RESIDENT EXPERT
Daniel McGinn
Is Foreclosure for You?
Deciding to walk away or struggle with mortgage payments
Hyacinth O'Meally recalls the thrill she felt, less than two years ago, when she bought a two-bedroom, two-bath condo in Pembroke Pines, Fla. But as December approaches, she hasn't made her November mortgage payment yet—and she's searching for a way out. "I am thinking about walking away," she told me last week. "Would I be liable for the taxes and the balance of the mortgage? What would you do? Would you ride it out or walk away?"
Handing the keys back to the bank is a process nobody talked about during the housing boom, when we were all too busy choosing granite countertops and watching "Flip This House." But with the fallout from the subprime mortgage mess spreading, lenders say thousands of homeowners are looking for options. In O'Meally's case, she's considering a "deed in lieu of foreclosure," in which a distressed homeowner signs a property over to the bank to avoid a full-blown foreclosure. In certain circumstances, doing a "deed in lieu" can be win-win: the bank avoids the legal hassles of foreclosure, and the borrower's credit rating takes a smaller hit.
O'Meally, 61, bought her Florida condo in February 2006 for $228,000. She put down 10 percent of the purchase price. Due to various fees (the details of which remain murky), she paid $41,000 before closing. She ended up with an adjustable-rate subprime loan with an interest rate of 9.5 percent and a monthly payment of $1,669. Ouch. If those high closing costs weren't enough, O'Meally received a second surprise soon after the closing. She assumed her monthly nut of $1,669 included escrowed payments for property taxes and homeowners insurance. It didn't. Soon she was looking at property tax bills of approximately $4,000 per year on top of her mortgage. It was too much for her budget, she says.
Her situation grew worse last fall, when she was laid off from her $50,000-a-year job as a payroll administrator. She found a new one, but at a lower salary. By 2007 her monthly take-home pay had settled around $2,600 per month—and her mortgage, taxes and insurance ran more than $2,000, she says.
For the last year she has dipped into savings to pay her mortgage. But several months ago, with her rainy day fund depleted, she called the bank. After she sent in pay stubs and tax records, her loan servicer, Chase (which was not involved when she bought the property), agreed to modify her loan, adjusting her interest rate downward to 5 percent until 2009. At first, O'Meally was thrilled with her new $1,114 monthly payment. But this month Chase began including her property tax payment in with the loan—which bumped the monthly payment back up to nearly $1,700. With no savings to supplement her income, O'Meally says she can't do it. "I don't even have $10 in the bank now," she says.
Should she walk away—and would the lender allow it? I ran that question by several lenders and housing counselors. While her circumstances are unique, their advice applies to anyone who's in serious mortgage distress. Here's a rundown:
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Member Comments
Posted By: loanmod @ 03/30/2008 3:47:29 PM
Comment: After faling to get a loan modification on my own, I thought of walking away from my home. Then a friend recommended the loss mitigation experts of MIZNA ( loanmod.com ). I sent them an email and a rep called me the next day. They took me on as a client after completing a free evaluation of my situation to see if I was a good candidat for a loan mod. Once I was accepted as a client, they worked my case with my lender and got me results. Within 45 days, I had my house back and was given a fixed rate on my mortgage. I finally have a payment I can afford. My family owes everything we have to MIZNA. Those people are the best! Avoid foreclosure by getting professional help---check them out at www.loanmod.com .
Posted By: bmichelson @ 02/14/2008 3:11:14 AM
Comment: I hear this question all the time regarding foreclosures and providing assistance. what's the difference between using a HUD counselor and independent company such as these "Stop foreclosures" firms" ?
Bottom line , FHA is government sponsored and a great place to start. See their web site. It's companies like borrowerhotline.com that employ professional secondary mortgage market underwriters and compliance officers who are trained to spot technical errors in underwriting policy and procedures. All reports are sent to counsel and the Department of Housing and Urban Development. Negotiating a workout from a position of economic hardship is something most folks can and should do on there own! But to argue fro a position of being damaged under HUD definitions for predatory lending is something that requires a specialist. Maher Soliman, Managing Director borrowerhotline.com / / Newsweek "our best source" for information to keep us up to date with Washington and the nations foreclosure epidemic
Posted By: bmichelson @ 02/14/2008 3:08:40 AM
Comment: I hear this question all the time regarding foreclosures and providing assistance. "Whats the difference between using a HUD counselor and independent company such as these "Stop foreclosures" firms" ? Bottom line , FHA is gvoernement sponspred and a great place to start. See thier web site. It's companies like borrowerhotline.com that employ professional secondary mortgage market underwriters and complaince officers who are trained to spot technical errors in underwriting policy and procedures. All reports are sent to counsel and the Department of Housing and Urban Development. Negotiating a workout from a position of economic hardhip is somthing most folks can and should do on there own! But to argue fro a position of being damaged under HUD defeinition for predatory lending is somthing that requires a specialist. Maher Soliman, Managing Director borrowerhotline.com / / Newsweek "our best source" for information to keep us up to date with Washington and the nations foreclosure epedemic.