Home Loan Advice

In today’s recessionary economic climate many people are looking at  alternatives to foreclosure. What are some of the alternatives you have? We’ll explore them in this article.

Just mailing the keys to the mortgage holder, aka “jingle mail”, and walking away is a bad idea. After all, you signed a contract to make payments on the home loan as agreed. If you find yourself unable to meet these obligations there a number of remedies you can pursue to discharge the home loan debt properly.

Naturally, you may feel frustrated with your situation. Many inexperienced borrowers found them tricked into taking on loans that they were obviously going not be able to pay back. Even experienced borrowers have been hurt by the boom and bust of housing prices. However, the excesses and mistakes of the past don’t discharge the debt. Even if you were a victim of predatory lending practices or out and out fraud, you still need to go through proper legal procedures. In short, you have to follow the rules in order to properly deal with your problem. Walking away from your home loan obligations isn’t following the rules. Remember, it is in both your best interest and the interest of the mortgage holder for you to stay in your home and paying a mortgage.

In some cases, you might be able to qualify for a loan modification that would allow you to stay in your home with a mortgage that’s been modified to better fit your financial situation. The government has recently created a $75 billion program to help people with out of control home loans. You should contact your mortgage company to discover if you qualify for this home loan modification program.

However, if you can’t qualify for a home loan modification then you will need to try for a short sale. This is where, with the agreement of the financial institution that holds the mortgage, you sell your home for less than what you owe, typically at the current market value, and the bank agrees to forgive the difference. These days it can be difficult to find a qualified buyer who can get a home loan even at the reduced prices.

In this case, the home loan lender may be willing to accept a deed in lieu of foreclosure. When this happens, you sign the house back over to the mortgage company and they forgive some or all of the debt you owe. You will need to work out the deals of this agreement with the mortgage holder. If at all possible you will want to have some qualified legal representation to help you through this process. Some former homeowners who’ve done a deed in lieu of foreclosure have found themselves still on the hook for thousands of dollars due to a bad agreement.

Another thing to understand about a short sale or a deed in lieu of foreclosure is that it will place a serious bad mark on your credit for several years. It will typically be 2-3 years before you can easily borrow money again for even small things like a credit card or vehicle and most likely 5-7 years before you can qualify for another home loan. Also, there are tax implications when a debt is forgiven. You may end up owning a big tax bill as well so make sure that you examine this aspect too.

If you can’t work out a deed in lieu of foreclosure agreement this only leaves foreclosure itself and bankruptcy. This isn’t a great option for either you or the mortgage holder. This is the result of a failed negotiation, either on your part, the bank’s part, or of both parties. My recommendation is that if you find your home loan in trouble that you begin seeking alternatives to foreclosure with your mortgage holder as soon as possible.

Related posts:

1. Foreclosure Timeline Someone recently emailed me to ask what the typical foreclosure timeline was. Well, this timeline does vary a great deal from state to state and from home loan lender to lender. However, the following is a rough outline of what most delinquent homeowners will see when facing a foreclosure and...
2. Mortgage Loan Modification Problems Have you had problems trying to get a mortgage loan modification? Many people have found that home loan lenders to be less than willing to make loan modifications. They lose paperwork, fail to follow through on promises, act rude and engage in other forms of bureaucratic obstruction. Why is this...
3. Walking Away From a Mortgage If you are far behind on your mortgage with no hope of catching up it is tempting to simply walk away from it. This is sometimes called ‘jingle mail’ since you mail the keys to the lender and vacate the house. It is understandable that people want to walk away...
4. Government Short Sale Program Beginning on April 5, 2010 lenders who participate in the Home Affordable Modification Program have to provide borrowers with the option to carry out a short sale rather than a foreclosure. Mortgage lenders must provide the minimum amount needed for an acceptable short sale offer should a borrower’s mortgage not...
5. How to Avoid Home Loan Foreclosure If you are one of the thousands of people who’ve gotten caught up in the subprime mortgage madness and thus facing foreclosure on your home loan you need to remember that the ultimate goal is to maintain your credit rating even if you can’t manage to maintain ownership of your...