If you have missed several mortgage payments for temporary reasons (temporary job loss, short-term illness, death in the family, military obligation etc.) that have now been resolved, how do you get back on track?
You can ask your lender for a “reinstatement letter.” The amount in the letter will include all missed payments, late fees and legal fees. Typically you will have 30 days to pay the amount owed. In this case, you will have to borrow the money from a relative or friend or get a salary advance from your employer. In many cases this is not a viable option.
FORBEARANCE OR RE-PAYMENT PLAN
This is where the lender allows you (the homeowner) to pay the missed amount over a period of time, or the lender places the missed payment on the end of the loan. The lender will require income documentation to prove that the reason you fell behind on payments was only temporary and that in your current situation you have the cash flow to make the adjusted payments now and going forward.
This process involves the refinance of a home with a reduction in the principal balance and sometimes the interest rate as well. Again, you (the homeowner) will have to show a hardship and proof that you can make the new payment now and going forward.
This is similar to a low interest refinance. The lender will lower the interest rate on the existing loan in order to reduce the payments. The lender may also reduce the principal balance on the loan. Again, proof of income and expenses is necessary to show the bank that you have the ability to pay going forward.
A refinance will only work if you (the homeowner) has equity in the home and can come up with cash for closing costs to close the new loan. Your payments will be lower if there is a significant reduction from the original loan amount (you’ve paid down the mortgage over many years) and a lower interest rate than what you are currently paying.
HOME AFFORDABLE MODIFICATION PROGRAM (HAMP)
This is a government foreclosure avoidance program. Government Link
HAMP works by modifying qualified mortgages
- Reducing the interest rate
- Extending the loan term to 40 years
- Forbearing, if necessary, a portion of the principal until the loan is paid off and waiving interest on the deferred amount.
SERVICE MEMBERS CIVIL RELIEF ACT (SCRA)
This law provides certain protection to military personnel that are in foreclosure in specific situations. Government Link
In brief, a service member may be able to receive a 6% cap on interest rates & temporary relief from paying their mortgage if going back to active duty caused a financial hardship.
Lauren B. Olson, Certified Distressed Property Expert