The possibility of losing your home for not being able to meet your mortgage payments can be frightening. Perhaps you are one of the many consumers who took a mortgage with a fixed rate applicable during the first two or three years and who later began to apply an adjustable rate. Or maybe you are anticipating an interest rate adjustment and want to know how much the amount of your monthly installments will be and whether or not you will be able to pay the fees. Or you may also be having trouble covering your expenses due to a financial crisis unrelated to your mortgage.
Whatever the reason your mortgage is causing you anxiety, the Federal Trade Commission (FTC ), the national consumer protection agency, wants you to know what you can do to save your home. and how to recognize and avoid foreclosure scams .
Know your mortgage
Do you know what type of mortgage you have? Do you know if your fees will increase? If these questions can not be answered by reading the documents you received at the closing when you purchased the property, contact the mortgage servicer and ask any questions you consider necessary. The administrator of your mortgage is the loan entity charged with collecting the monthly payments and responsible for crediting your account.
Here are some examples of the most common types of mortgages:
- Hybrid Adjustable Rate Mortgages (ARMs ): This is a mortgage that is canceled through the payment of fixed fees during the first years and then becomes a variable rate loan. Some of these combined mortgages have names such as ARM 2/28 or 3/27: the first number corresponds to the number of years during which a fixed rate will be applied and the second number refers to the number of years during which will apply an adjustable rate. Another type of combined adjustable rate mortgages are those known as ARM 5/1 or 3/1: the first number corresponds to the number of years during which a fixed rate will be applied and the second number refers to the frequency of the changes or rate adjustments. For example, in a combined adjustable rate mortgage ( hybrid ) or ARM 3/1 a fixed interest rate will be applied for three years and thereafter the rate will be adjusted every year.
- Adjustable Rate Mortgages (ARMs ): This is a mortgage to which an adjustable interest rate is applied from the beginning, which means that the amounts of your monthly payments will change over time.
- Fixed Rate Mortgage : This is a mortgage to which a fixed rate is applied during the entire duration of the loan; the only change that could affect the amount of your payments would result from changes in the amounts for taxes and insurance in the event that you have established an escrow account with the loan entity.
If you have a mortgage with a combined adjustable rate or a variable or adjustable rate and the amounts of your monthly payments are going to increase – and you have trouble coping with higher payments – find out if you can do a refinance by taking a loan with a fixed rate. First, check your contract to see if you’ll be fined for clearing the mortgage before term. Many ARM mortgages set penalties for paying the amount before the established term. In this case if you decide to refinance during the first years of the mortgage you will have to pay thousands of dollars in penalties. If you are planning to sell your home shortly after you begin to adjust the interest rate, it may not be convenient to refinance. But if you intend to stay in your home for a long period, it might be best to switch to a mortgage with a fixed rate. On the Internet you can find calculation tools that will help you determine the costs and amounts of your payments.
If you fell behind with your payments
If you are having trouble paying your monthly payments, contact your loan administrator as soon as possible to discuss your options. Most of these entities are willing to try to find solutions with clients who act in good faith and communicate as soon as they have problems. The longer it takes to communicate with your loan administrator, the fewer options you will have. If you have three or four monthly installments without paying your loan you will default ( default ), and most lenders will no longer accept a partial payment of the past due debt. At this point, unless you appear with the money necessary to cover all unpaid payments and the applicable charges for the delay, the loan entity will initiate the foreclosure procedure.
How to avoid getting into default and foreclosure
If you have fallen behind with your mortgage payments, consider discussing the following options to prevent foreclosure with your loan servicer:
Mortgage Reinstatement: This option allows you to pay the entire amount of the unpaid arrears, plus any applicable charges or fines for the late payment, to a specific date agreed between you and your loan administrator. This option may be appropriate if your arrears on the mortgage payments are due to a temporary problem.
Repayment plan: In this option, the administrator of your loan grants you a fixed period of time to repay the amount due by adding a part of the amount due to the amount of your regular monthly payments. This option could be appropriate if you only failed to pay a few monthly installments.
