Your lender has been watching you all year, and knows if you've been naughty or nice. But if you make their naughty list by not paying your mortgage, they don't come down your chimney and leave you a stocking full of coal. They'll do something much worse and take your home, chimney and all. Unlike Santa Claus' naughty and nice lists, you should know for sure which one you are on. What is harder than knowing is getting off of the naughty and onto the nice list so you can stay in your home.
Your mortgage lender has a very simple rule for determining whether you're naughty or nice. It's determined by whether or not you pay your mortgage on time every month. If you pay on time, you get to be on the nice list. Keep up the good work. What's your reward? Keeping your home, and not being threatened with the 'f' word. That's not the four letter 'f' word, it's the one with 11 letters: foreclosure.
If you have fallen behind on your mortgage payments, your bank has probably called, sent letters, used the 'f' word, and let you know you're on the naughty list. It's very stressful to be in that situation. Studies have shown that foreclosure can have a negative impact on your physical and mental health in addition to your financial health. People in foreclosure are at a higher risk of suicide and heart disease. So something has to be done to resolve the situation. But what?
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It depends on your situation, the laws in your state, how much money you have, and what you want to do. First, let's look at ways to get off the naughty list without getting on the nice list by getting out of your mortgage. These are options to consider if you don't make enough money to keep your home and it can't be sold in a traditional sale because it's worth less than what is owed on the loan:
Getting Off The Naughty List
- Short sale. This is an agreement between the lender/investor/servicer and the homeowner to sell the home for less than it is worth.
- Deed in lieu of foreclosure. This agreement allows you to hand over ownership of your home to the bank in exchange for canceling the loan. You may be required to try to sell the home before a deed in lieu of foreclosure is agreed to.
With a short sale or deed in lieu of foreclosure, you should be sure to include a deficiency judgment waiver in the agreement. Why? Because, by definition, you are deficient sufficient money to pay off the loan in either of these agreements and the lender can sue you for the deficient amount. Getting a deficiency judgment waiver with your short sale or deed in lieu of foreclosure agreement allows you to get out of your mortgage with no debt.
Getting Off The Naughty List And Onto The Nice List
If you are determined to keep your home, but have experienced a hardship beyond your control that caused you to fall behind on your mortgage payments, and you believe that you have the money to afford the loan, there are options that allow you to that:
- Reinstatement. This is when the borrower catches up on all missed payments with a single payment. The amount of the reinstatement payment will include all fees the lender incurred as a result of the missed payments. After reinstatement regular payments would resume as normal.
- Payoff. Under this agreement the borrower makes one payment to pay off the entire loan. This stops foreclosure and the loan is paid off in full.
- Forbearance. If you have temporary hardship, you can ask for temporary relief in the form of a forbearance, which allows you to stop paying your mortgage or pay a reduced amount for a period of time without being foreclosed on.
- Loan modification. This is a permanent change to one or more of the terms of a mortgage loan, such as the interest rate, length of the loan, or principal amount, for borrowers who have experienced a valid financial hardship. This is the only option that allows you to lower your monthly payment to an affordable percentage (31%) of your income.
So there are ways to get off of the naughty list and back onto the nice list, and they don't even require you to put out milk and cookies for your lender. Be aware that there are con artists who promise to get you a loan modification and back in your lenders good graces by removing the threat of foreclosure. To avoid them, do some research on common mortgage relief scams and avoid any offers that seem too good to be true. And remember that you have the best chance of geting the results you want when you take action as soon as you anticipate problems and work with an experienced attorney who has a proven record of helping people in your situation.