- The Washington Times - Friday, November 2, 2001

Delinquent payments on all mortgages are up 21 percent in the second quarter of 2001 compared to the same period last year. What's more alarming is that more than 10 percent of borrowers with FHA loans were delinquent during that time period, according to the Mortgage Bankers Association of America's (www.mbaa.org) National Delinquency Survey.

Delinquent doesn't mean these homes have been foreclosed, but that is generally the next step.

Many foreclosures can be avoided, if a distressed homeowner takes the right steps. If an owner is willing to be honest about his financial situation and then swallow some pride, he may be able to forgo foreclosure, get back on top financially and save his credit rating at the same time.

As we all tread these rough economic waters, delinquency will grow just as a matter of job losses and a reduction in household income. Be assured, this recession should start looking up about midyear next year, according to economists from the National Association of Realtors and National Association of Home Builders, but be prepared for the worst and aim for the best.

First, don't ignore letters from your lender advising you that you're delinquent. Although you shouldn't ignore any delinquent payment letter from any creditor, being delinquent on your house is serious business. You're not talking about just losing access to a credit card, you're facing having your house sold out from underneath you.

Reputable lenders don't want to foreclose on a property. It costs them to foreclose. They must pay legal fees, appraisal fees, possibly even eviction expenses to get their loan balance out of the house. In addition, the law stipulates they can only keep the amount of the loan balance on the sale of a foreclosed property any amount over the balance must go to the owner, assuming no court orders have ruled otherwise.

Your options, according to the Department of Housing and Urban Development (www.hud.gov), include special forbearance, mortgage modification, partial claim, preforeclosure sale and deed-in-lieu of foreclosure.

A "special forbearance" is when the lender will work out a repayment plan according to your current financial situation. The arrangement could involve a temporary reduction or suspension of payments; however, the borrower must provide plenty of documentation on why the financial situation has changed. Loss of job, reduction of income stream or a sudden increase on the expense side (such as having to care for an elderly or ill family member) would all show the lender why you want to apply for a special forbearance.

Refinancing could be an option, which is the idea behind a "mortgage modification." Again, borrowers must document why they need these special considerations and must be able to show they can repay with the refinancing.

HUD offers an interest-free loan to borrowers of HUD-insured loans to bring the mortgage current. Qualifications for this loan include: The loan is four months past-due but not more than 12 months delinquent; the mortgage is not in foreclosure; and the borrower is able to start making full mortgage payments.

Using a "partial claim," HUD brings the mortgage up to date with the lender; HUD places a lien on the property until the new note to HUD is paid off. The note is interest-free and is due when the borrower either sells the house, moves from the property or when the mortgage matures.

A "preforeclosure sale" allows the homeowner to sell the house, pay off the mortgage and avoid foreclosure. There are three stipulations before this can be allowed: The as-is appraised value is at least 70 percent of the amount owed and the sales price is 95 percent of the appraised value; the loan is at least two months delinquent before the preforeclosure sale closing date; and the homeowner is able to sell the house within three to five months (depending on what the lender agrees to).

One final option is the "deed-in-lieu of foreclosure." The lender agrees to take the deed of the house instead of foreclosing. In essence, the borrower "gives" the house to the lender. The lender is the new owner and sells the house to cover the loan amount.

There are always options to foreclosure, although they aren't easy. At the first sign that your financial picture is changing long-term for the worst, make the pre-emptive call to your lender. Keep in mind, these options are negotiable by the lender, and, while they may not be the most advantageous options for the borrower, the worst thing to do is nothing.

M. Anthony Carr has written about real estate for more than 12 years. Send comments or questions by e-mail ([email protected]).


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