Shopping for Your Home

Friday, January 9, 2009

I can’t pay my mortgage, what do I do?

If you are stuck, like many of our financially stressed homeowners here in the country of the land and the free ? (thank you Bush administration), a big question to ask is what do I do when I can’t make my mortgage. The best advice I can give is TALK TO YOUR LENDER! Many of them are willing to renegotiate your loan; it’s called a MOD (modification loan agreement). There are several ways they do this:

RATE REDUCTION MODIFICATION – permanently reduce your interest rate, lowering the monthly payment

CAPITALIZATION – adding the delinquent payments into your remaining balance and updating the payment due date and perhaps recasting your payment amount.

TERM EXTENSION – extending the amount of time you have to repay their loan to achieve a reduced monthly payment. Term extensions are often used together with an interest rate reduction or a capitalization modification.

ONE TIME ASSUMPTION – “arms length” transaction, providing there is no pre-existing relationship between you and the individual assuming your loan.

LOAN TYPE CONVERSION – converting arm loan to a fixed in order to lower your payments.

Now if you are not in a position to qualify for any of these MODS, you may have to face the fact and relocate. This is where many homeowners freeze and give up; this is where you need to start thinking about your credit.

Short Sale or Foreclosure?

Well short sale is the way to go without a doubt. Yes, it will still affect your credit, however not as much as an all out foreclosure.

Here are the facts:

Of all available options, foreclosure is the worst
The inevitable result of a foreclosure is the lender taking your house. Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus his costs for the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. It should be avoided at all costs.
Consider a short sale when foreclosure seems inevitable
A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.
Short sale has disadvantages too
While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that went into effect on January 1st, 2008. The new act essentially eliminates this problem.
Almost any option is better than foreclosure
Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider that short sale and check with your lender before your options become more limited.
The One Best Tip I Can Give You: Don’t Do This Alone
You need an experienced real estate agent to help you and that is yours truly. Fortunately, at Prudential, I have a very experienced short sale team that can negotiate with your lender and help get your home sold! So don't hesitate to call ASAP! Time is of the essence when preparing a short sale so please act NOW!

Cal me at 562-331-7396 or e-mail me at

See you around the neighborhood!