What do I do if I am Behind on My Mortgage?

It’s very rare that anyone actually plans to fall behind on their mortgage. Home buyers typically purchase homes that are priced within their means to make their mortgage payments every month on time. Financial situations can change however, and recent economic events have hit many homeowners in their pocketbooks; whether by an increased cost of living, or the loss of one or both family incomes. In many cases though, these setbacks are temporary as economic conditions for individuals may improve over time. But what happens in between a homeowner’s economic downturn and their recovery to the point where they can afford to make their regular payments again? What happens if the bank files a Notice of Default against the homeowner’s property because they are behind on their payments?

First and foremost, if you have found yourself in a situation where you are falling behind on your mortgage, it is strongly recommended you contact your lender to notify them of your situation. If you are only temporarily behind, or find yourself having to make your payment after the due date, let them know when you believe you will be able to make your payment. Open communication with your lender is important not only because it is the right thing to do, but maintaining a record of communication may help you down the road. You should also make sure you keep track of the date and time you called, and the name of the representative you spoke to when you contacted your mortgage company. Do this EVERY TIME you make contact with them. 
If you have equity in your home, you might want to consider a loan refinance to see if you are eligible to lower your monthly payment. You will still need to qualify for a refinanced loan just as you would if you were obtaining a new loan so it is best to do this before you find yourself falling behind on your payment. Keeping open communications with your lender will help to establish a good working relationship should refinance be an option for you.
If you are finding it more and more difficult to make your monthly mortgage payments due to a change in your financial situation (IE: Job loss, divorce, etc.), you might try obtaining a loan modification with your lender. A loan modification is when the lender modifies your current mortgage in order to work with you and make your mortgage more affordable. The lender may do this in a variety of ways, some of which are:

• Interest rate reduction:
  Your lender agrees to lower the interest rate on your loan to a fixed rate, resulting in a lower mortgage payment. This is especially helpful to the homeowner whose original loan contained a variable rate. 
• Principal reduction:
  Your lender agrees to lower the total amount of your loan. For example:
  Your original loan balance is $400,000.
  Lender agrees to lower balance to $300,000. 
  Result: Lower mortgage payment.
• Extended amortization period:
  With few exceptions, most mortgages are set up so that your monthly payments will pay off the home loan in 30 years. An extended amortization period can help to reduce your loan payments by allowing you a longer period of time to pay off the mortgage. 

Loan modifications are only available to homeowners who can demonstrate to their lender a need for modification. In other words, you have to show that financial hardship has hampered your ability to continue to make your current loan payments. You will also need to prove financially that you will be able to make your loan payments on time once it is modified. Some examples of financial hardship are:

• Divorce or Marital Separation
• Business Failure
• Loss of job or reduced income
• Medical Emergency
• Damage to property or victim of natural disaster
• Job relocation
• Incarceration
• Illness
• Victim of crime or identity theft resulting in loss of income
• Military Duty
• Adjustable Rate Mortgage recast resulting in increased mortgage payments

Loan modifications are not intended for homeowners who are well within their means to make their current mortgage payments on time and simply wish to lower their payment to increase their cash flow. If you fall into this category you may want to contact your lender regarding refinancing your current loan, especially if you have equity in the value of your home.
Should you find yourself in the position where you are unable to take advantage of a loan modification, you are not eligible for a loan refinance, and you have received a Notice of Default from your lender, you can still avoid foreclosure through a short sale. A short sale is a lot like a regular real estate sale except that:

• It must be approved by your lender
• You must list your home with a licensed, qualified real estate agent
• You must list your home at fair market value (FMV)
• You pay NO FEES typically associated with a real estate sale including realtor commissions, escrow and title fees, and more. Consult your realtor for details.

A short sale gives homeowners the opportunity to avoid foreclosure and make a fresh start. 

If you are behind on your mortgage payments or have received a Notice of Default, contact us for a free, no obligation consultation regarding your rights as a homeowner and how we can help you avoid foreclosure. Don’t delay as once your Notice of Default has been posted, time is of the essence.