Mortgage Relief FAQs

Why do banks NOT want to foreclose on homes?
Banks are not in the business of holding and selling real estate. The foreclosure process is expensive and time consuming and will ultimately lead to the bank losing money. The Bank’s primary goal is to make money by lending money and earning interest. They do this by having homeowners pay their mortgage on time, every time.

How does the foreclosure process work?
Usually a mortgage document will have a “power to sell” clause that allows the mortgage holder to sell the property upon default without filing a lawsuit. The mortgage company will usually first “file a notice of substitute trustee” at the County Registry of Deeds. The substitute trustee is usually a company or law firm that will conduct the foreclosure. A notice of hearing is then filed and a hearing is held before the Clerk of the Superior Court. If the Clerk agrees with the findings, then he or she will authorize the sale of the property at auction. The whole process can take as little as 60 days.

What can I do to keep my ARM (Adjustable Rate Mortgage) from going up?
An ARM is an Adjustable Rate Mortgage where the interest rate is adjusted up or down, usually after a fixed period of time. The mortgage instrument will indicate the date the mortgage will adjust. If you have an Adjustable Rate Mortgage that is about to adjust up, you can call the bank and try to negotiate with them. You may be able to convince the lender to have your mortgage modified so the rate will not increase. You will have to prove you will have difficulty paying the mortgage if the interest rate is increased.

What is a hardship letter?
A hardship letter is a letter the borrower writes to the lender explaining why there are problems paying the mortgage. This letter should include the specific incidents that caused the inability to pay (losing your job, etc.) as well as dates and time frames. The letter will be kept by the lender and help alleviate the borrower explaining the situation over and over again with different lender personnel. The hardship letter will also be part of a lot of other documentation the lender will need in order to justify making concessions on the borrower’s behalf.

What are primary and secondary lien holders?
The primary lien holder is the first lender to record a mortgage lien on the property. All later lien holders are called secondary lien holders. In the event of a foreclosure or sale, the primary lien holder gets paid off first. Any remaining funds go to pay off the secondary lien holders.

What is a deficiency judgment?
A deficiency judgment may be held against the borrower when a property is sold due to a mortgage foreclosure. This can occur when the first and/or second mortgage is not fully paid with the funds derived from the auction sale. Even though the homeowner has lost his or her home due to foreclosure, he or she is still liable for the balance due on the unpaid mortgage.

What is a short sale?
A short sale occurs when the lender agrees to allow the homeowner to sell the home for an amount less than the remaining balance owed on the mortgage. The lender will usually cooperate in a situation like this when the homeowner shows that he or she does not have the ability to pay the mortgage and the home value is less than the amount owed on the mortgage. A short sale may be a good alternative to foreclosure because it is much less damaging to the mortgage holder's credit, usually takes less time than a foreclosure, and saves money for the lender.

What is “Deed in lieu of foreclosure”?
A Deed in lieu of foreclosure is exactly as it sounds. The bank allows the homeowner to sign over the deed to the lender instead of proceeding with foreclosure. This course of action provides few advantages to the homeowner because it has about the same impact on the mortgage holder’s credit as a foreclosure.

How does a foreclosure affect my credit?
A foreclosure is considered one of the worst items that can appear on your credit report. A Deed in lieu of foreclosure is only slightly better. Both will stay on your credit report for 7 years. It will be very difficult, if not impossible, to be approved for another market rate mortgage for at least 3-4 years after foreclosure. A short sale may be a good alternative in this situation because it eliminates the foreclosure and has much less impact on your credit rating. The credit impact is lessened because you took positive steps to remedy the situation. The downside is you still lose your home.

If faced with foreclosure, what can I do to keep my home?
You must communicate with the lender at the earliest possible time, preferably before late payments are made to the lender. Usually after 2-3 months in default, the lender will proceed with foreclosure. After foreclosure proceedings are started, it is very difficult to negotiate with the lender. You want to communicate with the lender and explain that you are doing an analysis of your situation in order to present a proposal package suggesting a workable solution to the default. The proposal may include a loan modification, refinancing or temporary forbearance to stabilize the ability to pay. To be successful, your proposal must fall within the servicing guidelines the lender must follow in order to reinstate a loan in default.

What options are available if I find I can’t keep my home?
If the reason for not being able to pay the mortgage is of a long-term nature like divorce or medical problems, you may not have the ability to present a reasonable plan to the lender to resolve the delinquency. If this is the case, your primary motivation for avoiding foreclosure is to protect your credit rating. If the home can be sold for more that the mortgage and costs of sale, you can work with the bank to give you time to sell the property through a regular real estate broker.

If, on the other hand, the value of the home sale will not cover the costs of sale and the mortgage payoff, you may be able to negotiate a short sale with the lender. A short sale involves working closely with a real estate broker and negotiating with the lender to sell the home at a price that will pay off an agreed upon portion of the mortgage. The bank agrees to accept a lesser amount than the amount owed under the mortgage and “forgives” the remaining unpaid balance. Lenders will cooperate with a short sale if they believe they can remove the asset from their books quickly and recover approximately as much as they would in a foreclosure sale.

What about declaring bankruptcy?
Bankruptcy stays on your credit report for 10 years and has the worst impact on your credit rating. It is not recommended. Also, the Bankruptcy law has been changed in a way that makes it more difficult to successfully file for Bankruptcy. Anyone considering this should see a competent Bankruptcy attorney.

Where can I get more information on avoiding foreclosure?
There are numerous places, especially on the Internet, to get information on avoiding foreclosure. There are also many unscrupulous and unethical people and companies who are all to willing to take advantage of your mortgage problem for their own gain. North Carolina has recently established a fund to provide counselors, free of charge, to assist homeowners at risk of foreclosure. For assistance, call the Office of the Commissioner of Banks.

How can I best protect myself if I experience mortgage problems?
As CPAs and REALTOR® / Brokers, we at Triangle Realty Professionals have the experience and integrity to champion your best interests. Feel free to call James Snell, CPA, Broker at 919-264-0377 or email at jsnell@trianglerealtypros.com for more information.