FREQUENTLY ASKED QUESTIONS
1. Should I pay my mortgage?
That question is troublesome. It is almost crazy to advise someone not to pay their mortgage but in certain circumstances that is exactly the ‘right’ thing to do. If your house is worth less that your mortgage then there is almost no economic advantage to paying the mortgage. Certainly, you may want to pay to keep harmony at home but from a strictly economic viewpoint there is no advantage to paying the mortgage when you are underwater. In a typical situation your home was purchased for $300,000 and you received a mortgage for $240,000 at 7%. You put $60,000 of your hard earned money as a down payment into a house that the bank told you were worth $300,000. Now the house is worth $180,000 and the bank is advising a short sale as one of the alternatives. Why should you lose your $60,000? Didn’t the bank tell you the house was worth $300,000? The only way, under these circumstances, to get back any of your $60,000 is to stop paying you mortgage of $1500 a month and fight the foreclosure until the bank reduces the principal on your loan. Take the $1500 a month and put it in a savings account (at a different bank that that of your mortgage). At the end of a year you will have $18,000. Of course, there are other considerations but under the ‘underwater’ scenario described above you will never be able to sell your house, you will never recover your investment and you will be trapped into paying the bank for an asset that is not worth what they said it was worth.
SEE THE DO IT YOURSELF FORECLOSURE DEFENSE MANUAL FOR MORE INFORMATION ON DEFENDING A FORECLOSURE
2. What is a short sale?
a. A homeowner is 'short' when the amount owed on his/her property is higher than current market value. For example—your home is worth $180,000 but you owe $240,000 in mortgages.
b. A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.
3. Should I try a short sale of my home?
That is a personal decision but we can give you something to consider in a short sale situation. Often times the negotiations for a short sale are long and drawn out. Be prepared for a difficult few months of dealing with the bank. Additionally, a foreclosure may be pending in court. You cannot ignore the foreclosure just because the bank is considering a short sale. We have seen many cases where the bank says that they will consider a short sale and where the bank continues the foreclosure. Do not be lulled into complacency. See the DO IT YOURSELF FORECLOSURE DEFENSE MANUAL for more information. Most of the time the bank is not eager to sell the house at a loss. The bank will consider a short sale because they feel that they will get less if they foreclose and sell the property themselves after going through the costs of a foreclosure and upkeep of the property. In all circumstances you must be concerned about the following:
a. Receiving 1099 (Tax Form) showing a tax gain to you for the discount of the mortgage
b. Your credit—Will it be repaired?
c. Will you have to sign a promissory Note to the Bank for the difference between the mortgage and short sale price? You can bet that the bank will try. Require an agreement wherein the bank agree to cancel the debt (at closing) prior to entering short sale negotiations.
4. HOW DO I QUALIFY FOR A SHORT SALE?
To qualify for a short sale, you must fall into all of the following circumstances:
· Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
· Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
· Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
5. WHAT IS A LOAN MODIFICATION?
A loan modification occurs when the bank agrees to change the terms of your mortgage from the original agreement. A modification may include a lowering oft the interest rate, a reduction of the principal amount a forgiveness of past due payment or a change in the term of the mortgage. Currently banks are grudgingly offering a lower interest rate.—some as low as 2 or 3 % for a short period of time. Almost no banks are reducing principal so get that thought out of your head. Almost nope are forgiving past due debt and most are trying to stretch your mortgage from 30 years to 40 years so that they can get another 10 years of interest.
6. WHAT SHOULD I DO IF I AM SERVED WITH A FORECLOSURE?
The simple answer is do not panic. Certainly you feel badly when you are served legal papers in such circumstances. But do not be afraid. You have a wealth of information and an arsenal of defenses to any foreclosure. Research the issue and if you are so inclined get the DO IT YOURSELF FORECLOSURE DEFENSE MANUAL. With the pleadings, defenses and discovery contained in the manual you will be able to defend the foreclosure, stay in your home and hopefully modify your loan so that it more accurately reflects the current and true value of you home in today’s market. Review the pleadings carefully, make a timely response and begin the campaign to get yourself some justice. FIGHT BACK AND WIN!!!
7. WHAT IS A HAMP?
Hamp is the Homeowner’s Affordable Modification Program instituted by the US Government to prod and cajole banks into modifying mortgages. In most cases the government is paying the bank to modify your loan. In most cases the bank receives a payment of $1000 for each of three years to modify the loan. The homeowner can also get a $1000 tax credit for the same period if you stay current. Additionally, the program attempts to limit your housing expenses to 31% of your income. That mean principal, interest taxes insurance and homeowner’s dues (if any). The program has potential and can be very helpful but the banks are applying their own criteria and underwriting and are making it very difficult for homeowners to qualify. Additionally the banks are requiring that the modifications begin with a trial period. In other words you have to make three or four timely payments to the bank before the bank tells you whether you qualify. To us at UDOLEGAL –if you do not qualify-- then you have lost those three or four additional payments. We do not believe that the program, as currently being applied, is worth the effort. Additionally, most homeowners need not only a modification but principal reduction of the mortgage amount. Until principal reduction is on the table we are advising against the HAMP program. See the UDOLEGAL.COM LAW SCHOOL AND EDUCATION CENTER for a complete description of the HAMP program.