Mortgage Question - Need Help Please

[DustMolecule]

My good friend called me the other day and told me that her bank (mortgage holder) called her. She has been one month behind on her mortgage payments for quite some time now. She had some unexpected expenses (car repair) which started this bad position for her.

Every month she talks to the same guy at the bank and tells him that she's gonna make the NEXT mortgage payment, but she hasn't 'seen her way clear yet' to get back to 'on time' - in other words to pay TWO mortgage payments. She is working to that end (going to school) to change careers and the banker guy knows this - they have very friendly conversations. He has been telling her all along, that 'out of all his past due accounts' he doesn't worry about her, cause he knows that she 'does what she says she'll do', unlike a lot of his other accounts and 'not to worry', just do your best to get caught up sometime.

Oki, now, he calls her and says that the 'managers at the bank' had a meeting and he has been directed to get all of his 'past due accounts' current....either they must pay up IMMEDIATELY or work out a deal where they pay a 1.5 mortgage payment for two months (which they must sign an agreement to do) OR the last option, if nothing can be worked out, the bank will issue a NOF (Notice of Foreclosure).

Questions: Can they do this? The NOF? She's only 30 days behind.
WHY are they doing this now? (She asked the bank guy this and he was silent, he was more concerned about how hard it was gonna be on him to contact all of his accounts by FRIDAY (tomorrow) as directed.)

With all the chatter around here about something BIG about to happen, this really makes me go 'hmmmm'. With rising prices on EVERYTHING right now, this is really making my friend's already difficult situation an impossible one. She's really not sure how to deal with this. Any thoughts/input would be appreciated. Thanks in advance.

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Mods: I posted this is GD because I know a lot of people don't go to the lounge, but if you feel it's appropriate to move it somewhere else, please do.

[gWbush is Mabus]

1. tell the chick to pay the mortgage

live off ramen noodles and pay the damn thing

[AP]

8. She should have paid the mortgage before she paid the car repair bills.

Always pay off your secured credit before you pay your unsecured credit.

If you can't afford to pay your credit card bills and your mortgage, pay your mortgage.

[lastliberalintexas]

18. Very true

Not that I am advocating that people intentionally screw unsecured creditors, mind you. But it is far more important to remain current in paying your secured debt.

With unusual monthly bills (such as car or HVAC repairs, medicals, etc.) the creditor is often very willing to work with people on re-payment. After all, getting $100 a month is better than getting zero.

[welshTerrier2]

2. beg, borrow or steal ....

i'm not an expert on this but i think that if you are "in default" on your mortgage, the bank has a legal right to foreclose ... this is probably very clearly stated in the mortgage agreement. it doesn't matter whether it's just a little bit of money or just a few days past due ... the legal right to foreclose rests with the bank ...

i would be less concerned about the bank's motivation and more concerned about how to get the mortgage paid ... without knowing the specific circumstances, it's hard to speculate why the bank shifted its tone so quickly ... one thought is that the mortgage is secured with the value of the property ... if we see a rapid rise in interest rates, property values could decline significantly ... soooo, perhaps the bank figures that they should foreclose ASAP so that they can sell the property before its value potentially becomes less than the amount owed on the property ...

it's really too bad that people can be pushed out of their homes ...

does your friend have any money saved in retirement accounts? it's not good to have to withdraw these funds but it would be better than losing the house and damaging a credit rating ... i would try to find a source of funds to get the mortgage current ...

[AP]

11. Before tapping out retirement income (and paying huge tax penalty) also

consider the possiblity of getting foreclosed.

It might be better now to get out of a house that can still be sold to fully satisfy the loan, rather than get foreclosed in a year when the sale won't satisfy the debt. You'd then have the yoke of that unsatisfied debt around your neck.

So, you might atuallly want to sell the house now (to preempt foreclusure), and buy a cheaper place while you can, or rent until housing prices drop.

[SoDesuKa]

3. Policy Change

The bank has changed its policy regarding overdue payments. Your friend has no way of knowing how many others like her there are, or how severe the delinquencies.

