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Mortgage payments gone wild

Posted by  on Apr 16, 2009
 
If mortgage payments are falling behind, and the future doesn’t look bright for catching up, there are steps that can be taken that will help keep the mortgage loan as close to current as possible. There are payment plans that can be worked out with the lender called a loan workout plan that can keep the mortgage current.

A loan workout plan is an agreement between the borrower and the mortgage lender that allow the borrower to catch up with financial matters. The plan sets up the necessary steps that need to be taken to cease the delinquency of late payments on a mortgage and prevent the possible loss of the home. It could be written out on paper, or orally agreed. The plan has specific deadlines in regards to the mortgage payments which must be met in order to avoid foreclosure. In that case, the terms must be set realistically and the estimates of the ability to meet the mortgage plan schedule must be obtainable.

The nature and seriousness of the loan workout plan will depend upon the severity of the default. Also taken into account, are whether the financial problems are short-term or if the payments on the mortgage received are able to cut the default on the mortgage, as well as the prospects for obtaining funds to cure the default of the mortgage and the current value of the property.

If the default cause is temporary and can be cured within 1-2 months, the lender might grant temporary indulgence. Some cases that this would work are if the house has been sold, but the final sale has not been closed or where the insurance settlement is pending. It is usually possible to determine a date for curing a default mortgage. The mortgage lender will want evidence, like the sale contract, before granting indulgence.
If the late payments were due to a recent loss of income, as long as it can be shown that it has returned to previous levels, a repayment plan can be restructured to bring the loan back current. This type of workout plan will require normal mortgage payments to be made as scheduled, plus an additional amount may be lumped into a sum due at a future date that will cure the default mortgage in no more than 12 to 24 months. Repayment plans are the most commonly used workout plans.

In some cases, it may be impossible to make any payments on a mortgage for a certain period of time. If there is a good record with the lender, a “forbearance plan” will allow a suspension of payments or a reduction in payments for a specified amount of time. The plan must be in writing, have a definite term, and have a clear method of ending the delinquency. In most cases, the length of the plan cannot exceed 18 months and will put any foreclosures on hold for the time being.

Any workout agreement is a last-ditch effort to avoid any foreclosures. It is not an alternative to good budgeting and financial planning. In fact, a workout plan might not be available if they payment record has not been consistently good up to the present time. Mortgage lenders will work closely with borrowers who do not have a bad history, and are having a period of real emergency and hardship. Likewise, they will not be willing to cooperate with those who cannot demonstrate financial discipline.

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