What Are My Options Regarding My Mortgage?

Homeowners who are unable to make the payments on the mortgage on their home have several options to consider. The purpose of this article is to summarily discuss each of the options.

The first option is to seek a modification of the subject loan. You need to contact the lender to see if the lender will agree to modify the terms of the mortgage and note to change their terms. The modification may include an adjustment in the interest rate, the term of the loan, the payment amount, a revision of the principal amount due, or other terms to help you avoid defaulting under the terms of the loan.

Another option is to give a deed in lieu of foreclosure. Here, you offer to convey the property back to the bank in lieu of the bank filing a foreclosure action against you. If the lender agrees to your deeding the property back to it, you need to negotiate with the lender to obtain a release of any amounts due. The lender cannot accept a deed in lieu if there are any subordinate liens or encumbrances on the property. Documentary stamp tax needs to be paid on the remaining balance due on the loan

A third option is for you to try to sell your home and satisfy the outstanding mortgage. Unfortunately, because home values have substantially declined, often the value of the home is less than the amount of the mortgage owed. When this happens, the process of selling the home for less than is actually owed on the mortgage is called a “Short Sale”. The primary benefits of a short sale are that the owners have say in the sale of their home and they can often negotiate with the lender on whether any balance will be due and the terms of repayment, if any. The owners may not receive any proceeds or other benefit from the short sale.

Unfortunately, lenders generally will only consider the above options if certain conditions exist. Such conditions include: the mortgage is in default or close to default, the homeowner has suffered a recognized hardship (eg. unemployment, medical issue, death, bankruptcy, etc.), the property’s market value has dropped, and the homeowner has little or no assets from which the lender could recover a deficiency judgment.

The final option is to allow a foreclosure to occur. In Florida, the foreclosure of a mortgage involves a lawsuit where the holder of the mortgage and underlying note, called the “mortgagee”, asks the court to determine the amount that is due to the mortgagee/lender and then cause the sale of the mortgaged property on the “courthouse steps” to satisfy such obligation. The reason it is called a “foreclosure” action is because the lawsuit “forecloses” or wipes out any junior liens that may have attached to the property after the recording of the mortgage.

Lenders are not required to release the borrowers from any remaining balance due on the loan and may require the borrowers to repay a portion of the remaining debt. If the lender does release the debt, the lender must issue a 1099 for the forgiven debt. However, there are many situations in which such forgiveness is exempt from such tax liability.

Any person considering any of these options should obtain competent legal counsel to assist them in protecting their interests.