Falling behind on the mortgage? Know your options!

Connecticut home prices have not recovered significantly over the last ten years, leaving many folks still underwater in their homes. While many have decided to sit tight and stick it out, sometimes life makes that impossible. When facing an employment relocation, job loss or change, divorce, income change or other life event – sometimes just holding out is not possible. When facing the prospect of no longer being able to keep up with the mortgage – you  have several options:

• Work out payment arrangements with your lender: While changing payment terms won’t help you out of a negative equity situation, if you wish to remain in the home and you just need a payment adjustment or some time to pull it together (your hardship is temporary), most lenders have programs available that may help with the size/terms of your payment. Just keep in mind you will still be upside down so if negative equity is your main issue – a change on terms will ultimately not help you (and may in fact increase the amount owed on the home). Loan modifications also do not remove parties on the mortgage so loan modifications rarely ed up being a viable solution in divorce situations.
• Short sale: If your main issue is being over-leveraged in the home and you are not able to stay (or wish to move away), a short sale is likely your best option to sell the home and settle your mortgage debt. This is generally the most viable solution when there is a relocation, divorce in which joint mortgage debt must be dealt with, when efforts to modify have failed, or when simply cutting loose from the home is the most reasonable solution but the loan balance makes a traditional sale impossible.
• Deed in lieu: A deed in lieu is basically a voluntary foreclosure. Instead of forcing the lender to foreclose to get title to the property, they agree to let you sign over the deed and give them the property. Deed in lieu’s are generally not possible if you have more than one mortgage or other liens against the property. Most lenders will also prefer that you attempt a short sale before they will allow you to apply for a deed in lieu.
• Foreclosure: Your least favorable option, especially in CT, where lenders are able to pursue for their losses after a foreclosure. Not only will foreclose take a significant amount of time (years likely), but after the home is foreclosed, you can be sued by the lender for the deficiency, and still have to deal with the possibility of paying up anyway. If you are already in foreclosure, CT offers a very helpful mediation program free to owner occupants.