Part 4: Experts answer your credit questions

Here’s another installment of answers to your credit and debt questions, provided by Consumer Credit Counseling Service of Greater Atlanta.

Please return Thursday for the final part.

Q: I financed 100% of the price of my home in 2007 with a conventional 30-year fixed rate mortgage. Because I financed at 100% I also pay private mortgage insurance. I enrolled in a payment plan that takes half the mortgage payment biweekly and consequently I make a 13th principal only payment each year.

My husband and I are thankfully both still employed but our household income will be cut by 6% beginning this month. Previously I called the mortgage company to see if my payment could be lowered. I asked to have the private mortgage insurance removed and I was told no because I have not paid the mortgage down to 80%. Essentially, they didn’t offer me any relief because I was not behind on the mortgage. Are there any things in particular that a homeowner can request to receive relief prior to getting behind on a mortgage?

A: Making 13 payments a year is fine when you can afford it, but now with diminished income it seems more appropriate to reduce your payments to once a month – or 12 per year – until you get back on track. Before you contact your lender again, sit down with your husband and calculate your monthly income and expenses in detail. That includes groceries, transportation and meals out.

When you contact your lender again ask for the loss mitigation department. With your budget ledger in front of you, you will be able to clearly present your situation and the servicer will know what options are available, including a possible loan modification. One option that is not likely to be available is a change in private mortgage insurance terms until you pay down 80 percent of the loan.

Q: We own a loft in the city of Atlanta. We have been here for 2.5 years. The loft has been on the market (for the 2nd time) since March ‘09. We had the unit on the market for about 9 months last year but took it off before the winter season. We have received quite a few visitors but no offers. We are not gainfully employed due to layoffs and medical situations, so we really would like to let this place go so we can rent a reasonably priced apartment or house for a lower monthly cost than our mortgage. Not to mention we just need more space!

Anyhow, we were trying to determine why this place hasn’t received any offers — not even a lowball offer — and to find alternative options, so we did some digging. We recently discovered that many mortgage lenders will not lend on condo properties that have an excessive number of homeowner association delinquencies. After further investigation, we discovered that our building has exceeded the normal percentage of delinquencies that are allowed by most lenders. So if someone were to want to make an offer on our place, their pre-approval would be denied by the lender. Of course the delinquencies aren’t something that we can control so we considered renting our place out.

Now this option doesn’t work because our building condo documents have a rule that only 20% of the units in the building can be rented at any given time. Again, our building has exceeded this number partially due to loft owners who rent their place out without the approval of the homeowners association and are fined for doing so. So if we follow suit, we will be in violation of the regulations and fined as well. Our final option was to simply walk away from the property (foreclosure) since it has lost its value and there is no end in sight for us to either sell or rent this place so we can keep our head above water. Since both of these issues are beyond our control, we are stuck with a unit that has lost its value and paying the mortgage. What can we do?

A: You don’t say how many units are in your condominium complex, but if it is a small number of owners it may be worthwhile to contact the property manager to assess how likely it is that some of the delinquent owners will soon catch up on their dues. If the delinquencies are likely to continue and you are facing foreclosure, it is important to contact your servicer to gain control of events.

Since you are not trying to save your loft, your best option may be to pursue a Deed in Lieu of Foreclosure. This process will do damage to your credit score, but is a more responsible way to address this problem than waiting for the servicer to go through the foreclosure process. Granting a Deed In Lieu of Foreclosure is at the discretion of the lender and can take about a month to complete.

Q: My husband and his previous wife had two mortgages on their home. One was a home equity loan used to pay credit card debt. Her name was not on any paperwork. After we married, he moved into my home and let his home go back to the bank. They have sold the house (without notice to him) and now he is receiving letters from a lawyer threatening a lawsuit for the remaining $25,000 balance. He doesn’t have the money and the value of the house and the neighborhood itself has gone down the tubes. What can he do?

A: CCCS can’t provide you with legal advice and this appears to be a question best posed to an attorney. You don’t specify which loan the lawyer who wrote the letter is trying to collect, but typically in this situation they would be trying to collect on the second. It may be that his best option is to try to reach a settlement with the lender.

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2 comments Add your comment

George

January 20th, 2010
6:47 am

Considering a Loan Modification can make current payment but do have some expenses on the horizon this year related to college. Is getting set up in this re-agreement going to impact my credit scores? How can I avoid a negative impact on my credit history? Try to do a regular refinance?

free

January 20th, 2010
12:07 pm

i’m current and i tried a loan mod just to see if i could get one. b of a denied it because they said i had to have only about $400 left over after all of my expenses were paid to qualify for a mod.

i cannot do a regular refinance because the system automatically kicks me out due to the low values of homes in my area (less than what we paid).