Everyone who buys a home expects to be able to make their mortgage payments. Unfortunately, there are numerous hardships and problems in one’s life that may cause you to fall behind in making your mortgage payments. A death in the family, the loss of a job, a divorce, a disability or medical problem are just a few of the hardships that can occur that can cause you to fall behind on your mortgage payments.
Foreclosure is the start of proceedings to take back a home for non-payment of the mortgage. There are a number of strategies that can be utilized by a homeowner to avoid having their home being foreclosed.
Loan Forbearance Agreement
A loan forbearance agreement is a temporary arrangement between the homeowner and the bank. The purpose of the forbearance agreement is to give the homeowner a reasonable period of time to catch up on his or her mortgage payments. This gives the homeowner time to catch his or her breath! If the homeowner makes the agreements under the forbearance agreement they can become up to date on their mortgage.
Loan Modifications
The Home Affordable Mortgage Program (HAMP) was created by President Obama during his first administration. It still remains in effect in his current second term as President of the United States. This is a federal program that virtually all financial institutions are part of. The benefit of this program is it gives the homeowners who have fallen behind on their mortgage a chance to reduce their mortgage payments. The unfortunate part of the program is that it is an extremely poorly managed program by the individual banks and only approximately 1 in 5 people who apply for mortgage modifications are successful in obtaining them. In addition to President Obama’s mortgage modification program, many banks have their own internal mortgage modification programs. In theory, mortgage modification programs take into consideration the home’s current value, interest rates and the ability of the homeowner to make payments under this program.
Negotiated Short Sale
A negotiated short sale is a transaction where the homeowner contacts the bank and advises the bank they would like to sell the house which is currently under water (currently worth less than the amount of the mortgage). The bank, in a short sale, appraises the house and in the appropriate situation agrees that the house can be sold for less than the amount of the mortgage and the bank will satisfy the mortgage for less than they are owed. The writer of this article is not a big proponent of short sales. Short sales should only be undertaken at the end of the foreclosure process to avoid a deficiency judgement.
Bankruptcy
In the event you file a bankruptcy, you obtain a stay from a Federal Court that prevents a lender from moving forward with a foreclosure lawsuit in a New York State Court. In a Chapter 13 bankruptcy you enter into a plan to become current with your mortgage over a period of up to 5 years. In a Chapter 7 bankruptcy you eliminate the personal loan obligation portion of your debt. Therefore if the bank forecloses on your home, all they are entitled to receive is what they obtain from the sale of the house. They will not be able to obtain a deficiency judgment against you.
