WHAT DO I DO? -- I'M UNABLE TO PAY MY MORTGAGE

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/487l

Most Common Question: "What do I do? - I can't pay my mortgage"

As an attorney, I receive plenty of telephone calls and visits from people that are no longer able to pay their mortgage on their home or investment property.  They all have endless questions and usually tell me they are getting all sorts of advice that they don't like.  They come to me to find their BEST solution, and I suppose they hope I am some sort of magician that can create an answer that they like.

The analysis of the problem is the first order of business.  These questions revolve around the "why" are they behind on the mortgage.  What situations (health, job, death, divorce, and catastrophe) triggered the problem? When did the problems arise? Are they current or delinquent with the mortgage? Are they in foreclosure? What are the repayment terms of the mortgage?  Do they have assets that are in savings, other properties, stocks, bonds?  Is this a matter of being "real estate rich and cash poor"?  What is their income past, present and future?

We like to get a financial statement filled out by the client, which sometimes is like pulling teeth - people just hate filling out financial forms - so we made one that is very simple and tracks the 1003 without the fluff.  The idea is to get a handle on the financial numbers and thus the situation from raw information.  We do this because people in general and delinquent borrowers in particular have a hard time verbalizing and quantifying the monetary problem and why it is a problem.

Simply put, there are 4 solutions to the problem:

            1.  Let the house go into foreclosure.  This is the most drastic response and is not a solution but a result.  It ruins credit badly and the property and all equity is usually lost.

            2.  Modify the mortgage(s).  If the borrower has the financial resources to permit a modification of the mortgage terms then this is the best of the bad solutions.  Modification can come in many shapes, sizes and flavors.  Think about reducing the loan balance (up to the amount allowed without prepayment fees) in exchange for an interest rate adjustment downward (great for those 12% loans).  Sometimes these solutions require financial help from family and it may not make sense to owe more on the property than it is presently worth.  But being "upside down" in value is something that is always going to happen in real estate.  If the property is the primary home and the borrower expected to live in it for the long term, then being upside down for a few years is going to be long forgotten 10 years down the road.  Like kidney stones, they will pass and the pain will be forgotten.    Often the title must be clear since from a technical standpoint, there can be a new start point created for the lien of the mortgage and that mortgage must retain its priority over other liens and potential liens.  Credit hit can be nominal to average, depending on the deal and modification.

            3.  Deed in Lieu of Foreclosure.  Everyone talks about it but this is more difficult than one may think.  In 30 years I can only think of a half dozen that we have worked successfully.  The key here is the lender has to agree to take the deed and deal with the property itself (it would much prefer a short sale) and the title to the property must be clear.  This usually means there should be only the one mortgage and there can be no liens and no judgments against the owners / borrowers.  This is basically a foreclosure without the judgment of foreclosure.  Credit hit can be substantial but not as bad as a full foreclosure.

            4.  Negotiate a Short Sale.  It is surprising how many people call me - including owners, Realtors and sales associates - and don't know what a "short sale" means, much less how it works.  Think back just 5 or more years and remember "loss mitigation".  The term "short sale" is relatively new lingo for an old option lenders have used for decades.  The concept is too simple:

                        a.  house bought for $300,000

                        b.  loans on house are $280,000

                        c.  value of house is now $200,000

                        d.  shortage of loan equity value is $80,000

In the above scenario if the owner needs to sell (because he or she can no longer make the house payments (taxes, insurance, utilities, interest, principal, and whatever) then typically the house needs to be sold.  However, the mortgage is greater than the selling value of the house by $80,000.  If the bank foreclosed, it could not expect to receive more than the house is now worth at a foreclosure sale.  And the bank would also have the costs of attorneys, sales agents, real estate taxes, unpaid interest on the principal, insurance and maintenance on the home until it got sold and the costs of selling the home.  For a house worth $200,000 in South Florida that could easily be another $30,000 after 6 months of the bank holding the property.  Thus, the bank often recognizes that it is better off with a sooner sale outside of foreclosure - the "short sale".  Shore sales have downsides for the borrower, primarily in potential income tax recognition and the potential for continuing liability on the "short" promissory note(s).  However, the credit hit is substantially less than a foreclosure.

Which of the four scenarios is best for any particular borrower requires application of a firm understanding of the mechanics of the various processes.  Be sure you use an attorney experienced in working with mortgage lenders, and a Realtor that understands and has the patience for short sales.

