What are Borrowers Options When They Are Unable to Pay the Mortgage?

Unfortunately in today’s economy, many people are having to face the reality that they are unable to pay their mortgage

What are Borrowers Options when they are Unable to PayThere are many options for a homeowner who finds himself in this situation. Each option has benefits and drawbacks that should be considered carefully.

What are borrowers options if they want to stay in the home?

A Change in the Household Finances

If a homeowner wants to remain in the home, the homeowner must in some way begin paying for the home. One of the first things a homeowner should do is review the finances of those living in the home. If the amount needed to make a complete mortgage payment each month is within a couple hundred dollars of what can be set aside for the mortgage payment currently, homeowners can often cut back in a variety of areas to make up the difference for the mortgage payment. Looking at cell phone payments, cable bills, and other monthly expenses that can be reduced may provide the extra that is needed to make a mortgage payment.

A Loan Modification

If a change in spending will not allow the homeowner to make the current mortgage payment, the other option is to apply for a loan modification with the lender. Lenders are not required to grant loan modifications and the process of obtaining one can be frustrating and time consuming. To apply for or request a loan modification, many documents will need to be submitted to the lender, and those documents will need to updated frequently. The documents are mainly used to determine the amount of income that is coming into the household and how that income is being spent. Some of the documents that will need to be provided to the lender are: bank statements for the last four months, the last three paystubs, a copy of tax returns for the last year, a copy of the tax bill for the last year, an employment verification form, a breakdown of the household budget, and a number of forms that the lender will require the borrower complete.

The attorneys at Albuquerque Business Law have helped numerous homeowners obtain a loan modification

These attorneys are experienced in negotiating with the lenders, ensuring that all the proper documentation is submitted, and continuing to contact and follow up with the lender until action is taken. If you are considering a loan modification, please contact an experienced attorney at Albuquerque Business Law today for a free initial consultation. The attorney will be able to tell you if you are a good candidate for a loan modification and inform you on how he/she can assist you in obtaining a loan modification.

What are borrowers options if they want to surrender the home?

If a homeowner who has fallen behind on mortgage payments wishes to leave the home, there are several options. However, each of these options can have negative impacts on a borrower’s credit which can affect the borrower’s ability to obtain loans, credit cards, and even rent a home or apartment. Therefore, before any of these options is pursued, a borrower should carefully consider the pluses and minuses of each.

A Short Sale

A short sale is when the borrower sells the home for less than is owed with the lender’s approval., With any option resulting in the borrower giving up the home, the borrower must be careful to ensure that he understands what he is agreeing to, as often the lender can still require the debt that remains to be paid. In order to obtain a short sale, the borrower has to go through a short sale process with the lender. In other words, a homeowner cannot simply list the home for short sale and sell it without getting the lender’s approval.

Similar to obtaining a loan modification, the short sale process can be timeconsuming and tedious. The borrower must submit documentation to verify income information prior to being approved for a short sale. This information includes bank statements, paystubs, taxes for the previous year, and many forms that are provided by the lender. Furthermore, the real estate agent working for the borrower must be familiar with the short sale process. The lender can often require that action be taken within twenty four (24) hours and if the real estate agent fails to get the message or fails to act, the short sale process can be hindered or completely stopped.

Therefore, in a short sale process it is important to have a realtor who is experienced and capable of negotiating and working with the lender. Furthermore, it is important to be ready to provide numerous documents to the lender and often to provide those documents several times. An experienced attorney at Albuquerque Business Law can assist you in obtaining a short sale. If you are considering a short sale, please contact an experienced attorney today at Albuquerque Business Law for a free initial consultation. At this consultation, the attorney can tell you if you are a good candidate for short sale and inform you of the short sale process. Please call today.

A Deed in Lieu of Foreclosure

Another option to surrender a property is a deed in lieu of foreclosure. The deed in lieu of foreclosure is an agreement between a borrower and a lender that the borrower will turn over the keys to the property in exchange for some forgiveness of debt. A borrower should be careful because unless a lender agrees to a deficiency waiver, the borrower will owe the difference between the value of the property when it is sold as a foreclosed property and the amount owed on the loan. For instance, if the home sells at a foreclosure sale for $100,000.00 and the borrower owes $200,000.00 on the mortgage, the borrower will still owe $100,000.00, unless another agreement had been reached with the lender during the deed in lieu of foreclosure negotiations.

Generally speaking, the deed in lieu of foreclosure is the last option that a lender will pursue and is often only considered during a foreclosure lawsuit. However, in certain situations a lender will accept a deed in lieu of foreclosure early in the process. As with short sale, many documents to verify income and household expenses are required. The process can also be timeconsuming and frustrating as the submission of documents also has to occur multiple times. Furthermore, negotiations with the lender need to occur regarding the deficiency that will remain after the property is sold.

The attorneys at Albuquerque Business Law are experienced in negotiating with the lenders to obtain a deed in lieu of foreclosure. If you are considering a deed in lieu of foreclosure, contact an attorney at Albuquerque Business Law for a free initial consultation. At the consultation, the attorney can help you determine if you are a good candidate for a deed in lieu of foreclosure and discuss the process with you. Please call today.

A Stipulated In Rem Judgment

A stipulated in rem judgment is a court- ordered judgment in which both the lender and the borrower agree to the judgment being entered. Typically this type of judgment is entered into as a settlement option for a foreclosure lawsuit. Similar to the deed in lieu of foreclosure, the borrower agrees to submit the property over to the lender. Also, depending on the agreement a deficiency (the difference between what the property sells for and the amount owed on the mortgage) can be asserted against the borrower. If a borrower doesn’t want to have money owed after the judgment is entered, a deficiency waiver will need to be negotiated .

A stipulated in rem judgment has more severe financial consequences for the borrower than the other surrender options. The judgment can remain on the borrower’s credit for up to seven years. However, after two years, the borrower can be approved for an FHA mortgage. Also, as the name states, this option includes a formal court judgment against the borrower.

A decision to surrender one’s home should be made very carefully and only after fully exploring all the options and consequences. Albuquerque Business Law has a team of attorneys that are experienced in helping homeowners struggling to pay their mortgage find a positive solution. Please contact Albuquerque Business Law today to schedule a free initial consultation.


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About James T. Burns

Prior to the practice of law, James was a corporate manager with a large market research firm. Like many of our clients, James has started and successfully managed businesses of his own, primarily in the area of technology start-ups. James was also a prize winner in the UNM Business Plan Competition and has completed numerous consulting projects to help clients achieve their legal and business goals.