- What do I need to know first?
- I am having a hard time making my mortgage payments. What can I do?
- What are my options?
- I fell behind on mortgage payments. What can I do?
- What if I can't seem to negotiate a plan?
- The sheriff served me court papers for a foreclosure. What do I do?
- Shouldn't I try to keep my home at all costs?
- What if I decide to give up my house?
- What are the tax consequences of a workout if the lender gives up part of my debt?
- Who can help me?
- Does it matter who currently owns my mortgage or who the servicer is?
- The Making Home Affordable Program (HAMP)
What do I need to know first?
Get free help now.
Here are four quick tips:
Educate yourself. Many, many people are in fear of losing their homes. Maine provides some free help resources, but not everyone will be able to get a free lawyer. Here, we want to help you get started by telling you about some options and where you may be able to get further help.
Be persistent. Saving your home can take a long time and be frustrating. But there may be an affordable solution.
Avoid Scams. Many companies are promising to stop foreclosures and get loan modifications for a fee. Many of these companies take money and then disappear. Be careful and don't be scammed!
Get free help now. Contact the Maine Foreclosure Prevention Hotline: 1-888-664-2569 or contact a free certified HUD counselor.
I am having a hard time making my mortgage payments. What can I do?
Contact the servicer or mortgage holder right away to see if they can offer any solutions. Your servicer is the company that collects your monthly mortgage payment. You can find their phone number on your mortgage bill. By following the To Do List below you will be ready to answer most questions your servicer will ask.
Start a file for records relating to your home. Keep it in a safe place where you will be able to find it easily. Keep good notes of all the contacts you make, including the dates and what you were told. Having good records is important.
Focus on an affordable outcome. A solution that is not affordable will leave you facing trouble again in the future.
Complete the To Do List below. Your loan servicer will need this information in order to help you.
Know your options. See the options under next heading below.
To Do List
- Collect all the documents and put them in a file where you can find them.
- Do a budget. You can use our monthly budget form. Be complete, honest and realistic. Decide how much you can afford to pay for your mortgage, taxes, and homeowner's insurance. Be realistic. A good rule of thumb is to stay under 31% of your total income. (Gross income x .31 = maximum housing costs.)
- Collect your proof of income. This includes your two most recent pay stubs. It includes any award letter from Social Security or the Veterans Administration, or notice of unemployment benefits or public assistance (such as TANF). If you don't have these papers, get copies. Call your employer or the agency that pays your benefits.
- Get copies of your bank statements for the last 2 months.
- Find copies of last year's tax returns and W2 forms.
- Write down the reasons you fell behind or can not afford the mortgage. Be prepared to explain the events that led up to your financial problems. See our Sample Hardship Letter. You may want to ask for help to prepare the hardship letter. Get list of HUD-Certified Housing Counselors.
- Find out how much your house is worth. You need to know this in order to sort out your options. Call a real estate broker and ask for a market analysis or broker price opinion. Many reputable real estate brokers will do this for free. If you can't get this, you can at least find out the tax value from your most recent tax bill or your town or city office.
What are my options?
There are many ways the bank can help you if you fall behind on your mortgage or are having real difficulty making your mortgage payment. The list below is an overview of the most common options. Which one is right for you, or one that the bank will allow, depends on your individual situation. To be eligible for these options you will need to have income.
Important: If you think that you are a victim of predatory lending, get legal help right away.
The bank agrees that for a limited period of time it will accept a lower monthly payment or no monthly payment. At the end of the forbearance agreement you must bring the account current. But you might have to make larger payments later on. Make sure you can afford a forbearance agreement before you agree to it.
- Temporary Interest Rate Reduction:
A temporary reduction in the interest rate may be enough to lower your payments for the short term until you are able to recover from your financial trouble. This plan might work if, for example, your company temporarily reduced work hours and there is a plan to increase the hours in the future or if you received a temporary leave from work. A temporary reduction won’t work if the long term payment won’t be affordable later or if there is no realistic plan to increase your income.
A modification is a permanent change in the terms of your loan. Possible changes include reducing the interest rate, extending the term of the mortgage, adding the arrears to the unpaid principal balance of your loan, or even a principal forbearance. A principal forebearance reduces your payment by turning part of the loan into a lump sum you will have to pay at the end of the loan term.
Several programs exist that may allow you to refinance your loan under certain circumstances where you are still current on your mortgage.
Proceed carefully. Beware of large fees and high interest rates. Be very careful if you receive calls from companies other than your servicer or mortgage holder offering to refinance. Read our Don't Borrow Trouble! and Foreclosure Rescue Scams pages.
