Tips for Struggling Homeowners

If you are struggling to pay your mortgage you may want to call the bank who handles your mortgage to see if you can get an interest rate reduction, refinance to lower the payment, etc.  Some banks are really open to working with struggling homeowners who want to keep their home, but having trouble paying the mortgage.  The bank may ask you for your current income and debt information and look at your current situation and where you stand before they make a decision on whether or not they will change/modify your loan. So, be prepared to get your income and debt information together. 

There is no system or guideline to whether or not a bank will modify/change your loan, they go on a case by case basis. Sometimes, if you are current, they will not do anything and tell you that since you are current there is nothing they can do. Sometimes, you are in default and they tell you there is nothing you can do because you are not making your payments. So, there is no hard and fast rule to go by, or guidelines they use to decide whether or not they will change/modify your loan. So, you need to call and talk to the bank directly and discuss your options.

There are also people that help homeowners work with the banks for loan modifications as their career sometimes called financial services. I do know people in this industry if you want to talk to someone who can help you get a the package together and also talk to the lender for you to get your loan modified and work something out for you so that you don't have to spend the endless hours and frustration of talking to the bank yourself.

You may also want to consider renting out a room since rent prices are high or possibly even moving out of your home and living with family/friends and rent out your home to help pay the mortgage until you get back on track.

One option if you see no light at the end of the tunnel and the bank will not modify your loan is to sell your home in a short sale situation. Again, there are no guidelines or specific procedures on determining when a bank will or won't work with you on a short sale. A short sale is when a homeowner owes more in loans than a home is worth in the current market. So, the homeowner asks the bank to take the financial hit on the loan side to avoid a foreclosure.  And, the bank will want the homeowner's documentation of income and debt and they will want to see a formal offer on the homeowner's property to decide whether or not they will agree to a short sale.

Most banks will not even consider a short sale or let a homeowner start the process until the bank sees a formal offer from a buyer to determine if the bank will cooperate or not, which is why short sales can be a lengthy process. Also, if you are planning to sell your home as a short sale, I highly advise you to get professional advice from a tax person. There can be tax consequences for selling a home as a short sale. Also, sometimes the bank will agree to a short sale, but will require the homeowner to still pay back all or a portion of the loan due that is not covered by the sale of the home. So, when a homeowner agrees to a short sale, the homeowner needs to make sure there are no huge future consequences to those actions, whether it be tax related, credit related, or unsecured lien related, or whatever else could be involved.

If a homeowner is behind in property taxes, there is a way to pay back the back due taxes with a payment plan. The tax collector doesn't like this to get out and typically will say that you can't pay part of your taxes and you have to pay them in full. But, you can file for a 5 year plan and pay your taxes in 5 payments.  To do this, you need to call the tax collector, get the balance of your bill, and send a letter for this payment plan with a check for at least 1/5 of the taxes owed. You have 5 years to make 5 payments to pay these taxes off.

Also, for property taxes, if you bought in the heat of the market and the value of your home has gone down, you can have your property re-assessed and pay less property tax based on the lower current value. You need to call the tax assessors office for this option.

For home insurance, if you are having a hard time paying your insurance and it is due, you can call your insurance carrier and ask to pay every quarter or maybe twice a year.  So, rather than paying a whole year worth of insurance, you can cut that payment in 1/2 or 1/4 to get you through the tough times and still stay insured.

Although it may not seem so, banks do not want to own your home and foreclosure is truly the last option for a bank.  It is very costly for a bank to foreclose on a home and they are not in the business to sell homes or carry inventory of homes. The important thing to a struggling homeowner is to take a deep breath and not freak out. The banks will work with you if there is a way to do so.  And, there are poeple out there that help homeowners who need assistance with dealing with the banks for a loan modification. I knew one person that talked to her bank and they agreed to an interest rate reduction that saved her $400 per month. That is just one of many stories, but it does take effort to get back on track, but if you keep your sanity, it can be done.

The bottom line is that if you are a struggling homeowner and think that you can get through it if the bank will work with you to get the payment down, call the bank or talk to someone that will do the negotiating for you (if you need a referral for who to call, contact me).  If you don't see the light and don't think you can get back on track due to a job loss or it is just too overwhelming, you can try the short sale route and hope that the bank will work with you to sell the home with possibly less consequences (possibly not) than a foreclosure.  And, of course, foreclosure is the last possible option if there is no real option.

You do need to understand that both the short sale option and foreclosure option do have major consequences regarding credit, taxes, etc.  So, make sure to talk to a tax person before you make any major decisions on going forward in this direction so that you know what the consequences will be to your actions for future planning. I also highly advise talking to a professional financial service person that helps with loan modifications/short sale/etc. so that person can further assist you in knowing the future consequences to your actions so that you can make the best possible decision for your unique situation and know what the future will bring based on those actions. The financial service providers can also help you with the paperwork for a short sale if that is the best option for you.