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With the aftermath of the subprime mortgage market collapse, many homeowners find themselves missing mortgage payments in this sluggish economy. This may result in their homes being foreclosed by the lender.
The basic foreclosure process can begin when your loan payment becomes 16 days past due. At that point, your mortgage lender will try to contact you to work out a repayment schedule to bring your loan current.
If your first payment becomes 30 days past due and the next month’s payment looks doubtful, collection attempts can begin in earnest. If your payments fall 90 days behind, the lender will likely refer your mortgage to an attorney or other entity, which will initiate foreclosure proceedings.
Do not be afraid to talk to your lender. It is in your best interest to do so prior to their filing foreclosure with the court. You should know that lenders do not want to take your home. If your lender is willing to work with you, you might be presented with any of the following options.
Grace period – This gives you a certain period of time to get caught up on your payments.
Payment forgiveness – You are not required to pay any missed payments but are expected to make all future payments on time.
Re-negotiation of contract – This can change payment amounts, payment schedule, etc.
Mortgage modification – Adds the past due payment to your unpaid loan balance. With this option, the interest rate usually will not increase. However, the time it takes to pay off the loan will be longer and the overall amount paid in interest over the life of the loan will be greater.
Partial claim – A partial claim occurs when your lender helps you obtain a one-time payment from the Federal Housing Administration (FHA) Insurance fund that pays for your missed payments. When your lender files a partial claim, HUD (the US Department of Housing and Urban Development) will pay your lender the amount necessary to bring your mortgage current. Thus you will no longer be behind on your mortgage payments. However, the payment provided by HUD is an additional loan and is typically an interest-free
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promissory note, which results in a lien being placed on your property until you have repaid the HUD loan. Keep in mind that under this option you will still need to make your regular mortgage payments while also repaying the HUD loan.
Special forebearance – The lender may temporarily reduce or suspend your regular monthly mortgage payment, or the past due amount could be reduced by increasing your payments over a period of time.
Sell – You opt to sell your home on your own.
Pre-foreclosure or short sale – If the lender agrees, this allows you to sell your home for an amount that is less than your mortgage loan. While this is not an ideal situation, it is better than a foreclosure. However, your lender may agree only on the condition that you sign a promissory note to pay back the difference between their proceeds of the home’s short sale and the amount you owed on the original debt. Any amount that your lender forgives, though, will still be considered taxable income by the Internal Revenue Service.
Deed-in-lieu of foreclosure – In this case you voluntarily “give back” your house to the lender in exchange for your debt. Keep in mind that under this option, you do lose claims or rights to your home, and you will need to vacate the property within the time frame as indicated in the terms of the agreement. But typically, under this kind of agreement, your lender has likely waived rights to collecting your outstanding mortgage debt.
Whatever option your lender offers – It is wise to get it in writing for your legal protection. In any case, do not abandon your home.
Remember, communication between family members is very important during this time. Family members, especially those who are the primary wage earners, may feel overwhelmed, frustrated, anxious, sad, and angry.
Discussing the situation reasonably and coming up with plans together can help a family protect that which is most valuable, its members, from taking out negative feelings on each other. Working together, your family can make it though this difficulty.
Janine Rywak
County Extension Director
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