Practical Suggestions for Dealing with Distressed Property: Mortgage Foreclosure, Modifications and Refinancing

Many people struggle to find out what to do when they are having trouble paying their mortgage or when they find their real property is under water. Nationwide, home prices are down 30% and since the 2006 real estate peak, 11 million homeowners are underwater. By under water, I mean they owe more on their property than what it is worth. Florida’s statistics are even more startling because Florida suffers from one of the worst rates of real estate depreciation.

People who find they are struggling to make mortgage payments or who are under water often try to educate themselves about foreclosure law and end up more confused than ever. Well, here are a few practical suggestions that can help clarify some issues. Of course, this advice is no substitute for consulting with an attorney and it is always wise to discuss your specific situation with an attorney before deciding upon a strategy.

First, if you are not yet behind in your mortgage payments and want to keep your home, pay your mortgage bill before all others. As long as you are current with your mortgage payments, you may be eligible to refinance your mortgage. Refinancing is different from a modification. The ability to refinance gives you more options because you can get other lenders to refinance your loan, perhaps with a lower interest rate or on better terms. Having a FICO score of below 700 or missing even one mortgage payment can make you ineligible for refinancing and limit your refinancing options.

Modification is when you ask your current lender to modify your current loan terms. Whether you will qualify for a modification depends on your specific financial situation and the modification programs available at the time you apply.

Second, think carefully before you tell your lender you are struggling. Some lenders will tell you that you must be in default before you can be helped. This is not necessarily true.

Instead of calling your bank, research the Federal programs available. For example, you don’t necessarily need to have equity in your home to refinance. Under the HAMP, program, you can refinance your house even if you have negative equity in it, as long as you are not in default. (By equity, I mean the appraised value of your property minus all loans. Negative equity, or being under water, is when the loans exceed the appraised value.) This is why it is important to know your options before you default on your mortgage and not to assume that your lender has all the answers.

You may want to contact a government approved nonprofit housing counselor at MakingHomesAffordable.gov or call 888–995–hope. They provide free services and will carefully review your budget with you to find ways to cut out expenses or increase her income to help you stay in your home.

If you are already behind in your mortgage payments, you may still be eligible for the HAMP Program. HAMP can reduce your payments to 31% of your monthly pretax income. If you qualify for HAMP, you will be put on a trial period with reduced payments for several months. If you don’t miss a payment, you could be offered a permanent loan modification at a very favorable interest rate.

Also, individual banks recently have come out with their own private variations of HAMP with slightly different qualification criteria. So be sure to ask your lender to consider you for all available modification programs.