So many of the couples who I’ve been working with lately are finding themselves upside down on their mortgages. For those of you who aren’t familiar with the term, being ‘upside down’ means that you owe more to the lender on your mortgage than your home is currently worth. The refrain I often hear is that they bought their homes while the real estate market was at its highest level and when the real estate market crashed, their home’s market value fell significantly. This issue becomes a particularly pressing challenge when a couple is headed for divorce.
When a couple jointly owns their marital residence they must choose either for one party to retain the property in his or her name alone, or in the alternative, to sell the property. A lender won’t want to refinance when the equity in the property is less than the principal balance on the mortgage because there is not enough equity to secure the loan. It is equally problematic when the couple wants to sell the property and there’s not enough equity in the value of the house to pay off the mortgage.
You are not alone. This issue comes up frequently and there are steps you can take to help yourself and improve your situation. An article was recently written by Lew Sichelman in the Los Angeles Times entitled, “Foreclosure myths, debunked” with some tips to help guide you well before you arrive at the gates of foreclosure. Some recommended steps are:
- Tell your lender you’re in trouble early and often. Give your lender the opportunity to help you find a solution. Sometimes you may be able to work out a loan modification making it easier to make your payments. You may be able to work out a deed in lieu of foreclosure or a short sale, but you will need to do a lot of research before you determine what option is best under your particular set of circumstances.
- Don’t borrow from your 401K until you’ve sought help. You want as many resources at your disposal when you are working on your situation with that financial expert or credit counselor.
- There are a lot of scams out there. Don’t give your information to anyone who doesn’t already have your account number, asks for up front fees, or demands an immediate signature (this is good advice in general).
- THIS PROCESS TAKES A LONG TIME. Don’t get discouraged. Your lender will ask for a mountain of documents, just keep track of your calls, who you’ve spoken with, and KEEP COPIES OF EVERYTHING.
- Don’t stop making payments to get your lender’s attention.
- If you’ve been turned down for a loan modification in the past, that doesn’t mean you will be turned down now–so try again. Your situation may have changed and the lender’s guidelines my have loosened.
“A housing counseling agency can help at any time, but it can be particularly helpful if you’ve been rejected. The Consumer Credit Counseling Service of Greater Atlanta says many owners are refused because they did not provide proper documentation or failed to consider all their expenses.
Also, the lender may have made a processing error or not followed the rules. You won’t be able to spot these miscues, but an experienced counselor will. You can find a government-approved counseling agency at http://www.hud.gov.”