Tolerance for breach of payment ( forbearance ): This option reduces the amount of your monthly payments or are suspended for a period of time agreed between the administrator of your loan and you. At the end of that period, you resume your regular payment program and also assume the payment of a larger amount or commit to make additional partial payments for a certain number of months to get up to date with your loan. Tolerance for nonpayment of payment may be an appropriate option if your income is temporarily reduced, (for example, if you took a disability work license but plan to resume your full-time job in the short term). Tolerance for nonpayment of payment is not an option that can help you if you live in a house that is out of your budget.
Loan Modification : In this option you establish an agreement with your loan administrator to permanently change one or more terms of your mortgage contract so that you can face the monthly payments more easily. Modifications may include lowering the interest rate, extending the term of the loan, or adding the amount of unpaid monthly payments to the total loan. A modification of your mortgage may be necessary if you are going through a reduction in your income that you expect to last long term.
Before consulting tolerance options for default or a loan modification, be prepared to show that you are making a good faith effort to pay off your mortgage. For example, if you can show that you have reduced other expenses, your loan administrator is more likely to be willing to negotiate.
Sale of your home: Depending on the conditions of the real estate market in your area, the sale of your home may be able to provide the necessary funds to pay off all of your mortgage debt.
Bankruptcy : Generally, bankruptcy or personal bankruptcy is considered the option of last resort because it has a high negative impact in the long term. Bankruptcy remains recorded on your credit report for a period of 10 years, which can make it difficult for you to get credit, buy another house, get life insurance or, sometimes, get a job. However, bankruptcy is a legal procedure that can offer the possibility of starting again those people who can not meet the payment of their debts.
If you can not agree with the lender that manages your mortgage to resolve your problem through a repayment plan or other solution, you may want to investigate if you can file your bankruptcy filing under the terms set forth in Chapter 13 of the Bankruptcy Law. In case you have stable income, Chapter 13 may allow you to keep your assets, such as a mortgaged house or a car, that is, assets that you might otherwise lose. In a Chapter 13 bankruptcy, the court approves a debt repayment plan that allows you to use your future income to pay off your debts over a period of three to five years instead of losing ownership of your debts. goods. After you have fulfilled all the payments stipulated in the plan, you will receive a discharge of some debts.
For more detailed information on Chapter 13, visit the US Office of the Receivership Program website. (in English); This organization is part of the US Department of Justice, and oversees bankruptcy cases and its liquidators.
If you have contracted a mortgage with the Federal Housing Administration (in English) or through the Veterans Administration (in English), you may have other alternatives to avoid foreclosure on your home. To discuss your options, check the websites.
How to establish contact with your loan administrator
Before you start any kind of conversation about your problem with the representative of the loan entity that manages your mortgage, prepare yourself. Record your income and expenses and calculate the net value of your mortgage amortization or accumulation. To calculate the amount of the accumulated net value, calculate the market price and subtract the balance of your first mortgage, and if you had a second mortgage or a loan on the mortgage accumulation, also subtract that balance. Then write down the answers to the following questions:
- For what reasons did you default on your mortgage (s) payment (s)? Do you have a document that shows the reasons for your arrears? How did you try to solve this problem?
- Is your problem temporary, long-term or permanent? What are the changes that you foresee for your situation in both the short and the long term? What are the other financial issues that could be preventing you from catching up on your mortgage payments and continuing to make payments?
- What would you like to happen? Do you want to keep the house? What type of payment agreement would be the most feasible for you?
Throughout the foreclosure prevention process, do the following:
- Write down all the communications you have with the representative of the mortgage company, including the dates and times of the conversations, the type of contact (personal, by phone, e-mail, fax or postal mail), the name of the representative of the institution of loan and the results of communications.
- Follow up in writing all the conversations that you have with the representative of the entity that administers your loan by sending you a letter with the detail of the verbal treatment. Send your letter by certified mail “with receipt of receipt” (“return receipt requested”) to have proof of receipt of your correspondence. Keep a copy of your letter and the attached documents.
- Comply with all the terms granted by the entity that administers your loan.
