|What to do if your mortgage payments
Julie Garton-Good, GRI, DREI
Statistics from a recent Mortgage Bankers Association survey
show that not only are more Americans having trouble making their monthly
mortgage payments, but the number of loan defaults is growing as well. Problems
cited include underemployment, divorce and heavy consumer debt.
If you ever find yourself in a position where making your
house payment becomes difficult, there are steps you can take to work things
out--but it's imperative that you not delay taking action.
First, call your lender to discuss the situation. Be honest
about the circumstances. Most lenders are willing to work with you on
alternatives if you're upfront with them. This is especially true if the
problems are caused by something outside of your control (such as job loss,
illness, etc.). Some short-term solutions could include paying interest-only
payments, making partial payments or adding payments onto the back of the loan.
If an alternative arrangement can't be worked out with the
lender, try to catch up as soon as you can. This could mean taking on a second
job, a weekend job or selling some personal property to liquidate your assets.
What if you just can't get the payments current? You might
be tempted to "mail the keys" to the lender. But don't do this without
knowing all of the consequences. The lender does not have to accept the
property back from you. In fact, depending on how your mortgage loan is written,
the lender could actually sue you for any shortfall the property doesn't bring
at the lender's sale.
Make sure you get answers to the following questions:
If the lender does take the property back, will they agree
not to post it on your credit report? This is one point often negotiated with
the lender. After all, you did walk away from the equity.
What will the income tax consequences be in giving the
property back? There's a potential that the forgiven debt (the loan you're
walking away from) could be taxable as ordinary income. Talk about adding insult
to injury. You might lose the property and still have to pay federal income tax
on the forgiven debt. Be sure to check with your tax advisor before taking any
Giving the property back could be seen by subsequent lenders
in the same light as a foreclosure. Even though it's a voluntary action, it can
have a negative implication for your credit. Getting behind in mortgage payments
is never painless. But make sure you get the advice you need. Explore all of the
alternatives before bailing out of the property, because that could mar your
future financial picture.