Answers Archive

“I am six months behind on my mortgage, got denied on my loan modification and I have a foreclosure notice in the mail.  I want to keep my house – what can I do?”

One option would be to file bankruptcy.  A bankruptcy filing stops the foreclosure process and gives you some time to organize your finances to pay for your home.

In bankruptcy, if you want to keep the home you must pay the mortgage.  Bankruptcy allows you to reduce or eliminate other debts so you can pay the mortgage.

There are two main types of bankruptcies – Chapter 7 and Chapter 13.

In addition to the requirement that you need to pay the monthly mortgage payment to keep the home in a bankruptcy, with a Chapter 7 filing, you must pay all the mortgage arrearages (i.e. 6 months of payments) upfront.

Contrast this with a Chapter 13 filing, which allows you to pay the mortgage arrearages through a payment plan over time at zero percent interest.

“can I count my unemployment compensation as income for a HAMP loan modification?”

Unfortunately, for all HAMP trial modifications starting as of July 1, 2010, unemployment compensation cannot be counted as income.

In the past, if your unemployment compensation was in effect for 9 months or longer on the date of your HAMP application submission, you could count it towards income.  Under the Treasury Department’s Supplemental Directive 10-04 (dated May 11, 2010) [.pdf document], this will no longer be the case.

This makes sense because the goal of HAMP is a sustainable mortgage – so reliance on a temporary source of income, such as unemployment, to calculate the new HAMP mortgage would not fit into that “sustainable” model.  But it makes “sense” to the detriment of hurting homeowners.

On the positive side, Supplemental Directive 10-04 introduced a new program called Home Affordable Unemployment Program (“UP”), which provides both payment forbearance and relief from foreclosure action.  I’ll discuss UP in a later post.

“I’m married and we own a house.  My wife is on the title but not on the note or the deed of trust.  Is this a problem?”

It is a problem, but only for the bank.  If your mortgage is defective it may mean that the bank cannot foreclose on your home.

When you borrow money to buy a house, we typically call that getting a mortgage.  Around here to get a mortgage you have to sign two important legal documents – the Note and the Deed of Trust.

The Note is simply an agreement setting out how much you borrowed and how you plan to pay it back over time and at what interest rate.

The Deed of Trust is the actual mortgage – you put up the house as collateral (i.e. mortgage the house) to get the loan and you promise to allow the bank to take your house if you do not pay on the Note.

If your wife did not sign the Deed of Trust, then she did not promise to allow the bank to take the house.  Within the industry this is called a defective mortgage caused by a “tenants by the entireties” issue.

Therefore, if the Note – i.e. the monthly mortgage – is not paid the bank cannot foreclose on the home with a defective mortgage.

It takes a trained eye to read and understand all the loan, deed and mortgage documents, and to determine if the bank made a mistake and your mortgage is indeed defective.  Banks do make mistakes, but it is much less often than homeowners would have liked them to (especially mistakes that benefit us!).

For anyone, including myself, to determine if you have a defective mortgage, they will need to see all the documents.

* the above applies if you live in Virginia or Maryland.  For other states, consult a local attorney licensed there.