Many homeowners face difficulties paying their mortgage. Job loss, change in income, and adjustments to interest rates can lead to falling behind on payments. This brochure will give you some tips about what to do when you fall behind on your mortgage payments, what resources are available, and who can help you.
What is mortgage foreclosure?
Mortgage foreclosure is the legal process where the bank takes back your house after you have fallen behind on your mortgage payments and you do not cure or pay in full the amount you owe. The total payments you have missed is called the arrears or default. If you do not cure the amount or take legal action to prevent the foreclosure, your house can be sold at a sheriff's sale and you must move out of your house.
What can you do to prevent foreclosure?
There are many resources and agencies to help you prevent foreclosure. But first, you need to take action before you find yourself with legal paperwork in your hands. Ignoring the problem will not make it go away. If you know that you are about to lose a job or have a decrease in your income, you could do the following:
Contact your bank or mortgage company right away. Tell them why you are having financial problems and when you expect your situation to return to normal. Ask the lender if they can make an adjustment to your payment that is either temporary or permanent. Make sure that you ask the person you speak with to send the new terms to you in writing. Get the person's name with whom you speak, and contact information in case you need to speak with them again.
Talk to your current lender or another bank about refinancing your mortgage. You might be able to get a lower interest rate or a decreased payment. The key to refinancing is to do it before you miss a payment. A bank would be less likely to help you if you have fallen behind on your mortgage. If you know your income or expenses might change soon, contact your bank right away to see what options you have. Make sure you watch out for high interest rate lenders who make promises about consolidating other debt or helping you avoid foreclosure. Generally you should stay away from companies that call or write you directly or put advertisements in the paper.
Ask your lender if they participate in the new federal program called HOPE for Homeowners Program. This program helps homeowners prevent default or foreclosure through 30-year, fixed rate mortgages that are insured by the Federal Housing Administration. You could be eligible if
1) the home is your primary residence,
2) you have had the mortgage since or before January 1, 2008 and you have made six payments,
3) you are not able to pay your existing mortgage without help,
4) your gross monthly mortgage payments are more than 31% of your gross monthly income,
5) And you certify that you have not been convicted of fraud in the past 10 years, intentionally default on debts, and did not provide false information to your mortgage company. For more information on the HOPE Program, you can go to the Federal Housing Agency website at www.fha.gov .
Contact a homeowner counseling agency about evaluating your options and budget. A counselor will sit down with you, evaluate your income and expenses, and help you understand your options. The counselor might be able to direct you to state and federal resources that will help refinance your mortgage. Sometimes the counselor can help you negotiate with your lender to come to more favorable payment terms. To find an approved homeowner counseling agency, please visit the PA Housing Financing Agency at www.phfa.org/applications/counseling_agencies.aspx
Evaluate what bills you have and give priority to those bills necessary to keep your job, your home, and put food on your table. The basic rule of thumb should be to pay the bills for things you need to keep such as your house payment. If bill collectors are pressuring you to pay other bills, like unsecured debts, do not give into their harassment. For more information about dealing with debt collectors, review our brochure on Creditor Harassment - Dealing with Debt Collectors.
Determine whether you can actually afford your house in the long term. If you cannot keep the house, you should contact a realtor and list the house for sale. You might be able to use that money to buy a less expensive home. Selling your home will be much better on your credit report than a foreclosure.
Call an attorney if you think your lender took advantage of you, did not give you all the information you needed to make an informed decision about your mortgage, or changed the terms of your mortgage right before you signed the paperwork.
Open and read all of your mail. Your lender will be sending you paperwork regarding your legal rights. If you do not understand the paperwork, you should contact an attorney to help you understand your rights. If a sheriff or constable brings you foreclosure paperwork, you should contact an attorney immediately.
If you do not have any other options and you cannot afford to keep your house and are unable to sell your house before foreclosure paperwork is served, talk to your bank about doing a deed in lieu of foreclosure. Instead of going through the foreclosure process, you will sign your deed to the bank. This prevents you from going through the foreclosure process and sheriff sale on your home. You will need to move from the house by a specific date. Make sure you are ready to move when you talk to your lender.