Talk to a HUD-Approved Housing Counselor. (See our list of approved agencies throughout Maine.) He can help you decide if a refinancing deal may help you, or only put you in a worse financial position.
Depending on who is involved with your loan there may be specific guidelines for the servicer to follow and steps they must take. See Does it matter who owns my mortgage? below.
If you are able to work out a deal, here are some additional tips:
- Get the agreement in writing.
- Make sure you understand the terms of the agreement.
- Notify the "escrow department," to make sure that they know about the agreement
- Make sure you can afford the plan. Do not fudge your numbers. If you negotiate a plan that is not affordable, you might not be eligible for another workout plan later. If you cannot negotiate an affordable plan, you have other options to consider. We will review those options below.
I fell behind on my mortgage payments. What can I do?
Even if you are 30 days or more behind on your payments there is still plenty that you can do. Follow all the steps outlined above. The same process applies.
- Call your servicer (or mortgage holder)
- Start a file
- Pay high priority bills first
- Focus on an affordable outcome
- Complete the To Do List above
- Know your options.
You may have some additional options to consider
You may have other options that could allow you to get caught up and bring your loan current. All the options discussed above apply, so consider them, as well. Remember to keep focused on an affordable outcome. Here are a few more options:
You give the bank all of the back payments you owe and start making your regular monthly payment.
- Partial Reinstatement:
You pay at least one-half of the back payments first and agree to a repayment plan for the rest of what you owe.
- Repayment Plan:
You make the regular mortgage payment plus an additional amount toward the back payments for a certain period of time. If the bank sets up a repayment plan for you, make sure it is affordable. Do not agree to a plan that will not work for you.
- Temporary indulgence:
You are given a 30-day grace period to repay all past-due payments at once. This could work, for example, when you are expecting a lump sum.
What if I can't seem to negotiate a plan?
Bankruptcy might be an option. If you have not been able to speak with a lawyer or housing counselor about your loan, you may want to consult with a bankruptcy lawyer. Most bankruptcy lawyers will give a free consult. Also, if you have been the victim of illegal predatory lending, the bankruptcy court can consider these issues in determining a fair resolution between you and the lender. Bankruptcy could be a good option, but it is not for everyone. Learn more about bankruptcy from our page: Bankruptcy: Is It the Right Choice for You?
The sheriff served me court papers for a foreclosure. What do I do?
Even though you have received foreclosure papers, you may still be able to save your home. Here is a short to-do list:
- Read Home Mortgage Foreclosures in Maine. Follow all the instructions you find there. You must file an answer to the foreclosure papers within 20 days. An answer form and discovery request are linked from that page. You can fill them out and file them with the Court.
- Seek legal assistance right away. If you can’t find a lawyer right away, then follow the instructions in Home Mortgage Foreclosures in Maine.
- Continue communicating with your servicer or mortgage holder. Complete the To Do List above. Call your servicer and continue to negotiate. You may still be able to negotiate an agreement, such as a loan modification. You may be able to get the servicer to put the foreclosure on hold while they evaluate you for a loan modification or other loan workout.
- Save your mortgage payments. It is very important that you save your mortgage payments, if at all possible, and put your payments in a separate bank account. If you can’t save the full amount, then save what you can afford. But save! Make sure you do not spend the money, and make the mortgage payment a priority. If you have a regular income and have saved your mortgage payments, you will have a much better chance of saving your home, even when a foreclosure is already happening.
- Keep track of court deadlines; if you miss one, you will probably be put on a fast-track to foreclosure.
If your goal is to keep your home, a Chapter 13 bankruptcy may be an option. Talk to a bankruptcy lawyer. If you don’t know of someone to contact, you can get a referral through the Maine Bar Association: 1-800-860-1460.
Warning: Negotiating with the servicer or mortgage holder does not always postpone a foreclosure. The mortgage holder or servicer may let the foreclosure continue even while you are negotiating. It is critical that you read and follow the steps in our pamphlet Home Mortgage Foreclosures in Maine until the court issues a formal stay or a dismissal.
Shouldn't I try to keep my home at all costs?
No. As hard as that might be to hear, keeping your home may not be your best option.
Selling your home may be your best option. If you are not able to make a realistic workout plan, refinancing with a legitimate company is not possible, and you will not benefit from bankruptcy, the best remaining option is to sell the home at fair market value. Although selling may not feel like a good solution, a sale at or near fair market value can allow you to pay off the mortgage and keep the equity in your home. Depending on how much you have paid in, that equity—the value of the home after you pay off the mortgage—could be in the thousands of dollars.
What if I decide to give up my house?
