If you’re having trouble with your mortgage payments, losing your house to foreclosure isn’t your only option.
The reality is that mortgage default is nothing new to the banks. They have systems and options in place that have existed way before any of the current government-mandated relief programs.
I started in real estate in 2008, during the Great Recession. I know from firsthand experience that banks do not want to foreclose on your property. It doesn’t make financial sense for them. I’ve witnessed foreclosure proceedings be delayed for over twelve months because the bank wanted to work things out with the homeowner. Banks want to avoid foreclosure just as much as you do.
So, if you’re in financial trouble, don’t be afraid to reach out to your loan servicer to discuss your options. Here are some classic options:
Forbearance—This includes temporary suspension or reduction of your monthly payments. Let’s say, for example, you lost your job and need time to find a new one. Here the bank is saying, “I will suspend or reduce your monthly payments for three months so you can find a job.” Now, it is important to note that forbearance does not mean forgiveness. You still owe this money.
Repayment Plan—This includes coming up with a plan to repay any amounts past due. Maybe you’re three months behind. Paying this amount in one lump sum might be impossible. To make it easier, you set up a monthly payment plan that spreads this delinquent debt over a period of a year or two.
Loan Modification—This can be a more permanent solution, in which the bank modifies the original terms of your mortgage to make your payments more affordable. This can include reducing your interest rate, extending the term of the loan, and in some cases, even principal reduction or forgiveness of debt.
Your option of last resort, after you’ve exhausted all others, is to sell your property before the bank forecloses on it. Because if they do, you might end up with nothing as opposed to something if you sell it on your own terms. Hopefully, it doesn’t come to this. If you’re in financial trouble, reach out to your bank early, keep them in the loop. Communication is key to avoiding foreclosure.
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About the Writer: Daniel Rangel is a real estate agent in Los Angeles, servicing residential and residential income property.