Q. I’m trying to figure out what to do. I was turned down for a loan modification recently and have a foreclosure date in a couple of weeks. I thought that these banks are supposed to help but mine doesn’t want to. I really don’t know what to do and don’t want to lose my house. I’m always getting mail from people who say that I don’t have to, how can they say that? What are my options?
A. These are confusing times and you’re probably getting many different opinions on what your options are. I’m sorry that you were declined for a loan mod, as I’m sure that it took several months to get an answer. You’re in a position that I think many others are because you seem very resolute that you want to stay in your home. I appreciate your courage because it seems like you’re willing to hear that you may not be able to stay, even though that’s what you really want.
First off, I have to warn you that I would definitely take the impending foreclosure seriously and have a plan ready in the next couple of days. There is no time to waste.
As to your question, though, I’m going to give you a couple of options to explore with some commentary on each. However, I’m not going to list foreclosure as one of them because I believe that option is almost always worse than some others. I’m also going to list a common scam that you’ve probably gotten mail on but shouldn’t buy into.
- Research the National Mortgage Settlement. In February of this year, the five largest banks (GMAC, Citi, Wells Fargo, BofA, and Chase) agreed to provide up to $25 billion in relief to distressed borrowers, the states who were a part of the settlement, and the federal government. Lots of people out there don’t know about this settlement, nor how to approach their banks. Take a look to see if your bank is one of the above and then call them to see if they’re willing to take another look at your case. Don’t take an immediate “no” for an answer as reading the link about this settlement will give you more info than most customer service reps that you’ll talk to. Here is a helpful link to better understand it: www.nationalmortgagesettlement.com
- Retry a loan modification. I don’t know why you were declined recently but there are some common reasons why. Some investors (lots of them, actually) won’t accept doing a modification without being late. I’m not suggesting that you do so, I’m only saying that some banks require it. Your income needs to be high enough to make the modified payments. Banks usually want to see your modified housing expense be about 31-38% of your income. If it’s higher than this, I wouldn’t waste your time.
- Scam alert! Fake bankruptcy. Some firms will mail you something and say that they can postpone foreclosures up to the day before or a couple of days before because they do it through a foreclosure trustee (not the bank). If you talk to anyone suggesting this or for you to sign a portion of your deed to someone else, beware. These are red flags.
- File a real Bankruptcy. It postpones the foreclosure but comes at a cost. Call an attorney that specializes in them to see if you’re qualified.
- Deed in Lieu of Foreclosure. Most banks make you qualify for this and it’s the same thing from a credit perspective as a foreclosure.
- List your house and do a short sale. Eliminating your mortgage payment for something lower can be a great relief from a financial burden. This option is much better than a foreclosure for your credit recovery and possibly taxes. You have to be ready to move, though.
I hope this helps!