We were in foreclosure and agreed to a loan modification. We made the monthly payment on the modification even though we could not afford them. Our payment is $5,500 and our monthly income is only $8,250. Now the lender wants us to continue making the same payments. What can we do?
It sounds like you have been caught in the same foreclosure spiral as many borrowers over the course of the past decade. What is unique and somewhat alarming about your situation is that your lender agreed to accept monthly payments of $5,500 when you only earn $8,250 per month in gross income. Lenders typically apply a debt-to-income ratio of 43% - 50% to determine the mortgage payment you can afford. Your debt-to-income ratio is the maximum amount of your monthly gross income you can spending on debt expenses such as your mortgage payment, property tax, homeowners insurance as well as other debt such as credit card, auto and student loans. Paying that much of your income toward your mortgage payment is not affordable or sustainable in the long run. In short, you have two options to address your situation. Your first option is financial and your second option is legal.
The financial option is to negotiate a reduced settlement amount with your lender that includes your current loan balance as well as any late fees and penalties. Basically, determine if the lender is willing to take a lower amount than you owe them to pay off your mortgage in full. If they are willing to accept a reduced payoff amount, your next step is to approach a private money lender and see if you can qualify for a loan to pay off your mortgage. It is basically impossible to get a loan from a traditional lender while you are in foreclosure so a private money lender is likely your only option. The plan would be to use the private money loan to payoff your lender and then refinance that loan with a standard mortgage in two-to-three years after your credit profile has improved. Make sure that you can afford the monthly payment for the private money loan for at least two-to-three years. Based on your income, the payment needs to be significantly lower than the payment you are currently making.. Private money loans require you to pay a higher interest rate so your loan balance needs to be significantly lower for you to afford the payment.
We provide a comprehensive overview of private money mortgages as well as Six Things You Should Know About a Private Money Mortgage on FREEandCLEAR. If you apply for a loan with a private money lender be sure to fully understand the higher interest rate, costs and fees, including any pre-payment penalty, charged by the lender. You can use our FREEandCLEAR Lender Directory to search for private money lenders in your state.
Your second option is to pursue a legal solution. If you believe that your lender acted in bad faith or in a predatory manner, I recommend that you contact a real estate attorney to review your legal rights. You can also contact your state attorney general or the Consumer Finance Protection Bureau (CFPB) to review your situation more closely.
View All Lenders
Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
About the author