Mortgage foreclosure is one of the more devastating, embarrassing and financially life changing events that can happen to a homeowner. Whether it is the result of a lost job, the effects of COVID-19 or some other reason, people can suddenly or over time lose the ability to pay their mortgage.
If you’re having trouble paying mortgage payments, don’t fall victim to a non-traditional financing option like a second or third mortgage that cause you to lose your home. Speak with your lender first to discuss options. Understand the law in your local area as it may protect you from foreclosure.
This article will discuss mistakes to avoid when you have trouble paying mortgage payments and need an alternative.
Know Your Rights As A Mortgage Holder
Check your mortgage carefully to see what options are available in terms of prepayments, paying lump sums without penalty, deferring payments, skipping payments and things of that nature. Even if they weren’t mentioned or explained to you at signing, there might be options for you to take advantage of, that offer a temporary solution or that enable you to stretch things out a bit while you figure out your next move.
If you have the ability to make a lump sum payment that won’t financially hamstring you in the near future as you get back on your feet, you may be able to prove to a lender that you have the ability to pay consistently. This may enable you to request some help from them in terms of getting flexibility for future payments.
One mistake mortgagors make is not actually knowing all the tools they have available to them in their mortgage.
Learn How Foreclosure Works
If you are facing the possibility of foreclosure or are already there, learn and understand the process and how it works in your local area. Foreclosure can be a financially crushing and also an embarrassing blow. Many people give up and assume that the process that they face is unavoidable. In order to save face and avoid further embarrassment, they just go along with the process and let it happen.
You may have a number of methods to fight foreclosure or at least delay it while you sort things out and perhaps find a another option. Some ways you can fight foreclosure include:
Reinstate the loan: Speak with your existing lender and explain your situation. Ask if they will work with you. In times of many foreclosures, your bank might be more willing to work with you if you can start paying reduced amounts to start with, pay off a lump sum, or negotiate another option that works for both parties.
Refinance: If you are not underwater, you might be able to refinance the terms of your mortgage. Being underwater means your home is currently worth less than the remainder on the mortgage. If you have a variable loan you may lock it in to a fixed rate when rates are low to avoid a rise in payments in the future when interest rates rise.
Sell your home: In this scenario, you have equity built up in your home. If your lender agrees, you may consider selling your home and getting out of the mortgage completely if the market conditions merit this option.
Short sale: In this scenario, you don’t have much or any equity built up in your home and would need to get the approval of your lender. They would agree to take less money back in order to get as much of their money back as possible.
Modify your loan: Your lender might be open to extending the length of your loan, lowering the interest rate or otherwise helping you reduce mortgage payments to help you better service the loan.
Don’t make the mistake of not approaching your lender personally on the phone or in person to discuss your options. They are a financial institution and are in business to make money but if they can help themselves by helping you, you may be able to benefit.
Deferral of Mortgage Payments
In 2020, many jurisdictions around the world brought in many temporary measures to help people stay in their residence due to the global effects of COVID-19. Some halted or delayed eviction of tenants, other brought in rent control and rent price freezes for 2020 and 2021. Lending institutions – fearing a tsunami of foreclosures similar to the 2008 time period in the US – offered deferral of mortgage payments for up to 6 months.
Banks may also offer Forbearance which is another term for suspending mortgage payments for a period of time. Check your mortgage documents to see if you already have access to this option. Short of that, enquire with your bank to see if it’s a possibility while you get yourself back on your feet.
Don’t make the mistake of believing that deferral is anything more than what it is: Simply delaying payment of the money you owe, with more interest tacked on top. But it could help a short term situation where you need a short amount of time to get back on your feet.
Note: This is a deferral of payments, not a cancellation. The problem is at the end of the 6 months, interest has accrued and you still owe the same principal but the interest has increased while you weren’t paying the mortgage. Effectively this deferral just delays the inevitable for many people who after 6 months still can’t pay their mortgage which leads to the next problem area, Foreclosure Fraud.
Foreclosure Fraud And Second And Third Mortgages
This is where unscrupulous lenders come in and try to offer you a rope to dig yourself out of in the form of non-traditional mortgages where they often lower the barrier to get the loan and increase the interest rate to prey on your desperation.
In some cases, the new mortgage is structured in a way where the lender has their name on the title and they come up with a reason to foreclose on the mortgage perhaps in the small print and then force the homeowner to sell their home to repay the loan. Or the lender takes possession of the home themselves.
Don’t make the mistake of being so desperate that you make things worse by signing a new loan with a shady lender who is out to take advantage of your situation.
Other Options
The department of Housing and Urban Development (HUD) as well as charities such as Salvation Army, The United Way and Catholic Charities among others often offer financial assistance for people having difficulties with their mortgage payments.
You may also find local Emergency Mortgage Assistance Programs available to help you.