Almost nobody reads the entire mortgage contract when they are closing on their home. The whole process of getting through the application and approval is so stressful and draining that once the closing comes, it’s just a flurry of getting through all the “sign here” stickers so you can get the keys. But the rights and obligations set forth in the contract are very important, especially if you encounter a financial hardship and fall behind in payments. 

Q - Can my mortgage company sell my mortgage without my consent? 

YES – and it is the case, more often than not, that your loan will be sold – sometimes even right after the loan was issued. It’s very important that you read all correspondence you receive relating to your loan – what you may assume is just a monthly statement could actually be a notice informing you that you need to make payments to another entity going forward. Don’t just set up automatic payments and paperless billing and think you can forget about it – you always need to monitor your mortgage loan carefully for any changes. 

Q - I have a fixed-interest loan. Can my payment change? 

YES – and it will. Most new loans are fully escrowed – meaning the lender assumes the responsibility for paying your homeowners insurance policy and your property taxes. Your monthly payment has four components: Principal, Interest, Taxes, and Insurance (PITI). If your town increases or decreases the property tax rate, or your homeowners insurance rates increase, the escrow portion of your bill gets recalculated, and your payment amount will change. If your payment increases, but you continue mailing the lower amount to the bank, the bank will not apply the payments to your loan – instead they will put them in a suspense account until there is enough for a full payment, and then will apply it. They will start reporting the loan as late to the credit bureaus, and will add late charges and potentially other fees, and may start returning your payments. 

Q - My Loan isn’t escrowed. Can my mortgage company still increase my payments? 

YES – Even if your loan isn’t escrowed, the mortgage company will still receive notification if your property taxes aren’t paid or if your homeowners insurance policy lapses. The mortgage company has the right to do that, because your town/municipality is the only entity that has priority over the mortgage company when it comes to the lien on your property – the town can initiate a “tax taking” and administratively foreclose on your property, depriving the mortgage company of their rights. Because your home is the collateral for your loan, the mortgage company can, and will, pay your outstanding property taxes and then increase your monthly mortgage payment, sometimes very significantly, in order to recover that expense. They can also add a “force-placed” insurance policy to your loan if your policy lapses (or if you failed to provide a copy of your renewal to the mortgage servicer). Force-placed coverage can cost double or triple what a policy you buy yourself would cost – and it protects the lender, not you, in the event of any loss. 

Q - I experienced a financial hardship and fell behind in my mortgage. What options do I have? 

There are almost always options to avoid foreclosure if you have fallen behind in your mortgage payments. The most important thing to do is seek help early – many homeowners feel embarrassed to talk about the problem and wait until the problem seems insurmountable. The options that are available depend largely on what type of mortgage loan you have. If your loan is a “GSE” loan (government-sponsored entity, backed by a federal guarantee) like an FHA loan, a USDA loan, a Fannie Mae or Freddie Mac loan, then there are specific guidelines set forth for the loss mitigation options available, and your mortgage servicer must review you for those options. If your loan is a private mortgage loan, or your loan is securitized, then it depends on the proprietary options offered by the investor that owns your loan. Generally speaking, these options are available in the case of a financial hardship:

Forbearance. This option allows you to either skip payments altogether or pay a significantly reduced payment for a short period of time – generally up to six months.  This option is intended for borrowers who have a temporary hardship that is expected to be resolved within a few months, and generally borrowers are required to “reinstate” the loan at the end of the forbearance period by paying all missed payments in a lump sum. 

Loan Modification. This option is for when a financial hardship is expected to be long-term or permanent. A loan modification is not a refinance – it is a restructuring of your existing loan in order to create a more affordable monthly payment. With a modification, the lender can use a variety of options to lower your payment – they can decrease the interest rate, extend the term of your loan, or even create a balloon payment that will be due at the end of the loan so that your monthly payments now are smaller. Which options are available depends largely on who owns your loan. You must qualify financially for a loan modification – the lender has the right to require you to submit a loan modification application package, generally to include 3 months of financial documents (bank statements, paystubs, and past years’ tax returns). Many borrowers are denied loan modifications because they misunderstand the requirements. If you have applied on your own and been denied, that doesn’t necessarily mean you are not eligible – it means you need help. 

Short Sale. A short sale is an option to sell your house for less than what you owe to the bank, and the deficiency amount is forgiven so you don’t have to pay it back. It is a good option for someone who is upside-down on their property and can no longer afford the mortgage. The bank must approve of this option before you list the property for sale. You still need to submit an application package and certain required documents, and the bank will order an appraisal through an approved broker to determine the list price. 

Deed-in-Lieu of Foreclosure. If even a modification is not going to be enough to make the mortgage affordable, a “deed in lieu” agreement allows you to avoid foreclosure by voluntarily signing the deed back over to the bank in exchange for waiving any deficiency – so you can walk away from the property. An experienced attorney can help you to negotiate a deed in lieu agreement that will also give you additional time to transition out of the home, and even “relocation assistance” money from your lender to help you get a fresh start. 

Understanding your rights and options when it comes to your mortgage can be critically important if you experience a financial hardship and are faced with the potential of foreclosure. Massachusetts is a non-judicial foreclosure state – lenders can foreclose under the “power of sale” clause included in most mortgage contracts, without getting any court order to foreclose. 

Unfortunately, once certain foreclosure related documents are recorded, there is no shortage of scam artists that will come out of the woodwork promising you solutions. Many clients paid thousands of dollars to out of state companies (non-attorneys) that promised a modification that never came. It is critically important to get sound legal advice when facing foreclosure. While it is always best to address the issue as early as possible, even if your lender has scheduled a sale date to foreclose your home, there are still options to stop the foreclosure and get your loan back to a current status. 

Attorney Thurbide has helped dozens of clients obtain loan modifications to bring their loans current and specializes in wrongful foreclosure litigation to stop a scheduled foreclosure or in some cases even void a foreclosure that has already been completed.