Q. We are horribly behind on our mortgage payments and unless we win the lottery, we will never catch up. We owe far more than the house is worth. The bank is sending us something almost daily, one day threatening us and the next day offering all these programs that we don't really understand. I know many other people are in this situation. Is there a best way to deal with this? We don't even know where to start in trying to figure out our best option.
A. The threshold question is: Do you wish to remain in the property? If the answer to that question is yes, the follow up question is: Is this practical -- meaning is the situation that caused the problem in the first place now corrected?
The classic situation is a job loss resulting in missed payments. If that is what occurred and the situation is now rectified, are you comfortable that your current income is sufficient to make your regular payment?
If you answered yes to all the above, a modification may be appropriate. Contact your lender, explain your situation and ask what options may be available to you. Some modification programs are not available because of your current "missed payments" status but recent changes to some federal programs may open some options for you.
In the event you decide that remaining in the property is not an option, you have three choices. One is a short sale. Here, you sell the property and the lender agrees to accept less than what is owed. You realize nothing from the sale, though some programs offer you a move-out allowance. The difference between what is owed on the mortgage and what is actually paid is called the deficiency. This deficiency is usually forgiven, though as it stands now, there may be negative income tax implications.
Another option is called a deed in lieu of foreclosure. Here, you agree to convey the property to the lender in exchange for them terminating your obligations. Regardless of what amount the lender eventually sells the property for, they cannot come after you for the deficiency. The biggest disadvantage of the deed in lieu is that once the deal is made, you generally have 30 to 60 days to tender possession to the lender.
In both the above, you will generally receive a hit on your credit rating; however, you are out from under the mortgage obligation and you can start fresh.
Another option is to simply remain in the property as long as possible without making any further payments. Eventually, the property will be foreclosed and you will be forced to leave. The advantage here is that you could presumably save a fair amount of money while the foreclosure case winds through the court process. The most significant disadvantages are you will receive the greatest hit to your credit and the possibility of a deficiency judgment being entered against you.
The above is a very general overview. Other options may exist. There are attorneys and counselors who specialize in advising homeowners in your situation. Find someone you are comfortable with and understand your options prior to making any decisions.
• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to email@example.com or call (847) 359-8983.