Should you stop the foreclosure & save the house

15 Mar Should you stop the foreclosure & save the house

When the foreclosure notice arrives, the instinctive reaction of the homeowner is to fight back. Stop the foreclosure! Make them negotiate to modify the mortgage!

While the situation is fraught with emotion, it pays to give some thought as to whether it makes sense to keep this house. At base, a house is housing. It’s the people who live there who make a home.

The first step in deciding what to do with a monster mortgage is calculating whether the “best case” modification would make the house affordable.

I ran such a calculation for recent clients who were current with their payments but saw a train wreck coming when the loan adjusts in a few months. Their interest rate was below today’s market, but they could still only pay the negatively amortized amount. The property had fallen some in value.

I went to a mortgage amortization calculator and ran the “best case” scenario for a mortgage modification. That included the following assumptions:

  • Reduce the principal to today’s value of the house
  • Maintain today’s favorable interest rate
  • Extend the term to 40 years less the three years the loan has been in place

The resulting mortgage payment was more than they were struggling to pay today. I had to conclude that, in the absence of significantly more household income, this house was simply unaffordable.

The story may yet have a happy ending, as it turns out. I sent them home to get the package of documents from the refinance that generated the current loan. Those papers revealed a glaring violation of Truth in Lending. Stay tuned, as they say.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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