There are basically four choices for a homeowner who is behind in his mortgage payment.
1. You can get caught up by paying the arrearage. Most mortgage companies want you to do this all at once, but if you can’t afford to come up with that much in cash, you can seek bankruptcy protection (typically a Chapter 13 bankruptcy) to spread the amount you are behind over several years.
2. You can seek, and sometimes receive a mortgage modification. These are pretty hard to get, in spite of the fact that there are federal and state laws to encourage such programs. But the lenders have all sorts of conditions placed on the application process and there is no legal requirement that anyone be granted a modification. Worse, there is no court, judge or administrator to oversee the process.
3. You can do a short sale. This requires the mortgage company to reduce their loan so that you can sell your house to someone for its true value in today’s market.
4. You can walk away and allow the property to be foreclosed.
There are advantages and disadvantages to all of the above, but only 1. and 2. will allow you to keep your home.
Generally if you do want to keep the home, try the mortgage modification program as a first step. If that works realistically (something that actually reduces your payments so you can afford to stay there and doesn’t just delay the inevitable), great. If not, you can try 1. – paying off the arrears.
To pay off the arrears, you either need to have a lump sum of money or to file bankruptcy. I don’t know of any mortgage companies that will allow you to make payments if you’ve gotten behind except under very limited circumstances, and those usually include being completely caught up in 90 days.
By filing a chapter 13 or chapter 11 bankruptcy, you can spread the arrears out over the length of the bankruptcy plan. Thus, a $10,000 arrearage becomes slightly less than $300 a month for 3 years or $166 a month for 5 years. That’s usually a lot more doable than coming up with the $10,000 in cash.
Please see Part 2 for a discussion of what you can do if you are willing to leave the house.
[...] part 1, we discussed what you can do to keep your home. Here, we will look at your choices if you are [...]
Is this serious? How about special forbearance, FNMA’s Home Saver Advance? Repayment plans? FHLMC temporary forbearance? I spend all day signing people up for these programs, and the company I work for does NOT ever do 90 day repayment plans, they have to be at least 6 months, and we service about 3 million loans. You are actually recommending bankruptcy? What happens when the lender files a lift of stay and the property gets foreclosed on anyways? Or when the chapter 13 is completed, and foreclosure proceeds? Lenders are TELLING the employees to offer the HAMP, it nets around $5000 for the company. I just do not understand how it is possible to be manage a website and be so misinformed. You mention 4 different options when there are really many many more.
I didn’t mean my list to annoy anyone. And, you’ll note that I advise trying the modification first, before anything else if the homeowener is trying to keep the house. What do you recommend if the modification doesn’t work, or delays the inevitable. There are lots of different modification programs out there. Some actually do work, some are simply a few months delay and often the homeowners can’t or don’t qualify. I’m glad your company does this. But it won’t work for everybody. Bankruptcy doesn’t always work either, but if you can’t get a modification, as the article says, maybe that’s the next step to trying to save your home.