[AP]

4. Read the terms of the mortgage. The answer is surely yes. If you're one...

...month late, you can be foreclosed immediately.

Banks -- and anyone lending money -- will want all their money due at the first sign of trouble so that they can get as much back as possible. People who are cycling into debt tend to have less money month over month to satsify debts, so you can't sit around and wait for people to be totally insolvement before you have a right to get your money back.

The foreclosure process itself offers certain protections, and an opportunity to buy out your balance. But the ball really gets rolling once foreclosure starts.

As an aside, I've read that many banks have been carrying mortages that are far behind for the last few years because they were afraid that if foreclosures were initiated immediately, the markets would freak out, and the banks would lose tons of share value.

But you can only do this so long. The banks could benefit from rising house prices, so they knew that although they weren't getting their money, they could easily sell the house and recover the full balance of the loan.

I wonder if this bank manager suspects that housing values are going to plummet. I wonder if many bank managers are giving the same instructions.

[chelsea0011]

5. Bank owns the loan....they can do almost anything

[Hamlette]

6. have her call the Banking Commissioner in her state

they act in some respects as the watchdog for consumers, at the very least it should be a neutral agency. She can learn if the bank is violating the consumer credit code. If the Banking commish says the bank can do it she's gonna have to pay up.

In the alternative she can consult a banking lawyer but that seems stupid given her financial condition.

[camero]

10. Good advice

I would only like to add that she needs to find out which state the bank operates out of and find that state's banking commish. Usually the state where the bank operates out of is where the jurisdiction lies.

Found this out when my mom had a complaint about her bank. Another reason to get rid of interstate banking.

[Jacobin]

7. If they start to foreclose Chapter 13 will let her keep her house

and catch up the payment over time.

Banks just want to be paid on time. No conspiracy here.

[AP]

15. Not if there's a mortgage on the property.

I believe you can only protect property that you own in full (on which there is no mortgage) from being seized in bankruptcy.

The bank has a secured interest in your house. If you declare bankruptcy I believe that that would trigger the bank's right to forecluse on the property even if you were fully paid up on the loan! And if your bank is one of your creditors in bankruptcy, they'll be first in line to recover their money out of your house (and nobody else would be able to take the house).

[Catherine Vincent]

9. I agree with everyone else.

Pay the mortgage. That is way more important than other stuff. You wouldn't want your house taken away from you.

[AP]

12. But you might want to lose a house that's too expensive if you know that

you're going to be unable to pay the mortgage later.

It's better to get out of house that's too expensive for you now than it is to be foreclosed when you have negative equity in the house.

So, if you're afraid of your own solvency and if you belive prices are going down, and if you can find a cheaper place to live (within your means)...


Lots of things to consider here.

[Bunny]

13. I'm not positive about this,

and your friend should really talk to a lawyer, but: I think the bank has the right to start foreclosure proceedings. The important thing to remember is that this process typically takes at least six months. The part that I'm unclear on: I am pretty sure that at any time during this six month period, your friend has the right to bring the loan current. The bank may add late fees and other various charges. But, if she starts saving a little, maybe works an extra job for a few months, she can bring the loan current and this would go away. She may have to drop out of school for a semester to do this. It would not be easy, but better to really struggle for a few months than to get foreclosed. That is a nightmare from which recovery is long and grueling.

I'd bet if she called any general practice lawyer, she could get a free 10-15 minute phone consult which could clear this up for her.

[lastliberalintexas]

14. Typical lawyer answer: It depends

Very simply, it depends on the terms of her mortgage. Without actually reviewing her agreement, I can't give you an answer specific to her. But *most* mortgage agreements (or any other loan agreements for that matter) allow the holder to "call" the note, accelerate the debt and/or foreclose on real property pursuant to the terms of the contract. The fact that she is "only" 30 days delinquent is really immaterial to whether the bank can foreclose- if the contract allows for foreclosre after a delinquency of *X* days and she is *X* days delinquent, then the bank has the right to do so.

