When there is a loss of employment, business failing, lack of adequate income, salary cuts, divorce or death, one must choose how to handle their mortgage obligations.
First thing you should do, by all means, is to communicate with your lender and let them know your current situation.
Lack of dialogue is a red flag to the bank and this is where you make a possible fixable situation, into a potential nightmare.
More important, your credit will potentially be downgraded.
So always call, and try to speak with the same person each time.
Ask them their name and extension and if possible, their employee I.D. number.
Keep a connection to that person, since they are human and here about these circumstances everyday and many times will work with you to solve or minimize your problem of not being able to pay on time.
The first line of action, if this will help you, will be to modify your interest rate.
The bank will ask for all your documentation, tax returns, all your debts, bank and brokerage accounts, (wherever you have assets) showing that your income has been affected and that you need a reduction or at least some type of work out so you can continue to inhabit your home (see list below).
Do not hide income but be up front with your lender. They will look at the big picture and if you qualify, I have seen rates as low as 2 percent for a six-year period.
They may add the accrued interest to the back end of your new modified loan; but you can try to negotiate and see if they will forgive a certain amount of that interest that you haven’t paid.
The next possibility will be a short sale (your mortgage is larger than the actual value of your home) and the bank will forgive the difference between the sale price and your total mortgage and release the mortgage lien on the property once it closes.
A federal law was recently extended, where the homeowner, doesn’t have to pick up that difference as income on their tax return.
This type of sale would have to be approved and sanctioned by the bank, (you the seller, would have to fill out a “loss mitigation application” with the bank, before you could proceed.
They will also ask for the same information as if you were modifying your current mortgage, to make sure that you qualify. The following is a more precise list of items they will expect to approve your short sale:
1. A financial statement, in the form of a questionnaire, that provides explicit and detailed information, of your monthly income and expenses.
2. Proof of you total income (if applicable).
3. Most recent tax returns.
4. Two recent bank statements from all of your accounts, including brokerage accounts
5. A hardship letter, explaining in detail your current situation and why you need to receive an approved short sale
6. An offer must be in writing from a perspective purchaser, before the bank will approve the short sale. However, in many states, the lending institution can enact a deficiency judgment to collect the amount of money not paid back by the short sale.
7. One exception to the previous rule is the government’s Home Affordable Foreclosure Alternatives Program program, whereby the bank approves the short sale before a bonfire offer is presented and accepted, which, in this specific situation, then fully releases the seller from any obligations going forward, from the short payoff in satisfaction of the mortgage.
Therefore, a deficiency judgment cannot be presented for the amount forgiven by the bank.
If you cannot sell your property in a short sale, then a Deed-in-lieu of Foreclosure might be another possible way to satisfy ones mortgage obligation (a broker would have to show proof on a listing agreement that they tried to sell the home for at least 90 days).
Before, the banks would allow you to sign over your deed to them.
Also, an estoppels affidavit will be presented to the seller, that they are accepting the fact that they are knowingly signing over their deed back to the bank without duress or coercion.
However, if you don’t have a clause in the affidavit agreement that fully releases you from the difference between the fair market value and your mortgage obligation, they can submit a deficiency judgment to collect the difference.
Some states like California, Nevada and Oregon, by law, prevent the lender from initiating a deficiency judgment.
So you must be diligent in making sure your attorney or whomever is representing you, includes that clause fully releasing you and that the debt will be fully satisfied with no further collection consequences going forward.
In the past for those that have just walked away from their homes, because their mortgages were under water (value was or is less than the mortgage obligation) and could have continued to pay the mortgages. will have the greatest consequences from the banks in the long run. The banks can and in many cases will go after your assets, lien/garnish your salary, wages etc.
Again, the best way to handle that situation, is not to walk away, but work something out with your bank.
The following link, will provide some added info: http://www.nolo.com/legal-encyclopedia/deed-lieu-vs-short-sale.html
According to Realtytrac.com, which analyzes statistics on foreclosures throughout the U.S.,has housing inventory, foreclosure and year to date sales information.
Homes whose values are less than their market value is approximately 7,443,580 down 1,630,869 vs June 2014. Foreclosure inventory is 788,570 units down 322,807 vs. June 2014. Year to Date Sales Volume is 1,0589,393 up 91,901 vs May 2014. Lastly, building permits are 54,300 up 12,000 vs June 2014.
Next week’s article will be concerning the robo signing of Mortgages and why New York State leads the country in foreclosures lasting for up to 6 years!
Philip A. Raices is the owner of Turn Key Real Estate in Great Neck. He can be reached by mail: [email protected] on by phone at (516) 647-4289.