Options if You're Struggling with House Payments

Because Michigan has the highest unemployment in the U.S., we also face the most challenges with our mortgage payemnts.

Too many people wait until the last minute to address this issue, leaving them few if any options.

Let's look logically at a situation where someone's having trouble making payments.  I'll assume a budget has already been created and unnecessary expenses already cut (does someone really need HBO on their TV?).  The issue is making the mortgage payment.

So, what's left?  Here's a possible timeline meant to maximize options and at worse, maximize the time in a home:

1.  COMMUNICATATION - contact the lender ASAP.  If they know there's a struggle they may have options they can offer.  At worse, have them put notes in your file.  From here on out, log every call you make with date, time & who you spoke to.  Get their last name, employee ID number or phone extension.  You may need to prove your efforts to a superior at some point and you can't count on CSR to log all calls.

2.  SKIP A PAYMENT - many lenders have the ability to allow a borrower to skip a payment or two and tack it on to the end of the mortgage.  This is a short-term solution though and may just delay the inevitable.

3.  LOAN MODIFICATIONS - Communicate with the lender to discuss options.  While some are still being idiots, many are starting to offer loan modification or loan workouts.  BE CAREFUL!  I just spoke to a client who called his bank who told him he didn't qualify for a loan modification because he had too much debt.  He asked if he got rid of a car payment would it help.  Lender said sure.  He borrowed money from his parents to pay the car off, called the lender up for the loan mod and they told him he now could afford to make his house payment and turned him down!  I highly recommend hiring an expert to help you with a loan mod to avoid situations like this.  It'll cost you less than losing your home!

4.  PUT THE PROPERTY UP FOR SALE - the intent here isn't really to sell your property, it's to show the lender(s) you've tried everything and you owe more than the property is worth.  This has to be done by a Realtor so the property gets into the MLS.  Lenders have access to this system and will check it to verify your claims.  UNDERSTAND any Realtor listing a property that won't sell is doing you a FAVOR!  It's really not worth their time, so don't demand anything of them.  I would actually recommend offering to pay them something as they are really going to be working for free otherwise.  They too, are suffering in this economy.

5.  SHORT SALE - a short sale is selling your property and the lender agrreing to take less than what's owed at the closing.  You don't need the lender's permission to list the property for sale for less than what's owed (contrary to an article in the Free Press on Sunday 10/05/08!), but they do have to agree to the lower payoff at the closing.  They will also require a sales contract from a buyer.  So, a systematic, nonemotional reduction of asking price until an offer is received is required.  Here again, get professional help!  They are not easy to get approved.  The lender's departments that handle short sales are overworked and understaffed.  Unless you have nothing but time on your hands, your better off letting a pro handle this.  They may ask for a reasonable upfront fee to make sure your serious, but the majority of their fee will be paid at the closing from the lender proceeds.  I highly recommend asking for proof of previous successes!  Many desparate people are getting into the short sale market to try to make a quick buck.  They're inexperience could cost you.

Short Sale versus Foreclosure - I get asked this question a lot, why go through the big hassle of a short sale and have to move, when it's easier to let the propert go to foreclosure and get to live there for free for 9 months?  It's up to you and how much you care about your credit versus your financial need.  Short sales can be accomplished with minimul impact to credit records.  Foreclosures make it unlikely you'll get another mortgage for 3 years minimum and stay on your credit for 7 years.  If you don't have a job & have no place to go, foreclosure may be the overall better option.  This is something you may need to discuss with a professional who can effectively help you analyze all the variables of your situation & the repurcussions, so you can make the best decision for you!

6.  DEED-IN-LIEU OF FORECLOSURE - this is where you agree to deed your property back to the lender to avoid them foreclosing on the property.  Not many lenders will currently accept this option as they have too many foreclosures to deal with already.  Doesn't hurt to ask, but you will have to move immediately.

7.  FORECLOSURE - once someone falls 60 days behind on a mortgage, the lender is allowed to start foreclosure proceedings.  Many think the period is 90 days, but the 90 days actually includes the 30 day notice of Sheriff's Sale that goes out at the 60 day mark.  After the Sheriff's Sale, Michigan law allows a 6 month redemption period where the property owner is allowed to remain in the property and try to come up with the funds to pay their mortgage off.  At the end of the 6 months, the lender becomes the property owner and has to evict any occupants who are now basically considered tenants.

REALITY - at a minimum, someone can live in their property for 9 months without making a mortgage payment.  There are many "hired guns" representing lenders that may imply, even threaten, otherwise, but that is the law unless you abandon the property.  Acreage also plays a factor, but I won't get into that here.  Because the system is so overwhelmed with the number of foreclosures, I personally know people that have stayed more than 12 months.  I currently know someone who hasn't made a payment in 6 months and still hasn't been served a notice of foreclosure.  Also, you can still negotiate for a Short Sale during the redemption period.  I've seen it happen several times recently.

8.  CHAPTER 13 BANKRUPTCY - Filing Chap 13 allows you time to organize your debts, work out a court approved plan with your creditors and get back on your feet.  Filing Chap 13 also suspends all foreclosure activity PRIOR to the Sheriff's Sale.  It does nothing to save the property after the Sheriff's Sale.  Typically you're given 90 days to "test" the payment plan with your creditors.  If you fail, it is possible to repetition the court for another 90 trial period.  I know of people who have used this to stay in their property longer, before eventually letting it go to foreclosure.  I HIGHLY recommend speaking with a bankruptcy attorney about all this!

MY COMMENTS - it gets pretty depressing at times speaking with past clients & friends about losing their property.  Up until this mortgage meltdown & resulting foreclosure crisis, it was my personal belief that one should do everything they possibly can to settle their debts.  It's the way I was raised.

That perspective has radically changed after watching thousands on Wall Street make billions in bonuses and drive companies like Bear Stearns & Lehman Brothers into bankruptcy.  They "rigged" the system that put so many into this foreclosure mess, strictly out of greed, but yet get to do a walk-away from the mess they created and keep their millions. 

If Wall Street millionaires get to do a walk-away from their mess, why can't the average homeowner do a walk-away from their's?