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All You Need To Know About Your Mortgage

By Kurt O'Keefe, Attorney at Law

(picture from University of Pennsylvania blog on regulations)

The most common question I get for a long time is what happens if I do not, or cannot, pay my mortgage?

If you can afford to continue paying, and are current, there is really no bankruptcy alternative.

The so-called “strategic default” option is to simply stop paying.

There is no predicting accurately what your bank will do if you stop paying.

A short sale is one option,  but the lendermust agree, they may require you to sign a note to pay some or all of the difference between the mortgage balance and the sale price.

Another option is the deed in lieu of foreclosure, but, again, that requires the lender to agree, and you need to make sure they agree the home is worth the balance you owe, so they do not report debt forgiveness income to you.

What if you just stop paying, whether it is because you want to, or do not have the money?

Do not hold your breath waiting for the mortgage company to foreclose.

One reason that I have seen cases of people two years behind in payments, who have not been foreclosed, is

Shadow inventory.

Mortgage companies are not real estate companies, they are money companies.

Yours is probably not looking for one more, being already stuck with tens of thousands of homes it is trying to sell, and is.

This has not been enough yet to motivat them to make reasonable modifications, something you can afford that gives real relief.

The options discussed so far presume your home is worth less than what you owe on it.

If your home is worth more than you owe, and you cannot make the payment, go ahead and sell it.

The other presumption is that there is only one mortgage on your home.

Things get complicated if you have more than one.

The second mortgage is in the way of getting a deed in lieu.

Now two mortgage companies have to sign off for you to do a short sale.

Same issue with a modification, probably only works if both mortgages will do it.

What if you have a home with one mortgage, you fell behind, but want to keep it?

In the old days, this is what Chapter 13 cases were like.

If you were laid off for 6 months, don’t have the 6 missed payments, but now can afford the monthly payment, plus something on the arrearage, plus the trustee fee.

That was back in the good old days, when almost all homes actually had equity, that is, the house was worth more than the mortgages on it.

Chapter 13 is still a great remedy, if this is your situation.

Now, not only are most homes underwater, worth less than what is owed, but, they also have more than one mortgage.

Sometimes, the first mortgage company will slide some $$ to the second to make  a short sale deal work.

And the same with modifications.

Not much point in getting a modification on one of your mortgages if you still cannot afford to pay the other one.

If you owe $140,000 on the first mortgage, and your home is worth no more than $130,000, and you owe $30,000, or whatever, on the second mortgage:

You can get rid of that second mortgage lien in bankruptcy.

The second mortgage then becomes an unsecured debt; there is no house value to secure it.

The Chapter 13 plan must be completed, then the balance of what you owe on the second mortgage is discharged, along with the rest of your unsecured debt, and, the second mortgage comes off as a lien on your house.

And that is the case with most Chapter 13s I now file.

All You Need To Know About Your Mortgage

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Full post as published by Credit Law Network on March 09, 2011 (boomark / email).