all, during the forbearance period. Mortgage companies may consider forbearance when you can show that funds from a bonus, tax refund, or other source will let you bring the mortgage current at a specific time in the future.
A reinstatement occurs when you pay your mortgage company the total amount you are behind, in a lump sum, by a specific date. This is often combined with forbearance.
A repayment plan is an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period you have gradually paid back the amount of your mortgage that was delinquent.
A loan modification is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your note to make the payments more affordable. Common loan modifications include
Adding missed payments to the existing loan balance
Making an adjustable-rate mortgage into a fixed-rate mortgage
Extending the number of years you have to repay
2. Contact A Non-Profit Housing Or Credit Counseling AgencyNon-profit housing and credit counselors can help you analyze your financial situation. They also can help you organize a budget to pay your mortgage and other monthly expenses–without your mortgage company's direct involvement. Finally, these agencies can help you find and take advantage of local services or programs that provide financial, legal, medical or other support.
You can find a credit counseling agency in your local phone book or by contacting the U.S. Department of Housing and Urban Development (HUD) at (800) 569-4287 on weekdays between 9:00 a.m. and 5:00 p.m. Eastern time. You can find a list of HUD-approved agencies on their web site.
What If You Can No Longer Afford to Keep Your Home?
If you cannot or do not want to keep your home, your mortgage company can work with you to avoid foreclosure. This can help reduce the negative effect on your credit reputation. There are several different ways this might occur depending upon your financial circumstances:
An assumption permits a qualified buyer to take over your mortgage debt and pay the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.
If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage, your mortgage company may agree to a short payoff and write off the portion of your mortgage that exceeds the net proceeds from the sale.
Your mortgage company may agree to a deed-in-lieu of foreclosure if you agree to voluntarily transfer title of your property to your mortgage company in exchange for cancellation of your mortgage debt. In most cases, you must attempt to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. This option may be unavailable if there are other liens on your home, such as judgments from other creditors, second mortgages, or tax liens.
Beware of Scam Artists
Predatory lenders often target people in financial distress. They try to panic you into high cost mortgages, making financial problems worse and increasing your risk of losing your home. Predatory lenders usually offer loans with
High interest rates
Unnecessary costs like pre-paid life insurance
Unaffordable repayment terms
Here are some tips to protect you from predatory lenders:
Be suspicious of anyone who offers you "bargain loans," whether they mail, fax or e-mail an offer to you, call you on the phone, or come to your door.
Beware of promises of "No Credit? Bad Credit? No Problem!" and offers that are only "good for a very short time".
Avoid lenders who encourage you to borrow more than you need or more than the value of your home.
Beware of terms that change at the last minute or offer next-day approval based on prepayments or up-front fees.
Do not sign anything you do not understand. It is your right and duty to ask questions.
Beware of phony credit counseling agencies charging high fees for financial counseling services you can get for little or no charge through non-profit agencies. You can find a list of HUD-approved agencies by visiting their web site.
REMEMBER:Anything that sounds too good to be true usually is! If you suspect a predatory mortgage company is targeting you, call your local office of consumer affairs, the Federal Bureau of Investigation, an approved credit counseling agency or your local Don't Borrow Trouble campaign.