Underwater Mortgage Options

In the last few years, cash-strapped homeowners across the nation have been faced with a difficult dilemma: To keep scraping up payments on a home that might be worth less than what is owed or to throw in the towel and accept foreclosure. But the way through this difficult financial crossroad could be riddled with potholes that swallow the desperate and the uninformed.

Due to the continuing national economic downturn, which has been slowly rebounding locally, “underwater” mortgages are definitely on the mind of many East Enders, whether they are facing foreclosure or not.

Regardless of the demographic—from those of modest means to financial heavy hitters—for any number of reasons, hardship befalls a homeowner and in turn, mortgage payments fall behind. Notices come due, collection phone calls from the homeowner’s mortgage company become increasingly frequent, and in the opinion of one Southampton homeowner, an unpleasant anxiety sets in, and fast.

During a recent random sampling at Waldbaum’s grocery store in Southampton, Southampton Village resident Sue P. (who asked that she not be fully identified) said, “I would imagine there are few things worse than constantly facing the possibility of losing your home—something you have put years of blood, sweat and tears into—and if you, say, lose your job, or you have fallen ill and cannot work, the threat of losing your very shelter, it’s simply terrible.”

Homeowners in this position often face the complicated challenge of finding a remedy for their mortgage before it slips underwater.

Attorney Andrew Lieb of Lieb at Law in Center Moriches noted, before anything else the importance of maintaining a clear line of communication with the bank.

“If you are underwater, the first thing you should do is to timely answer the complaint when you are served with the foreclosure summons,” he advised. “Half of the people we see don’t put in an answer on time and therefore, are in default. As a result, this greatly shortens how long the bank will take to foreclose and the homeowner is left with even less time to find [another means to avoid foreclosure].”

Upon answering the complaint, there are three remedies homeowners might consider, according to Mr. Lieb.

“The first best practice strategy is modification, the second is short sale and the third is deed-in-lieu of foreclosure, though

the order of these three solutions may change based upon specific facts in a mortgagor’s life, including the need to stay in the home, finances and available foreclosure defenses, and ultimately, one should not ever consider a foreclosure unless they have previously filed a Chapter 7 bankruptcy and have not reaffirmed the note,” he said, adding, “Otherwise, they will owe money for the next 20 years.”

Modification is when the homeowner must prove to the mortgage lender that they are under financial difficulty and are unable to maintain payments at their current rate. In order to modify, the borrower must provide the lender with a financial hardship letter and proof of income, tax history and more.

The next option, short sale, is appropriate for borrowers who cannot pay their mortgage, but would benefit more by selling the mortgage back to the lender for less than what was still owed.

Another East End homeowner sampled randomly at the King Kullen grocery store in Bridgehampton, who also preferred to remain anonymous, said, “I think you should always try to keep a mortgage out of foreclosure; a short sale is probably the best option because all a foreclosure does is ruin your credit which makes it nearly impossible to get credit or a loan for some time. You might declare bankruptcy, and at least then, you are forgiven after a few years or so, but foreclosure is much less forgiving.”

The last option homeowners might consider is to obtain a deed-in-lieu of foreclosure. A deed in lieu may allow the borrower to save face—such as avoiding the printing of their name and foreclosure information in public records—and money. If the mortgage is in default, a deed in lieu will allow the homeowner to convey all interest in the property to the bank and avoid foreclosure proceedings altogether.

For some, the idea of foreclosing is merely a matter of facing financial difficulties head-on and dealing with the repercussions accordingly. An afternoon shopper at Bridgehampton Commons and homeowner who only recently paid off the mortgage on his Bridgehampton farmhouse, Phillip G., said, “You should always try to keep your mortgage in good standing, but if you can’t and you must foreclose, you face a harsh reality, but now you are given a blank slate of sorts. Though it will be hard times ahead, eventually you will bounce back, you just might have to rent for quite some time.” And, he added, “If I found myself in a different situation and my home was being foreclosed on, I would avoid it, at all costs. Short sale would probably be my best answer.”

The real estate market at present is riddled with home foreclosures. And in the opinion of another anonymous Southampton homeowner at the Waldbaum’s in Southampton, the reason behind it all seems fairly obvious: “So many people received sub-prime loans; they simply bit off more than they could chew and some of these lenders didn’t care ... They just kept telling homeowners, ‘don’t worry, your [interest] rates won’t go up for a few years and you will have moved on to your second home by the time that happens,’ and that isn’t what happened,” she said. “The economy dropped out, people starting losing their jobs and the rest is history.”

The reality of facing foreclosure is unpleasant, but there are free resources online to ease the concerns of any “water-logged” mortgagor. For example, HopeNOW.com, offers free advice to homeowners, including modification self-assessments, as well as means to contact nearly any mortgage company in the United States. If a mortgage company contact isn’t listed, there is also a free telephone hotline where operators offer live assistance. The site also offers links to mortgage counselors by city and links to government assistance websites such as MakingHomeAffordable.com.