Since most mortgages allow the lienholder to foreclose, she is probably best advised to work out a solution with the bank. If she can make the 1.5 payments, then she should. If not, she should try to work out some other arrangement (like 1.25 maybe?). However, unless mandated by the terms of the mortgage, bank is under no obligation to "renegotiate" the terms of the note. If they are willing to work with her to prevent foreclosure, she needs to do everything she can to avoid it herself.

Again, this is all I can say without actually seeing the agreement and note. If she doesn't feel comfortable enough after reviewing the mortgage herself, she might try to find a local atty who will do it for free or for a small fee.

Best of luck to her. It does sound like she is fortunate to still be dealing with a local lender who is willing to work with her.

[ProfessorGAC]

16. Tell Her To Negotiate A Better Deal

First of all, 30 days delinquent is a very rare and short time to call past due.

The bank of which i'm a director, doesn't even have to, by statute, declare an account delinquent, until 90 days past due. We track the 30 and 60 day figures, but it's not legally, or GAAP, delinquent until 90 days. Our actual reportable delinquency ratios are based upon the balance of dollars 90 or more days delinquent divided by the whole loan portfolio. That's a published, and public, number.

I would say that she could negotiate a better deal than 2 150% payments. She could suggest one of three things:

1) Agree to pay 109% of normal payment for one year.

2) Tack the payment onto the back end of the mortgage and pay the principal and all accrued interest on the loan as the final payment.

3) Pay only the interest owed on the late payment over a 2 to 4 month period until the interest is collected. Then, the loan wouldn't be legally delinquent, but that month's principal would be unpaid until the end of the term.

There HAS TO BE a better deal. Banks are not in the business of selling homes. They don't want the house. They just want an assurance that they'll get their money back. There is plenty of room to negotiate a better deal.

However, your friend must make the first move to negotiate. The 2 150% payments is their opening play. It doesn't mean that they carved it into the loan officer's forehead. Any serious, and diligent attempt to set up a repayment schedule is an act of good faith that the bank will take seriously.
The Professor

[AP]

20. Banks have two conflicting interests: present nice financial statements to

the public so the stock price goes up, and protect their finances by foreclosing on homes before the market value goes below the the value of the loan if you're delinquent. They may not be in the business of selling homes, but they're really not in the business of hounding people for the rest of their lives trying to get a % of your income until you're fully paid up (especially in today's environment of stagnating wages and unemployment and super high house prices). If the bank can sell a house at a public auction and be completely covered, they'll do that now.

And, as several people have pointed out (GAAP accounting notwithstanding) the banks legal right to foreclose is triggered very quickly. This is a part of every contract to loan money. Miss one payment and the entire balance comes due immediately. That allows people to sue really quickly and get in the front of the line ahead of all your other creditors. No bank is going to agree that they can only seize the security for a loan 90 days after you start having trouble.

[comsymp]

17. And depending on what state the mortgage holder is located in

they may be able to finagle some kind of workaround, like attaching that payment to the end of the loan. Some states allow this, some don't. Has she asked them, point blank, what are ALL the options that are available? Not what was implied, not what she understood the guy to mean, but straight out.

[YNGW]

19. Foreclosure City

Mortgage lender here.

Hard to know all the answers since I don't know what state you're in.

Most responses here on on que. With a late payment (over 30 days) the lender has the right to accelerate the note calling it due and payable immediately, they have the right to add any attorney fees incurred against the payoff amount of the loan, and they have the right to foreclose on the house. That's why it's called a mortgage.

Others are correct in informing you that you must, before any other debt, pay your mortgage on time. Mortgage lenders want to know come hell or high water that you are going to pay them first before any other obligations.

Calling the Banking Commissioner isn't going to help you squat if you're truly late on your mortgage.

Once foreclosure starts, anything less than payment in full will be unacceptable.

Don't know about different states, but in NC, SC, Georgia, Tennessee, VA and Florida, Chapter 13 won't save your house. My guess is that's pretty true nationwide otherwise you'd have a bunch of people declaring bankruptcy and keeping their home while paying back the bank at a lower dollar amount than the Note requires, and banks can't operate like that.

Good Luck!