When you have trouble with your mortgage, it's important to start thinking about how you're going to get out of trouble as quickly as possible. The sooner you can understand the issues affecting you and what the potential solutions are, the sooner you can work toward getting what you want, which is avoiding foreclosure and getting back on good terms with your lender.
While it can take years from the time you stop paying your mortgage until until you lose your home in foreclosure, spending that time dilly dallying, lollygagging, or failing to plan is a mistake. You're eventually going to lose your house, so use the time you have to your advantage by saving money, educating yourself, and making a strategy.
This may seem like common sense, and it is, but some homeowners are so overwhelmed by the stress of potentially losing their home that they freeze up and don't do anything. Playing dead is not an effective strategy. Pretending that you didn't get the bank's notices does not make you immune to their consequences. There are productive things to do.
Save Your Money
This may seem counter intuitive since the reason for defaulting on a mortgage is typically a lack of funds caused by a financial hardship like a medical problem, divorce, or reduced income. But most homeowners in default are working and may actually be able to save money since they're not making a mortgage payment. If you're able, start saving as much as you possibly can immediately.
Many homeowners spend years in their home without paying a mortgage, so that's a lot of money that can be saved. If you can't save your home in the end, you can use some of the money you saved to pay a security deposit and first and last month's rent for an apartment. If you are able to save your home by getting a loan modification, you will have the money you saved to keep you solvent when the next hardship hits.
Educate Yourself
There's a lot of information available. Your bank is one source for information, but they have their own interests to look out for. It's good to speak with them and hear what they have to say, just don't let their opinion be the only one you hear.
Banks have been known to deny loan modification applications and suggest a short sale, saying the borrower doesn't have enough income. If the bank is the only one you talk to, you might assume they're right and that you should short sell the house. If you have an experienced attorney working for you, they can tell you if the bank is full of crap.
If you want to know if you have anywhere near the income to keep your home by getting a loan modification, consider the best-case scenario for the cheapest monthly payment. Go to www.mortgagecalculator.org and put in how much you owe on your loan with a 40-year term at 2% interest, which are the best terms possible. If the monthly payment the calculator spits out is more than 31% of your gross income, you're not going to be eligible for the government's Home Affordable Modification Program (HAMP) unless you can show more income or get a significant principal reduction.
Make A Strategy
If you know you can't afford to keep your home, you can try to get as much time as possible in it to save up money before leaving through a short sale or deed in lieu of foreclosure agreement. With either of those and a deficiency judgment waiver you can walk away with no debt at all. It's a pretty sweet deal compared to losing your home at foreclosure auction, being evicted by the sheriff, and getting sued for tens of thousands of dollars.
Of course, most people don't want to give up their home unless they absolutely have to. The only hope many homeowners have to avoid foreclosure is by getting a loan modification, which involves a permanent change to one or more of the terms of your mortgage loan. There's no cost associated with getting a loan modification. However, the overwhelming majority of people who apply for one on their own are denied.
If a loan modification is part of your strategy for saving your home, you need to get the ball rolling soon because HAMP is scheduled to expire at the end of 2016. And whatever you choose to do about your mortgage, be it a short sale, deed in lieu, or loan mod, you should consider hiring an attorney. The problems associated with mortgages can be complex and time consuming to address. Some attorneys offer foreclosure defense and loan modification services for a flat rate, which is a great package considering the amount of time and work it takes to get a loan modification.
Whatever you want to do, it never hurts to have more time in your home, especially when you're not paying anything to live there. An experienced attorney can get you as much time as possible by defending you from foreclosure and working for a permanent solution simultaneously. So don't waste any more time wondering what you should do. Educate yourself, work with qualified people, and start working toward a solution now. Time is of the essence.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net
