HELP WITH MORTGAGE ISSUES

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Don’t let your fears paralyze you
If you are having problems making your mortgage payment, it may be helpful to know that lenders want to help borrowers keep their homes. After all, foreclosure is expensive for lenders, mortgage insurers and investors. Fearing foreclosure, most people are reluctant to contact lenders, adding more distress to their lives and making their situation even worse.

CONCERN: EAP can help you
The good news is that you have a confidential, free resource available to you, right now--today. CONCERN: EAP can help you get started on straightening out your financial situation. You will be able to speak with objective financial professionals that can help you identify suitable options and prepare you for that conversation you need to have with your lender. Some of these options may include:

Identifying areas in your monthly budget where you can reduce spending
Negotiating a modified payment plan or additional time to pay back your loan
Consulting with a Housing & Urban Development (HUD) approved housing counselor
Finding a qualified buyer to assume your mortgage

Talking with your lender
If you reach out to them, lenders are often motivated to offer alternatives to foreclosure, such as modified payments or extended contracts. When calling your lender to negotiate additional time or a modified payment plan, ask to speak to the lender’s Loss Mitigation department instead of talking to the lender’s Collection department. Talking to the lender’s Collection department will not help you as much; their job is to collect the full payment to bring your account current. A ‘work-out’ plan negotiated with the help of the lender’s Loss Mitigation department will be your way to get back on track with your payments, with your lender’s cooperation.

Housing counselors
If you are having trouble communicating effectively with your lender, contact a HUD approved housing counselor. Housing counselors can help you understand the law, organize your finances, and represent you in negotiations with your lender, if needed. To find a HUD-approved housing counselor near you, call (800) 569-4287 or TTY (800) 877-8339, or check HUD’s website at http://www.hud.gov.

If you can no longer afford your home
If you can no longer afford your home, your lender will usually give you a specific amount of time to find a purchaser and pay off the total amount owed. A qualified buyer may be allowed to take over your mortgage, even if your original loan documents state that it is non-assumable.

You will be expected to use the services of a real estate professional that can aggressively market the property. You'll need to find how much your house is actually worth, and you'll have to find a real estate agent you feel can sell the home within the amount of time allowed by the lender.

Pre-foreclosure sale or short payoff
If you can't sell the property for the full amount of the loan, your lender may accept less than the amount owed. In some situations, additional financial help may be available to pay other lien holders and/or help towards some moving costs. You may qualify if:

The loan is at least two months delinquent.
You (or your real estate professional) can sell the house within 3 to 5 months.
A new appraisal (obtained by your lender) shows that the value of your home meets HUD program guidelines.

Deed-in-lieu of foreclosure
As a last resort, you may be able to "give back" your property to the lender, and the debt will be forgiven. This will not save your house, but it is less damaging to your credit rating. This option might sound like the easiest way out, but it has limitations:

You usually have to try to sell the home for its fair market value for at least 90 days before the lender will consider this option.

This option may not be available if you have other liens, such as other creditor judgments, second mortgages, IRS or state tax liens.

For the lender, the foreclosure process serves to clear the property’s legal title of these other notes and liens.

Tax Consequences
As part of your decision-making process regarding your home mortgage, you should check with a tax advisor to find out potential tax consequences associated with any decision you make.

For example, with the two options mentioned above where the lender is canceling or forgiving the debt, you may have to report the forgiven amount as income for tax purposes, depending on the circumstances. Here’s why:

When you borrowed the money, you were not required to include the loan proceeds as income because you had an obligation to repay the lender.

If that obligation is forgiven, the amount you received as loan proceeds is reportable as income because you no longer have that obligation to repay the lender.

It is also important to understand that any time the lender agrees to accept less than the balance due on your loan, there is typically going to be a negative entry on your credit report that remains for at least seven years, as well as a negative impact to your credit score.

Worst case scenario
If you are considering bankruptcy, be sure to get advice from a qualified attorney. The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure.

The following is an excerpt from the Internal Revenue Service (IRS) website, http://www.irs.gov/newsroom/article/0,,id=174022,00.html regarding tax considerations for those who go through foreclosure:

Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

The IRS cautions that under the law, relief may be limited or unavailable in some situations where, for example, part or all of a home was ever used for business or rented out.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure. Though the winning bid at a foreclosure auction is normally a property’s fair market value, it may not necessarily reflect its true value in some cases. The IRS urges borrowers to check the Form 1099-C carefully. They should notify the lender immediately if any of the information shown on their form is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home (Box 7).

Avoid financial predators

Foreclosure prevention companies will charge you a hefty fee--often two or three months’ mortgage payment--for the same information and services that your lender or a HUD approved housing counselor will provide for little or no cost.
Beware of foreclosure recovery scams! Never sign a legal document without reading and understanding all the terms.

Help for military personnel
Reservists, guardsmen and other military personnel can find answers to questions about mortgage payment relief and protection from foreclosure provided by the Service members Civil Relief Act of 2003 (formerly The Soldiers' and Sailors' Civil Relief Act of 1940).

The Service members Civil Relief Act of 2003 limits interest that may be charged on mortgages taken out by a service member (including debts incurred jointly with a spouse) before he or she entered into active military service. At your request, lenders must reduce the interest rate to no more than 6% per year during the period of active military service and recalculate your payments to reflect the lower rate. This provision applies to both conventional and government-insured mortgages. The Act applies to active duty military personnel who had a mortgage obligation before enlistment or before being ordered to active duty.

This includes:

Members of the Army, Navy, Marine Corps, Air Force, Coast Guard.
Commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration engaged in active service.
Reservists ordered to report for military service.
People ordered to report for induction (training) under the Military Selective Service Act.
Guardsmen called to active service for more than 30 consecutive days.

In limited situations, dependents of military personnel are also entitled to protections. For more information see the Housing and Urban Development (HUD) website at http://www.hud.gov/offices/cpd/about/hudvet/library/scra.cfm.

http://www.concern-eap.com
800-344-4222

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The information presented is not to be a substitute for seeking advice specific to your situation from a tax, legal or financial professional. If tax, legal or financial advice is required, contact a tax specialist, attorney or financial advisor.