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Behind on mortgage payments? Read these FAQs

On Behalf of | Jan 8, 2021 | Real Estate |

In New York and around the nation, the past year’s economic downturn has severely hit both those already one or two months behind on their mortgage and those who’ve never missed a payment in their lives. This has led many to ask what options they have when they’ve missed several mortgage payments.

What is forbearance?

Many mortgage contracts allow a homeowner to go into forbearance if they are worried about missing payments. This option allows you to hold off payments or reduce the amount owed each month for a time, as set by your lender. This is an excellent option for those who may need a month or two to get back on track. However, going into forbearance does not mean you no longer owe those one or two payments. You’ll still have to pay them, but it won’t be now.

Can I seek a declaration of hardship?

Under a recently passed New York law, it might be possible to stave off foreclosure for a few months by seeking a declaration of hardship from your mortgage lender or servicer. If you have lost your job or had your hours cut due to unforeseen circumstances in these unprecedented times, you could file a declaration stating as much and prevent foreclosure action until May 1, 2021. You are still responsible for the amount due during this time, but you get more time to pay.

Is a loan modification the right move?

Some lenders find that a modification of the original mortgage loan balance is a better bet than facing a potential foreclosure. There are a wide range of potential ways to modify a home loan, including:

  • Lowering the interest rate
  • Extending the term of the loan (i.e., changing a 25-year mortgage into a 30-year one in order to lower the monthly payments)
  • Deferring or forgiving some of the principal amount due
  • Converting the loan from a variable interest rate one to a set interest rate, thus removing the potential for fluctuating payments that may increase
  • Setting up a repayment plan to cover any past due amounts

An attorney can work with you to modify your loan, handling any paperwork or negotiations with the mortgage lender or servicer, allowing you to focus on getting back on track.

Should I look into a short sale?

If holding on to the property isn’t the utmost importance to you, then you might want to just sell it. The only problem is if your mortgage is underwater. In that case, you might be able to negotiate what is known as a “short sale.”

In a short sale, the lender agrees to take less for the property than it is worth. This is often seen as a better alternative to the red-tape-laden foreclosure process. Again, a real estate attorney’s help can be invaluable here, because the lender must determine if you are indeed underwater on the mortgage and how much the home is worth. That may involve some back-and-forth.

What if foreclosure occurs?

In many cases, homeowners are at the cusp of paying off what they owe in arrears when lenders are already taking steps to foreclose on the property. However, according to foreclosure law, a homeowner may be able to stop the process from moving any further by communicating with their lender and demonstrating that they will be able to pay very soon. This is often enough to stop the process as the lender would rather receive payment then go through a lengthy and costly foreclosure process.

How can I reduce other expenses?

When it comes to the total cost of living in a house, many people forget or ignore their property insurance payments. Affording a home is determined by more than just your mortgage payment. A great way to get back on track and reduce your monthly payments is to shop around for new property insurance. This step alone could potentially save you hundreds or even thousands of dollars a year.

Requesting a tax abatement could be another way to temporarily lower monthly payment amounts. This doesn’t mean that you won’t owe the taxes, but you’ll be deferring them to a point in time when you can better afford them.

It can be difficult and stressful to deal with missed mortgage payments. You may want to consult an attorney to protect against a potential foreclosure and provide you with alternative routes to staying in your home.