What are the steps to take if cannot afford mortgage payments?

Asked by Ochome949, Orange County, VT Tue Sep 30, 2008

I have a retired parent that cannot afford to make his monthly mortgage payments. He does not work anymore and paying his mortgage by the lump sum he took from his pension plan. He will have to give up the house and rent something affordable. Should he call the lender and ask if he can do a short sale? What is the best way for him to exit and walk away from the house? If he sells the house and is worth less from what he bought it for, if he does a short sale, will he stilll owe the creditors and can they attack his 401k retirement? What is the best solution? Please advise. Thanks!

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Daniel Klein, Agent, Beverly Hills, CA
Sat Jan 7, 2012
Your family needs to consider doing a short sale, or putting the house on the market. The property will languish in foreclosure for a while. Since there is little income, doing a modification may not make sense.
Once you have listed your property, start looking for another place to live.
There are federal laws that will prohibit a lender from coming after the property, and the IRS will not 1099 you for the difference.
This is the smartest thing you can do right now.
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Jane Grant, Agent, Aguanga, CA
Sun Feb 7, 2010
For anyone reading this question for the same kind of advice about what to do if you cannot afford your payments please ask a Real Estate Attorney. Also, get advice from a Tax Consultant. There can be major tax implications and lender recourse after the short sale or foreclosure.

The laws differ from State to State and there is no pat answer for this question. Getting the advice from the correct professionals is absolutely imperative.

Don't depend on the lender's loss mitigation department to tell you all of the facts. They are not legal experts!

Web Reference:  http://www.soreal.biz
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Keith Sorem, Agent, Glendale, CA
Thu Oct 2, 2008
I recommend a couple of steps:
First, I would not talk with the lender first. If your parent needs to sell as a short sale, then he will want to minimize his financial situation.

If he opts to try to negotiate a loan modification, he'll have to qualify for the loan full doc, just as if he was buying the property.

So the FIRST STEP is to talk with a Realtor that has some experience with these matters. Ask friends, family members, or if you like I would be happy to refer you to a expert in your area.

The key thing here is that time is of the essence. These steps should be taken immediately as home values are declining.

Best of luck to you.
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Mary Morris, Agent, Mission Viejo, CA
Thu Oct 2, 2008
The very first thing for your parent to do is to talk to his lender's loss mitigation department. They may have a program which allows them to reduce your payment and add it to your loan, or many other programs which lenders are able to provide (if they choose). If your parent isn't able to afford a reduced payment, then a short sale would probably be a good idea. The lender won't approve a short sale without a offer on the table. How this works is that your parent would hire a realtor, just as he would for a traditional sale but he should pick one who specializes in short sales or uses a 3rd party short sale negotiator. The agent will ask him to write a hardship letter, prepare copies of his income taxes and any other documents the bank needs, and send those along with the first offer that is received on the property. The bank will then review the information and hopefully approve the short sale, but this does take time. Your parent needs to know that the banks move at a VERY slow pace. It can take anywhere from 6 weeks to 16 weeks for them to come back with an approval or even a counter offer. A lot of this depends on the bank.

The government waived the income tax rule that was in place, where the home owners who had to sell as a short where sent a 1099 for the difference in loan amount as income. I'm not sure if they will still waive that next year. As for the other creditors, that has nothing to do with the short sale unless you are talking about a 2nd or 3rd loan on the property, overdue property taxes and past due HOA's. Those are all part of the short sale agreement.

Hope this helps. I'd be happy to talk with you more about this. Please feel free to contact me anytime via email or phone.

Mary Morris, Realtor
California Real Estate Services
(949)202-6306 Cell
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Scott Godzyk, Agent, Manchester, NH
Tue Sep 30, 2008
Your first call should be to the bank, ask for the home retention department and ask what they caqn do for you,. the other option is a reverse mortgage, they can pay off teh mortgage and there are no mortgage paymnts, check with a local and trusted mortgage broker who offeres reverse mortgages in yoru area. stay awy from the internet lenders. If those two ways to save the house fail then yes ask for a short sale, you will need a realtor experienced in short sales to guide you through, ask teh bank to mail you a short sale package. make sure the realtor is experienced and do not pay anytghing up front fro assistance. good luck in working things out.
Web Reference:  http://www.ScottSellsNH.com
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Robbeaux, , Lafayette, LA
Tue Sep 30, 2008
I am sorry to hear about your situation,
Should he ask for a short sale? There is no pre-approval process for a short sale in most cases. In order for most lenders to consider a short sale they need to see a few things.
1. A financial hardship backed up with bank statements, proof of income,and a financial worksheet
2. A broker price opinion showing the home is worth less than what is owed
3. A contract with a pre-approved buyer

As to the question oweing the creditors; a good short sale agent should help limit that exposure so they won't deplete his 401K
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Dallas Texas, Agent, Dallas, TN
Tue Sep 30, 2008
Contact the bank, they may work out a deal with your parent. However short sales are an option, sorry to hear about this.
http://www.lynn911.com http://www.homes-for-sale-dallas.com
Web Reference:  http://www.lynn911.com
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