Written by Benny L. Kass
None of us can appreciate — nor anticipate — the future. Although we always believe it will never happen to us, once in a while, calamity strikes, and then we have to address these very hard and difficult questions.
You own a house, with a sizable mortgage. Suddenly, you (or your spouse) lost their job, and you cannot make the monthly mortgage payments.
Here are some of the options which are available to you.
1. Temporary indulgence. Here, the lender, at your request, may grant you a short period of time — usually not more than three months — in order to cure any delinquency. However, this is merely temporary relief, and by the end of that short period of time, the borrower must be completely current.
2. Repayment plan. Here, the borrower is given a fixed period of time — usually not to exceed one year — in which to bring the mortgage current by immediately making and continuing to make payments in excess of the monthly mortgage payment. It is important to get this repayment plan reduced to a written document, signed by both the lender and the borrower.
3. Special forbearance relief agreement. Here, the regular monthly mortgage payments are suspended or reduced for a period of up to eighteen months from the due date of the first unpaid monthly installment. At the conclusion of this relief period, the regular payments must be resumed; additionally, a comprehensive plan must be agreed upon for the repayment of the amount that has been suspended.
In this case, the lender will make a determination that the default is curable, and based on the current financial and appraisal data, the lender must be satisfied there is a likelihood that the borrower will be able to comply with the repayment plan. Clearly, the burden will be on you to document and justify the plan, so as to satisfy the lender’s requirements.
If you are in the military, the Soldier’s and Sailor’s Relief Act provides various forms of relief, but you should check with your military or civilian lawyer to determine your eligibility under that Act.
5. Deed in lieu of foreclosure. This is another remedy that may be available to you. Under this arrangement, you deed your property to the lender (or to whomever the lender designates) and this is in lieu of (instead of) foreclosure proceedings. This arrangement is an acceptable and customary procedure when, for example, the borrower is deceased and the estate is willing and able to transfer the property, or the borrower has filed Chapter 7 bankruptcy, and the trustee has abandoned interest in the property.
6. Foreclosure. Here, the lender will sell your property at auction (or in some states at the Courthouse), and you will lose your home and your credit rating (whatever is left of it. Legitimate lenders do not want to foreclose. and they will reluctantly start the process if all else has failed.
7. Bankruptcy. Your final option, of course — which should be used only as a last resort — is for you to file bankruptcy. When someone files for bankruptcy, there are many protections that automatically apply from the day the bankruptcy petition is filed with the Bankruptcy Court. The most important protection under the bankruptcy law is known as “the automatic stay.” If you are in bankruptcy, no legal action can be taken against your house unless the lender requests the Court for permission to “lift the stay.”
You cannot ignore your financial problem, hoping you will win the lottery or find some other immediate source of funds. The level of your cooperation is the most significant aspect that will determine how willing the lender is to similarly cooperate.