Five things you should think about when you are having trouble paying your mortgage.

In my practice of law I frequently interview people that are having problems with paying their mortgage, because of job changes, family problems, and other life circumstances. I have found that most of the stress and worry that people feel is because of a lack of information. Essentially people fear what they don’t know, so let’s start by tackling one of the biggest misconceptions and myths.

1. The bank just wants to foreclose on me and take my home.

Banks are business that are heavily suffering a lot of challenges right now, but they still are mostly interested in making money for their shareholders, and not necessarily taking people’s houses away indiscriminately. Most homes that are in foreclosure are “upside-down,” meaning even if the bank took the property at the foreclosure sale they are not going to get back everything that was owed to them. What I find triggers this believe in the people I talk to is that the banks they are with are overwhelmed by too many foreclosures, legally and operationally disorganized, or lazy, or even a combination of all of these things. People get frustrated dealing with the bureaucracy.

2. Consider a Short sale.

Some people have thought about doing a short sale to get out from under a home that they can neither afford to pay for nor sell for the amount that they owe. Most real estate agents will be the first to tell you that they cannot give you legal or tax advice regarding a short sale. The legal and tax implications of a short sale can be more serious than you might suspect. If the property is sold for less than the amount due to the bank, you may be responsible for the difference, and could find yourself in a law suit after the short sale. Banks are also required to send out 1099’s showing the amount that you did not pay; this amount is usually considered income by the IRS. If you are considering a short sale, I recommend that you not only work with a real estate agent that has a proven track record on short sales, but that you make sure you also talk with, legal and tax professionals regarding you short sale and the consequences that it will have for you in your state.

3. Foreclosure is a long process.

Every state has a different process that the banks must take to complete a foreclosure sale. You should talk to an attorney in your state to make sure that you understand the timeline involved. Some of the people that I speak to are worried that there will suddenly be a sale of their home without their knowledge, or that somebody is going to schedule a sale when they are only a month late on payments. This is unlikely. In Utah, for example, there is a waiting period of 90 days after the first notice of default and election to sell before a property can actually be sold at auction. In addition to this 90 day period, the banks most likely will have spent several months attempting to resolve this matter directly with you, and even after the time for a sale has come, very few of the properties go to sale that quickly. I, of course, am not suggesting that you don’t take your foreclosure seriously. You should work with a competent professional or directly with the bank to get the best result from the bank, but it is helpful to know the timeline is not as rushed as some think it is.

4. Negotiate!

Most people I talk to assume that their situation is set in stone, and that they have very few options. they don’t realize that they can try to renegotiate or modify their loan to something that will work for them. Renegotiating your loan is a complex and tedious task, to be sure, but it can be done. Some times people get frustrated because of the poor communications from the bank and mixed messages they are getting. If you feel like you are getting nowhere with the bank, or getting the “run around” I encourage you to contact an attorney that works in a foreclosure area to help you cut through the bureaucracy and get through to a decision maker at the bank.

5. Help is available.

Millions of people let their homes go to foreclosure every year because they don’t realize that they can get help. There is a veritable army of attorneys, real estate agents, and other professional that are dedicated to helping people make the best out of their situation. Even if you feel like you situation is beyond repair, make a few phone calls and ask some questions. It is free and you might discover options that you did not know you had.