Act 91 and HEMAP
Act 91 is a Pennsylvania law that helps homeowners avoid foreclosure by providing them with a loan to cure their default. The agency enters into the agreement with the homeowner and the interest is set at 9% per year. HEMAP is the Homeowners Emergency Mortgage Assistance Program.
Who is eligible for HEMAP?
A permanent Pennsylvania citizen residing in a one or two-family owner occupied home who has a mortgage that is not insured under the National Housing Act;
Anyone who is not more than 24 months delinquent or in default;
Anyone with a default amount under $60,000 aggregate;
Anyone who has only one mortgage on the house.
What are the requirements for HEMAP
1. The applicant must be a resident of PA;
2. Have a 5-year favorable mortgage credit history (i.e. this is the first time the applicant became in default);
3. Suffer a financial hardship due to circumstances beyond his control, cannot rectify the situation within a reasonable period of time; and cannot make full mortgage payments;
4. Have reasonable prospects of resuming regular mortgage payments in 24 months;
5. All homeowners listed on the mortgage must apply for the mortgage loan assistance
How does a homeowner apply for HEMAP under Act 91?
1. The mortgagee is required to give notice to the homeowner before filing for mortgage foreclosure;
2. The Act 91 Notice will be mailed to the homeowner by first class and by registered or certified mail;
3. The homeowner must arrange and attend a meeting within 30 days of the postmark of the Act 91 Notice with a mortgagee or consumer credit counseling agency to attempt to restore the default. The counseling services will be listed within the Act 91 Notice;
4. The counseling agency will indicate whether the homeowner can apply for HEMAP;
5. If at the meeting they reach an agreement to resolve the default and if because of the homeowner's circumstances, is unable to fulfill the agreement's obligations; the homeowner can apply for HEMAP payments within 30 days of a default payment;
6. If the homeowner cannot resolve the default at the meeting, the homeowner can apply for HEMAP through the credit counseling agency.
7. The agency will make its decision within 60 days of receipt of the application. Within 5 days of the decision, the Agency will notify the homeowner and mortgagee.
What happens if the homeowner is approved for HEMAP?
1. The Agency will make payments to the mortgagee for the homeowner for at the maximum 24 months.
2. There are two types: continuing payments and non-continuing.
Continuing payments: the mortgage is brought current to a specific date and then HEMAP subsidizes their monthly mortgage payment to their lender;
Non-continuing payments: the mortgage is brought current to a specified date and the homeowner is responsible for making all subsequent payments to their lender along with a monthly payment to HEMAP.
3. The homeowner is required to pay 40% of their net monthly income to housing expenses with a minium payment of $25.00 to HEMAP. The Agency establishes a loan repayment schedule for the homeowner to pay back the emergency loan assistance.
What happens if the homeowner is not approved for HEMAP?
The homeowner can request the Agency to conduct an administrative hearing within 15 days of the postmarked decision. The request does not prohibit the mortgagee from pursuing mortgage foreclosure.
Other Foreclosure Questions
Can foreclosure be stopped by catching up on the payments?
Yes. Generally under Pennsylvania law, if you catch up on your mortgage payments before the actual mortgage or sheriff's sale, the foreclosure must stop. Not only do you have to pay the amount you owe on the mortgage payments, you must also pay the court costs and reasonable attorney's fees of the lender. These additional costs can be fairly high.
What should I do if the mortgage company does not accept my payments?
Sometimes when you fall behind on your mortgage, the bank or lender will no longer accept your payments unless you catch up on your payments completely. In the meantime, you should open up an account just for your mortgage payments and talk to an attorney about your options.
Can a bankruptcy help me?
In some cases, a Chapter 13 bankruptcy can save your home by allowing you to catch up on the payments that you owe over a three to five year period. During the bankruptcy, you will also be making your normal mortgage payments. If you think you would be interested in filing bankruptcy, you should contact an attorney to discuss your options.
We have attempted to insure the accuracy of the information in this pamphlet at the time it was created or revised. However, the law does change, sometimes quickly and unexpectedly. Therefore, you should consult an attorney before taking or refraining from any action based on the information in this pamphlet.
Last Reviewed On: 06/29/10
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