Avoiding Foreclosure Using Mortgage "Workouts"

 

The economy is in rough shape these days so banks are in general more willing to consider financial deals that a few years ago they would have laughed at. 

If you’re facing foreclosure you might want to consider this approach. A man goes for a mortgage with the intent of signing a 30 year fixed payment mortgage – the traditional kind of mortgage that your grandparents probably had. 

But when he arrives at the bank he’s told that those “old” mortgages are no longer available. He is then presented with an adjustable rate mortgage that allows the bank to raise his mortgage payments at any time after the first year. But during the initial 12 months the payment is much lower than the older 30 year deal – that’s the hook the bank uses to entice you into signing the contract. 

18 months later the man is shocked when he receives a notice from his bank more than doubling his monthly mortgage payment! This new much higher payment doesn’t fit into his budget and leaves him unable to make the payments. 

He returns to the bank and complains that originally he wanted only the fixed traditional mortgage but that the saleslady (who received a huge commission check for getting him to sign the adjustable mortgage contract) pushed him into buying into something he didn’t want. The bank is at fault for not providing him with what he desired. 

Unfortunately the bank sees things from an entirely different angle. They feel the man should have known what he was doing and because he signed the contract he was liable for the newer, higher payments. The bank denies that their saleslady did anything improper. 

In some cases requesting that your adjustable rate mortgage be converted to the more affordable 30 year traditional deal will work as the bank will take half a loaf rather than end up with yet another unmarketable house on their books with taxes and maintenance costs. 

Some banks will accept putting your arrearage at the end of your mortgage loan either over an extended period or as a lump sum balloon payment. 

Others will accept lowering the interest rate so you can afford the payments and stay in the property for the foreseeable future. Again their goal is to avoid you sending the bank “jingle mail”. (Jingle mail is a slang term for when a home owner decides to abandon the property and move to parts unknown. They send the mortgage bank the keys to the property in an envelope – an envelope that jingles.) 

Another arrangement is the “deed in lieu of foreclosure” approach. The home owner surrenders the deed to the mortgage holder. In return the bank promises not to foreclose and will not pursue the former owner for any additional money.