Many homeowners find themselves in what is known as an upside-down mortgage situation during the recent economic crisis, meaning the equity in the home is worth far less than the amount the homeowner owes. With threats of foreclosure looming overhead, you may worry that turning over your keys to the bank and allowing it to repossess is the only option. Homeowners have stopped cowering under the threat of foreclosure, reversing the balance of power as if daring the bank to begin foreclosure proceedings. While it may be legal to negotiate this way, there are no guarantees it will work to your benefit.
Hire a foreclosure lawyer who can advise you on the laws specific to your mortgage loan. Taking on something as risky as not paying your mortgage could land you in more trouble than you're already in. A lawyer who knows the laws can help you take the right steps when you're ready to stop paying your mortgage and help you try to renegotiate with your lender for the actual value of your home, rather than the original mortgage loan.
Learn about the foreclosure laws in your state. Some states, like Texas and California, allow the lender to pursue collection outside a court of law, which can speed up the foreclosure process and force you out of your home. In other states, such as New York and Florida, lenders must go through the judicial system in order to begin foreclosure, which can significantly slow down the foreclosure process and allow you more time in your home even after you've stopped paying the mortgage.
Send a letter to your mortgage company asking to renegotiate the terms of your loan for affordability. With many lenders facing the inevitability of claiming their due through foreclosure, they may be willing to renegotiate lower payments and loan extension programs that guarantee them more money in the long run than they would receive through a state auction of your property.
Determine if your mortgage loan was bought out by the government. When the government owns the loan, the process for affordable loan negotiations when you've stopped paying your mortgage can take months, or even years, depending on the backlog of loans the government is trying to modify in your state. Rather than turning over your home, you could stay and stop paying until a government agent contacts you to negotiate an affordable loan program.
Meet with a debt consolidator and ask for advice. A number of paid debt consolidation subscriptions, such as You Walk Away, will do the work for you, but in many cases you will pay upwards of $1,000 for their services. When money is tight, that fee can be difficult to part with. There are free debt services that may be able to help you by sending letters to your lender on your behalf that mute constant collection calls and provide you with information on the mortgage laws in your state.
Many financial experts believe this process is a reversal of the balance of power, showing your mortgage lender that its threats will not scare you into submission. With thousands of homeowners facing foreclosure each month, many lenders receive only the current value of the home during state auction proceedings, sometimes even less.
Defaulting on your mortgage loan and facing foreclosure may do substantial damage to your credit. Talk to a credit counselor and a lawyer for advice on the best strategies to take in order to protect your consumer rights and your credit.