Be sure you understand what you (or your client) need and why you (or your client) need it before you make any decision about how to handle the matter - a bad situation does not need to become worse because you just "give up".  There is always a solution - finding the best solution to a bad situation is something you (or your clients) need to carefully examine.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Tags:
irs
houses
palm beach county
1099
florida
short sale attorney
real estate lawyer
mortgage forgiveness debt relief act of 2007

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainmaker
90,065
Mike Pahua
Orange County Real Estate - Irvine, CA
Orange County Short Sale Realtor
That was a great breakdown. Thank you.
Jan 12, 2008 01:52 PM #1
Rainer
165,557
Dan Forbes
Bradenton, FL
Richard, This is a very good summary. I'm sure it will help a lot of people.
Jan 12, 2008 09:07 PM #2
Anonymous
Bill Travers

Great stuff Richard.  Thanks for taking the time to be informative.

Jun 16, 2008 05:39 AM #3
Rainer
1,834
Bill Travers
Bill Travers Real Estate, Inc. - Sarasota, FL

Great stuff Richard.  Thanks for taking the time to be so informative.

Jun 16, 2008 05:54 AM #4
Anonymous
Fran

Thanks for the info. It definitely helped me understand my options.

Jul 20, 2008 05:14 AM #5
Anonymous
Al

Great breakdown.  However, what do people like me do that have $100000 in our house, can no longer make the payments becuase of a a job loss, and the house is not selling?

Sep 23, 2008 06:28 AM #6
Rainmaker
280,033
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Al -

Look into the FHASecure program for loan assistance and even a loan modification.  It is a way to keep the house and your investment.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales

Sep 23, 2008 07:39 AM #7
Anonymous
Mike

Hi Richard.  Very nicely put.  No one wants to work for free and I'm sure everyone can appreciate that, but I have a situation maybe you could help me with which might help others.  I have a friend (plutonic) who just had her husband admitted to a drug and abuse hospital. She wants to get out of her mortgage but she's being told she can't sell her house because of him being in the hospitral.  She has already filed for divorce but can't afford the house.  She just wants out now but has equity in her house.  Her husband signed the lioan but she cosigned.  If he doesn't pay she has to so it would hurt her credit correct?  She fears for her life and wants to leave the area because he is not stable.  Authorities have been called and are very aware of their situation.  I just want to give her some direction.  How can she get out the easiest way with out destroying her "perfect" credit?  Thank you Richard

Jul 29, 2010 03:32 AM #8
Rainmaker
280,033
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Mike

Your plutonic friend does not have much wiggle room.  She is on the note (you say) and thus any late payments will affect her credit.  Since she owns it with her husband they both have to cooperate in the sale and negotiation / sign-off with the lender.

A divorce judge could help with the matter by making orders that obviate the need to get consents from the husband in regard to the home.  Her divorce attorney should be able to work out those issues.

Him being in the hospital is not a restriction on sale, unless he is deemed incompetent, which is probably not the case.

Good luck -

Jul 29, 2010 11:56 AM #9
Rainmaker
34,902
Speed Equity® Mortgage Acceleration System
Speed Equity® - Olympia, WA
We help your clients Own Their Homes Years Sooner

Richard, I truly appreciate your blogs. They are so well written.

Aug 08, 2010 10:20 AM #10
Anonymous
Joselyn

Hello Richard;
I'm very thankful that there are people in the world like you that share their knowledge for the benefit of others. My mom is 62 years old and she would like to file for retirement within this month in order to receive her first social security check roughly by January; however, up to date she is late on two mortgage payments and she has already received a letter from the lender about her house going on foreclosure. She has two jobs both part-time, I also have a job and go to school and we cannot afford the payments. Thank you in advance for your help.

Sep 14, 2010 07:04 AM #11
Rainmaker
280,033
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Joselyn -

The obvious question is, what happened that you are suddenly two months late on your mortgage - before your mother even filed for employment?

If you have a financial situation where you are short of cash temporarily, your lender may be able to help you either with a government issued advance to bring the mortgage current (which will have to be repaid over a number of years), or a workout and reinstatement of the mortgage.

If the problem is more long term, you may qualify for a modification of the mortgage through a reduction in the interest rate or a reduction in the payment through extension of the loan.

If your home is worth less than your mortgage and you qualify for a hardship (basic concept is that your housing expense (mortgage payment, including taxes and insurance and HOA / Condo) is more than 31% of the household income (gross), then you may qualify for a new FHA short refinance - if your lender is going to participate in that program.

Speak to a credit counselor at a local credit counseling firm first to find out what assistance you may qualify for and then contact the lender to address that program (or programs) and your situation. But don't waste another day - do it now!

Sep 17, 2010 12:23 AM #12
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
280,033

Richard Zaretsky

Florida Real Estate Attorney
Ask me a question
*
*
*
*
Spam prevention

Additional Information