Importance of Homeownership
Typically, a family’s home is its greatest asset. In addition to many social benefits, homeownership allows you to build equity and reap some tax benefits. However, in uncertain financial times it can also be a family’s greatest liability. A mortgage payment normally is the single largest debt that a family must pay each month. If a family relies on both spouses’ incomes to pay its bills each month, then one spouse losing their job could spell disaster for the family. In any situation where a family has very little disposable income at the end of each month, any and all major expenses can hinder a family’s ability to make timely mortgage payments. So what is a family to do if it falls on hard times and wants to keep their home? I’ll discuss some of their options below.
Loan Modifications
One option that may be available is a loan modification. A loan modification is exactly what it sounds like. It is a change in the essential loan terms made by the lender as a way to assist the borrower in making his mortgage payments. Loan modifications are only available if the borrower has had trouble paying his mortgage. Loan modifications can include changes in the length of the loan or changes in the interest rate on the loan. The problem with loan modifications is that you are at the mercy of your lender. They are not obligated to help you or assist you with the loan modification in any way. Further, the new loan terms, if not as favorable as you need, may only be temporary relief to a long term problem. Generally, when lenders choose to modify your loan it is because the cost of the loan modification is cheaper than the cost of default and foreclosure.
Mortgage Forbearance Agreement
A mortgage forbearance agreement is an agreement between the lender and borrower in which the lender agrees not to exercise its right to foreclose and the borrower agrees to a plan that will allow the borrower to bring the mortgage current. Mortgage forbearance agreements are designed to be quick fixes for borrowers temporarily unable to meet their debt obligations. Typically, forbearance agreements don’t last very long, so you only have a few months to get your financial affairs back on track. A major problem with this method is that, again, you are at the mercy of the lender. They are under no obligation to work out a forbearance agreement with you and many forbearance agreements have some unfavorable terms.
Chapter 13 Bankruptcy
Although people don’t like the stigma that goes along with bankruptcy, the truth is that this is the most effective way to save your home. The reason is simple: You are no longer at the mercy of your lender because you don’t need their approval with this method. A chapter 13 bankruptcy allows you to propose a plan to the Bankruptcy Court that allows you to pay the lender the back payments over a period of 3-5 years. As long as you make your regular mortgage payments and make this chapter 13 plan payment each month the lender must allow you to keep your home. All of this is dependent on the Bankruptcy Court finding that you have the ability to make these payments. Another large benefit of the bankruptcy option is the automatic stay provided by the bankruptcy code. The automatic stay means that your lenders are not allowed to harass you or make any efforts to collect debts while you are in bankruptcy. Sometimes just stopping the harassing phone calls can help get a family’s finances back on track.
Contact Our Office Today
Since your home is probably your most valuable asset, you should do everything possible to keep it. If your home is threatened with foreclosure, then you should talk to a professional who understands what your options are to give yourself the best chance at retaining your home. Don’t wait until you are too far behind on the mortgage payments to take action. Feel free to contact us today at 864-399-7888 to see if we can assist you through difficult financial times.