- Stay at home during the prevention process because if you move, you may not be able to benefit from certain types of assistance. If you rent your home, it will no longer be your primary residence and will become an investment property. Most likely, this situation will prevent you from availing yourself of the benefits of any other type of additional assistance that your loan administrator may provide to try to solve your problems. If you choose this path, make sure that the amount of rent received for the rent is considerable enough to help you obtain a loan and meet the payments.
Consider giving up your home without facing foreclosure
Not all situations can be resolved through the foreclosure prevention programs established by the loan entity that administers your mortgage. If you are unable to keep your home, or if you do not want to keep it, consider the following options:
Selling your home: If you put your home for sale or have a pending sales contract, your loan administrator may postpone the foreclosure procedure. This method can work if the amount obtained from the sale of the property is enough to pay the entire balance of the loan plus expenses related to the sale of the house (such as the commission of your real estate agent). Selling your home in these conditions would also allow you to avoid paying late fees and legal costs; In this way, you could also avoid damaging your credit rating and allow you to protect the net worth of the depreciation or mortgage accumulation on your property .
Sale at a loss or discount: It is possible that before starting the foreclosure procedure, the loan entity that manages your mortgage allows you to sell your home on your own and agrees to forgive the difference between the sale price and the balance of the mortgage. your mortgage Through this option, you can prevent a foreclosure on your credit report from damaging your credit rating. It may be that you have to take care of the payment of taxes levied on the amount of your debt forgiven. For more information, consider consulting with a financial advisor, accountant or attorney.
Deed in lieu of foreclosure: In this option, you voluntarily transfer your deed of title to the loan entity that manages your mortgage (with the prior agreement of the entity) in exchange for the cancellation of the balance of your debt. Even if you lose your home, the option to deed your property in the mortgage lender’s name instead of being executed may be less detrimental to your credit rating. You will lose the amount of what you have capitalized as amortization of the mortgage on your property, and you may have to pay the taxes levied on the forgiven amount of your debt. It may be that the deed-in-lieu of foreclosure option is not an option in your case if you have some other loan or financial commitment secured by your property.
Housing and credit counseling
You do not have to go through the foreclosure prevention process alone. A counselor who works in a housing counseling agency can assess your situation, answer your questions, examine your options, prioritize your debts and help you prepare for discussions with the lender. In general, these counseling services are free or low cost.
Although some agencies limit their counseling services only to those homeowners who have mortgages contracted with the FHA, there are many other agencies that offer free help to any homeowner who is having trouble meeting their mortgage payments. Call the local office of the US Department of Housing and Urban Development. , or contact the appropriate authority in your state, city or county to help you find an advisory agency on legitimate housing issues close to your home. Or, consider contacting the NeighborWorks® Center for Foreclosure Solutions organization at 888-995-HOPE or www.nw.org . This organization is an initiative of NeighborWorks America.
Stay alert to scams
The scammers are attentive to news headlines and are well aware that there are homeowners who are behind on their mortgage payments or who are at risk of losing the home due to foreclosure. These opportunists have arguments that can give you the impression of being what you needed to get out of the well, but your intentions are not honest at all. The only thing that interests them is to get their money. Predatory scams that have been reported include the following:
- The Foreclosure Prevention Specialist: In truth, the “specialist” is just a fake advisor who charges outrageous charges in exchange for making a few phone calls or completing some forms that any owner could do on their own. None of the actions of this “specialist” will prevent you from saving your home from foreclosure. This scam offers false hope to homeowners who are at risk of foreclosure, delays in resorting to qualified assistance and exposes the financial information of the victims by putting them in the hands of a scammer.
- Rental scheme / repurchase: In this scheme, scammers cheat homeowners by having them sign the deeds of their homes in the name of an opportunistic fraudster who tells them that they can stay in their homes as tenants and buy back the property with the over time. Usually, the terms and conditions of this scheme are so demanding that buying the house again becomes an impossible mission, and then what happens is that the owner is evicted and the “rescuer” leaves without notice with the greatest part or all of the net worth of the mortgage accumulation.
- “Jackhair” or bait-and-switch : The trick of this scam is to make an owner believe that he is signing documents to catch up on his mortgage. But in reality, what you are signing is a deed by giving up your house. Generally, these owners do not know they have been scammed until they receive a notice of eviction.