I Am Behind On My Mortgage Payments. What Are My Options?

Many of the people who come to Big State struggle with a common issue: they are behind on their mortgage payments.

This can be a really tough situation, so we want to break down your options for you. You have a lot of options to choose from when you’re in this situation, but we want you to keep in mind that there is no “quick fix”. It might be unpleasant, but you need to ask yourself, “Is this a temporary problem, or is this a systemic problem?” Are you in a short term situation that’s preventing you from making payments, or is this going to be a consistent issue no matter what option you take? That’s for you to decide, but for now, we’ll walk you through what you need to know.

Don’t Ignore The Bank

The first thing to expect when you’re behind on payments is a letter in the mail. Your bank will alert you that you are behind and state the amount you owe. The worst thing you can do when you receive this letter is ignore it.

You see, the bank doesn’t want to foreclose on you. Not out of generosity, it just isn’t in their best interest to lose paying mortgage holder and go through the process of foreclosure.

They’d rather work with you, so the first and most important step is to begin talking to the bank and explaining your situation right away. After you’ve spoken to them and made clear your intention to make things right and get back on track, here are your options:

1. Rent It Out

If you’re very attached to your house and you can’t bear to sell it, one option is to simply rent it out. This isn’t the ideal solution for many. If you have a family, it can be a hard sell to convince them that they should welcome a complete stranger into their home. There are a lot of situations where this might be ideal though. For instance, let’s say you live in a great school district, but you lose your job. Your children likely have friends they will miss, you want them to receive a great education, but you’re faced with few options. In that case, it might be a great idea to simply rent out a room to someone. Many people even choose to install a door to the outside on one of their bedrooms and then close off the door that leads inside the house. That way, you can add a substantial income stream in the form of rent payments, and you don’t have to constantly interact with your tenant. It’s not the best solution, but you remain in the home.

2. Borrow Funds

Another option is to borrow additional funds to catch up on the loan. You can receive these resources from HUD or a similar resource. These can cover back payments, but you really want to be careful when doing this because all it does is increase the debt on the house. Again, you always need to ask yourself if your situation will realistically resolve itself in the future, or if you are just buying yourself time. Will you be unable to afford the house in the foreseeable future or will you be able to make up the payments and get back on track? If you get further debt on the house and you’re unsure about your ability to keep it then you are just leveraging what equity is left in the house. If you have to sell in the near future because the payments are still too much to afford then it will reduce the chances of being able to sell it down the road because there might not be enough equity left to even do a traditional listing. So please, only take this option if you are sure you will be regaining a substantial income in the near future.

3. Give It Back To The Bank

Another option is to simply give your home back to the bank. In this vein, there are options such as a deed in lieu or foreclosure, and cash for keys programs with the bank. But really, why would you do that rather than going all the way to foreclosure? It’s also key to be aware of the fact that default judgments and 1099S can actually be considered income on your IRS returns. Your lender can notify the IRS of the debt that was forgiven in a foreclosure or short sale and the owner would then owe taxes on the amount of debt forgiven because the IRS views this as income. Pretty unfair, right? But that’s the way it is.

4. Sell It

One obvious choice when you’re behind on your payments is to simply sell the home. This may be heartbreaking, but it is often a much safer option than trying to attain a loan modification or other forms of financial adjustments. Quite often, a loan modification is simply the delay of the inevitable. A loan modification in and of itself doesn’t suddenly make you financially solvent. Unless you know for certain that your financial situation is going to improve in the near future, a loan modification will only put off the inevitable moment when you will face foreclosure, and this time with more debt and more problems. That’s why selling your house and walking away with a little bit of cash in hand is honestly the best option if you can’t just pay off the amount you owe outright.

Going Forward

If you’re worried or stressed from this experience, take a deep breath. Remember what’s important, your family and your health. Be calm, cool and collected, and take an honest stock of your options. Again, the worst thing you can do is ignore the problem and hope it goes away, you have to face this head on, lean right into it. Find people who can give you good advice. Give Big State a call, if for no other reason than to see what options you have available and get some good advice. If you find that your best option is to sell, and especially if you need to sell quickly, call Big State. We’ll take good care of you every step of the way.

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