Avoid Mortgage Trouble

Written by: John Magruder

I am going to briefly cover what can happen if you ever get behind on mortgage payments. Even if you are in excellent financial condition now, you should know what to do (and not do) now, because you will not have the time to learn if trouble arises.

This topic covers information that every homeowner and potential homeowner should be knowledgeble about. With the U.S. housing downturn depressing once-thriving real estate markets around the nation and a good percentage of adjustable loans resetting to higher interest rates, the potential for getting behind on your mortgage payments is greater now than ever.

Fortunately, most of central Texas is holding up well, so what has happened elsewhere is has not harmed us here. However, mortgage trouble can occur for anyone at any time regardless of what the local market is doing. Accidents, job loss and many other circumstances can place you in jeopardy when you least expect it and are the least prepared. Ever hear of "Murphy's Law"?

Your Choices

What I hope to do here is provide you with the base knowledge to act properly should fate deal you a crummy hand. Far too many people who get behind on payments are unaware of what the proper actions are and that they have choices.

When your mortgage payment is late beyond the grace period (usually 15 days), you are considered in DEFAULT. Your lender will begin sending letters to inform you to pay up. Depending upon how many payments you miss and the lender's policies, if you remain delinquent, you will eventually get a letter called an Acceleration notice. This means you must pay all that is due or foreclosure proceedings will be forthcoming. Texas has the shortest foreclosure period of any state (just 21 days). Once you get to this point, it is very likely to late to save your home. You MUST act as soon as you receive the FIRST notice (or before).

Your options are (best to worst):

Resettlement - where you get permission from the lender to make up your overdue payments on some plan. Realize that this means making up the payments you missed along with the usual monthly payment at the same time. A very hard thing to do under financial stress. Deed-in-Lieu - where you essentially walk away and give your house keys to the lender for forgiving the remainder of your debt. This rarely happens, and is allowed by the lender only if it is to his benefit. Short Sale - where the lender sells your property through a Realtor for what the market will bear and considers your debt paid in full. It is a blight on your credit, but not as bad as a foreclosure will be. Most homeowners are unaware of this option, panic and do nothing and eventually get foreclosed. Foreclosure - where the lender turns your property over to be marketed at auction by your county. Now you must move out of your home with bad credit. Act Immediately

As time passes, so do your options. There are two important things to remember:

Act immediately upon receiving the first letter from your lender (and even sooner if you know it is coming). If you delay, your choices begin to fade rapidly. Many foreclosures can be avoided with prompt and proper action. Get the best professional help possible to guide you on how to proceed. The procedures to perform a short sale are beyond the capability of most real estate agents and differ by lender. Chose a Realtor who is schooled in the Short Sale process and has the proper contacts to act in a timely manner.