How can i restructure my mortgage
Facing Foreclosure? Tips to Help Restructure Debt and Deal with Mortgage Companies
Authored By: Iowa Legal Aid
When the foreclosure process starts or is just around the corner, homeowners must decide whether to stay in the home or move. This is not an easy choice to make. Homeowners may want to talk with a lawyer or financial counselor before deciding what to do. After foreclosure papers or letters from a lender arrive, many homeowners give up. They may start ignoring all phone calls and letters about the foreclosure. Homeowners can benefit by being proactive before and during a foreclosure. Knowing all the options will help. Here are some tips to help homeowners who decide to stay in their homes as well as those who decide to move out.
I just lost my job and couldn’t make my full mortgage payment. I’ve never been behind in payments until now but haven’t received any notices from my lender. What should I do?
- Homeowners should contact their lender right away - as soon as they realize they will not be able to make a payment. It is important to contact lenders before back payments accumulate. They may be willing to work with the homeowners and adjust payments.
I’m behind in mortgage payments, car payments, and credit card payments. I can’t afford to make payments on each debt - who should I pay?
- Homeowners who are behind with mortgage payments likely have other debts. Many creditors may be trying to collect. Homeowners should try to not get overwhelmed by these creditors. Also, homeowners should learn which debts are secured and which debts are unsecured. It is usually best to make payments on secured debt like your home mortgage and car loan before making payments on unsecured debt like credit card and medical bills.
Should I get a home equity loan? That would get the money I need to pay my bills.
- A home equity loan can be dangerous. It puts your home up as collateral, making the loan a “secured” debt rather than an unsecured debt. Homeowners should NOT take out home equity loans to make payments on unsecured debt.
I don’t make enough money to make my mortgage payment each month. Is there any way I may be able to keep my home?
- When making decisions relating to foreclosure, homeowners should write out a detailed current budget. Homeowners need to decide what can realistically be spent on house payments. Look at whether your current income can be increased. One way is to find out if you qualify for any type of public assistance like food assistance (food stamps) or medical benefits. Another way to increase income is selling assets such as extra vehicles. If this realistic calculation of current income does not allow you to make the mortgage payment, you probably should not try to keep the home. However, if you can adjust your current income to make the mortgage payment, work with the lender. Make back payments and it may be possible to keep the home. If you can’t pay because your interest rate and mortgage payment have increased, you should ask your creditor to reduce the interest rate or otherwise adjust the payments. You might want to talk with Iowa Mediation Service, which you can reach by calling the Iowa Mortgage Help Hotline at 1-877-622-4866.
I can afford to pay my mortgage each month, but I’ve fallen behind on tax and insurance payments. Is there any way to reduce these expenses?
- If you decide to stay in the home and make payments to the mortgage company, try to reduce other expenses so you will be able to catch up on back mortgage payments.
- Deal with any tax liens on the property. Check to see if you are eligible for any credits such as the property tax credit for persons who are elderly or disabled. You can find details on the property tax credit on the Iowa Legal Aid Website at iowalegalaid.org.
- Make sure your home is not over-insured. The property should be insured for the replacement cost of the dwelling -- not the value of the land and the dwelling.
- If you have fallen behind in insurance payments, the lender may have purchased an insurance policy to protect its interest. These policies can be much more expensive than regular insurance policies. You should find out if you can get a cheaper policy and contact the lender to cancel the policy purchased by the lender. You may be able to lower your utility bills by applying for low-income utility programs such as LIHEAP (Low-Income Home Energy Assistance Program) or doing a home energy audit.
I know I’m behind on my mortgage, but I’m not sure how much I
actually owe. What should I do?
- Contact your lender. Ask for information about your current mortgage payment
and any overdue payments (arrears) and fees. Compare the mortgage company’s records with your own records and look for any discrepancies.
I lost my job and couldn’t pay my mortgage for a few months. I have a new job now and can afford to make the payments. How can I work with my lender to keep my house?
- If you can realistically afford to make monthly mortgage payments and back payments, lenders may agree to set up various methods of payment.
- A “repayment plan” is a plan that calculates the arrears into the homeowner’s monthly mortgage payment. A repayment plan may increase your monthly mortgage payment because the back payments are combined with the current payment.
- A “forbearance plan” temporarily suspends monthly payments. When the homeowner begins making monthly payments, the back payment may be “recast” and paid at the end of the mortgage. This type of plan will extend your mortgage and will increase the amount of interest you will pay to the lender.
- In a “loan modification” the lender may agree to modify the terms of the mortgage by reducing the interest rate or extending the loan repayment term. In addition, some lenders may agree to reduce the amount you owe if the loan amount is more than the current value of the property. Lenders may be more willing to modify mortgage terms if the owner proposes a modification before a foreclosure action has started.
Will I be able to keep my home if I declare bankruptcy?
- Bankruptcy may be an option if you can afford to make monthly mortgage payments. A Chapter 13 bankruptcy allows homeowners to reorganize their debt and pay it back with a plan approved by the bankruptcy court.
I can’t afford to keep my home. Should I let the mortgage company foreclose, or do I have other options?
- If you decide to move, you may be able to sell your home and avoid foreclosure. Avoiding foreclosure can help protect your credit scores and get back equity.
- A short sale is a sale for less than the amount due on the mortgage. Since the sale price is usually more than the lender would get in a foreclosure, lenders will often approve them. Homeowners who decide to use a short sale to avoid foreclosure will have to list the property for sale and work closely with the lender to get approved.
- Some mortgage holders will accept a deed in lieu of foreclosure. This option can only be used if the homeowner has only one mortgage on the property. It cannot be used if the homeowner has taken out a second mortgage or home equity loan or if there are judgments against the homeowner. If this option is used, the homeowner should make sure the lender will give the owner plenty of time to move out.
What are the time frames in a foreclosure once the process starts?
- Homeowners facing foreclosure should be aware of the deadlines in a foreclosure suit. If you get behind in mortgage payments, the lender will send a “right to cure” notice. This notice will have a written breakdown of the money owed to the lender. After receiving this notice, you have 30 days to pay the lender. If you make this payment within 30 days, the lender will not file a lawsuit against you.
What if I can’t “cure” the problem?
- If you cannot afford to “cure,” the lender will file a lawsuit against you. You will be served with foreclosure papers. Once foreclosure papers have been served, you have 20 days to file an answer with the court. If you are served with foreclosure papers, contact Iowa Legal Aid as soon as possible. Attorneys at Iowa Legal Aid can help homeowners file answers with the court.
If I lose in court, what happens next?
- If you have not been able to make mortgage payments, the mortgage company likely will win the foreclosure lawsuit. When the mortgage company wins the lawsuit, a judgment will be entered against you. You can file a “demand for delay of sale” with the court BEFORE a judgment is entered. If you file papers to delay the sale, you will generally be able to live in the home for several months after losing the foreclosure lawsuit. This delay gains time to find other housing and save money for a deposit/down payment.
Where can I get legal help with a foreclosure problem?
- Helping low-income Iowans with basic needs such as shelter is a priority for Iowa Legal Aid. An attorney may be able to help negotiate with creditors, assist a homeowner file papers to delay the sale of the home, or provide representation in a foreclosure lawsuit. To find out if help is available from Iowa Legal Aid, call 1-800-532-1275.