If you have decided that keeping your home is not realistic or is not the right choice for you, and it is not too late, here are some other possible options:
- Put your home up for sale
Selling may be a good choice if you have owned your home long enough to build up some financial equity. Your equity is the value of the house that is over and above what you owe on the house. If you need time to sell, call your servicer or mortgage holder and request time to sell before they file a foreclosure.
- Do a "short sale" or "pre-foreclosure sale"
In a short sale the mortgage holder agrees to let you sell the house for less than what is owed as a total settlement. It is critical to get a written agreement that they will cancel your debt and not try to collect any amount left owing after the sale. Also, you may be able to get them to agree to help cover your moving expenses. This may be a more realistic approach if you are "under water," that is, you owe more on the house than the house is worth.
- Deed in lieu of foreclosure
As with a "short sale" your lender is agreeing to take the deed to your home and cancel your debt. Do not ask for a deed-in-lieu if you have equity in the house. The mortgage holder will not accept a deed-in-lieu if there are other liens on the property.
- Mortgage assumption
You sell your home to a buyer who assumes your mortgage. The buyer must be able to qualify for the loan, and the home cannot be worth significantly less than the mortgage amount. The servicer may charge a fee.
If you decide to give up the house, filing for bankruptcy may be your best option. Often negotiating a "short sale" or "deed in lieu" can be complicated and difficult. Also, you may have other debts and can’t see how you’re going to get out from under them. In this situation bankruptcy may be a reasonable choice to help you get a fresh start and move on to financial health. You may want to consult a bankruptcy attorney before you make any final decisions.
What are the tax consequences of a workout if the lender gives up part of my debt?
If the mortgage holder "writes off" (gives up) any part of the debt you owe - even if he reduces your interest rate - the IRS may consider it as income to you and charge you taxes on that income. However, a recent federal law gets rid of those taxes in many "write off" situations. Also, if you were insolvent (your debts are more than your assets) at the time the debt was forgiven, you may be exempt from any taxes for the forgiven debt.
Tax rules are complicated. Consult with a tax professional who has experience with debt forgiveness. If you have questions, contact our Low Income Taxpayer Clinic (942-8241) for more information.
Who can help me?
The sooner you get help with the problem, the better your chances of solving it. Contact one of these help agencies before you miss your first payment, or as early as possible:
Maine Bureau of Consumer Credit Protection
Maine Housing Counselor Network
Go here to get PDF with more information.
Contact one of these legal agencies if you have already been served with court papers:
Pine Tree Legal Assistance (contact your nearest office in Portland, Lewiston, Augusta, Bangor, Machias or Presque Isle)
Legal Services for the Elderly
Or contact a lawyer who does Chapter 13 bankruptcy work. If you don’t know anyone, you can ask for a referral from the Maine Bar Association: 1-800-860-1460. This could work for you if you expect to have enough regular income to finish buying your home but need to adjust your payment plan. Or, if you are deeply in debt, you may want to file under Chapter 7, even if you have decided to give up your home.
Even if you cannot get immediate help from a lawyer or HUD-approved housing counselor, you need to take action now! Follow the steps outlined above. Again, the first thing to do is to contact your lender or loan servicer. Ideally, call them before you miss your first payment, or call as early as you can. If they ask you to complete a financial packet, follow their instructions carefully. But before you sign any agreement, make sure you understand it, and make sure it is affordable. Ask questions and be persistent.
Does it matter who currently owns my mortgage or who the servicer is?
Yes. Most loans are now covered by at least one of several programs that have very specific "workout standards." Whether your loan comes within the scope of any of these programs depends on either who your servicer is, or who owns your loan.
The Making Home Affordable Program
This is the "Obama Plan" that started in early 2009. You are potentially eligible if:
- Your mortgage is held by Fannie Mae or Freddie Mac, or
- Your loan servicer has signed onto the program. (This is voluntary but many of the largest servicers have signed on.)
These servicers must follow the Making Home Affordable Program guidelines. This Program offers loan modifications and refinances, to lower monthly payments. If you qualify for any of the options under the Making Home Affordable Program, then the servicer must work with you. (The servicer should consider all the options listed above, even if you don’t qualify.) The loan servicer and the loan owner do not have to agree to any particular "workout" plan. However, they may want to strike a deal that will work well for everyone. And the "Obama Plan" is putting additional pressure on servicers – along with incentives – to come up with reasonable solutions.
See our page: Making Home Affordable Program
Or go to www.makinghomeaffordable.gov
NOTE: Even if you are not eligible for the Making Home Affordable Program, a participating servicer must consider you for any programs they might offer--including a loan modification, a forbearance, or a repayment plan. However, the final agreement is voluntary.
Updated August 2010; partially updated December 2012
PTLA # 682