Last time, I told you that when you fall behind on your mortgage, the first person you need to speak with is a real estate agent. That’s because the first thing you need to figure out is whether you have equity in your home. I also told you to swallow your pride and sell your house ASAP so that you could walk away with as much of that equity intact as possible.
Now let’s say you ignored that advice. People bury their heads in the sand when things go wrong, desperately hoping that their problems will go away if they don’t confront those problems. Spoiler alert: the problems don’t go away.
The collection calls came, but you didn’t answer them. Maybe you did answer the first time they called, but when the person on the other end of the phone said they worked for the mortgage company, you told that person that you weren’t home. You memorized the area code and first three numbers of the bank’s phone number so that you could screen their call out every time. You told your wife and kids not to answer the phone if they didn’t know the number. All the while, your situation wasn’t getting better. You didn’t think it was getting worse, but it was.
Then, you ignored the mail that started coming. Forty-five days after that missed payment, you probably got a notice of default, and in New York, you got a 90 day notice. The 90 day notice for sure came by certified mail (it’s required by law to be mailed by regular mail and certified mail), which means you have to sign for it. Maybe you didn’t refuse to sign it, but you definitely didn’t go pick it up from the post office when the mail carrier left you that note on your door. You thought that somehow you were going to be able to catch up with your mortgage payments. You didn’t have a plan in place, but you subconsciously figured that if you didn’t face this problem, it would just go away.
In the meantime, the calls are still coming. You aren’t actually talking to the folks at the bank, of course – they’re going straight to your voicemail. The bank isn’t giving up, though. As a matter of fact, they don’t know what you’re doing, because their automated system is the one making the call and connecting an operator when someone picks up. If no one picks up, the system automatically makes a note that it called and that there was no answer. You may be able to fool yourself, but you can’t fool the computer.
Also, now your credit is shot. From the time when you started getting those notices, the bank was telling the credit agencies that you were behind on your mortgage payments. First they reported that you were 30 days behind, which is bad, but you can recover from that. Then they reported that you were 60 days behind, then 90 days behind, and before you know it, the bank is reporting that you’re 120+ behind. If you look at your credit report in color, those 120+ marks are in bright red. It’s curtains for your credit score.
So now, your mortgage problem is seeping into the rest of your life. You want to sign up for a Target card so you can save 10% on outfitting your kid’s college dorm room? It’s going to be terribly embarrassing when the poor cashier has to let you know in front of everyone on line that your application has been declined. Your car lease is up, so you head back to the dealership to return your car and pick up a newer model. You’ll be surprised when the lease payment goes up by $100 per month. Fine, so your car payment goes up. You are getting a new car, after all. But that monthly car insurance payment is also going up by $60. Why? Because auto finance companies and insurance companies are allowed to charge more to people who have bad credit. You have to face the facts that you’re now a person with bad credit.
Never deterred, and never willing to face the problem in front of you, you keep your head in the sand. You’re working on this big deal, and as soon as that deal comes through for you, you’ll pay the bank everything you owe them and things will go back to normal. That’s what you tell yourself. The problem is that you know deep down that your big deal is a long shot, and now you owe so much that your big deal may not even cover it.
OK, so you’ve ignored everything that’s happened so far. There’s more bad news coming though. You’re about to get served with a summons and complaint.
This is when the equity in your house starts to evaporate into thin air. Legal fees and costs are going to start mounting. According to the terms of your mortgage, you are responsible to pay your lender’s attorney’s fees and costs if they have to start a foreclosure action. So those bills are your bills. Your lender may also have been charging you a default rate of interest once you fell behind by one month. Your 5% interest rate might now be 16% or 24% or some ungodly number. All these things are eating your equity
The process server is coming to your house to serve you with the summons and complaint. By the way, you’re paying for that process server out of the equity in your house. Every time you evade service, the process serving company is charging the bank’s attorney, and when it comes time, that money is coming out of your equity.
So let’s say you had a little bit of equity in your property when you fell behind. Instead of swallowing your pride and walking away with that equity, you’ve now cost yourself that equity by choosing to ignore your situation.
All of that happened, and you can’t change it now. What do you do?
First, you should call an attorney. Once a summons and complaint is filed (even before then), it’s a good idea to have an attorney who knows the process representing your interest. Since your equity is now gone, you have to shift your focus on what you want to do. An experienced lawyer will flesh out those options for you and help you figure out which way to go from here.
Since your equity is gone, your strategy might be to delay. Delay long enough for you to save enough money to get another place to live after this is all over. Lawyers are good at delaying things. You’ll have to take my word on that. More on delay in a future post.
You might want to work out a modification with the bank to keep your house. If you have no equity, I think this is throwing good money after bad, and is therefore a bad idea. You may not agree with me, and that’s OK. As the homeowner, it’s your decision to make. An experienced attorney can help you navigate the procedure of getting a modification.
Maybe your big deal does come through, but it’s not enough to get you current again after all of the attorney’s fees and the process server’s fees and court costs. An attorney can help negotiate a reinstatement for less than the total amount owed. Since there’s no equity in the property, a lender might take less than what they’re owed so they don’t have to throw tens of thousands of dollars at this foreclosure that they ultimately can’t recoup from a sale of your house. Banks respond better to an attorney than a borrower. When a borrower has an attorney, there’s a threat of litigation, and litigation costs money. Yes, they’ll try to charge you for it. Since you have no equity, they won’t get it back. The best they can do is use that money as a tax write-off.
Here are the takeaways: 1) Don’t ignore your problems when you start missing your mortgage payments; 2) don’t ignore communications from the bank; 3) don’t ignore the signs that your mortgage problem is infecting other aspects of your life; 4) definitely don’t ignore the summons and complaint when you get served; and 5) you need to speak with an attorney right away.
Jason Sackoor is a real estate attorney in Queens, New York concentrating on foreclosure and real estate litigation. You can check out his website, e-mail him, or call his office at (718) 767-3333 to set up a consultation.