Settling with Your Lender

A few weeks ago she opened an envelope and discovered that July 23rd was the date set when her home would be among many others on the Sherriff’s Sale docket. Widowed many years ago she purchased the home two years before this year’s birthday; her eighty-third. She put all she had into the down payment for the home knowing, in all likelihood, it would be the only thing of substance she would leave to her children.

The modest home sits in a neighborhood that is showing the beginning signs of deterioration. Her home is in fine shape, but some of those around her are in desperate need of paint and new roofs. One down the street has been boarded up and bears a “CONDEMNED” sign. Two years ago she bought the house for $145,000 and that’s still about what it’s worth.

Where will she go? For financial reasons, her daughter lives with her and her son lives in another city with a family of his own. No assets, fixed income and facing foreclosure, her options are in short supply.

She is learning first hand that lenders are eager to lend money for a home purchase and even happier to take a customer’s payments. But a customer quickly experiences the lender’s Mr. Hyde side when they miss a payment or two.

One of the busiest departments in any mortgage servicing company is Loss Mitigation; especially since many homes were purchased with adjustable rate mortgages and those rates have started moving upward. The department of Loss Mitigation is responsible to ease the company’s losses by collecting past due debts or negotiating various forms of repayment from borrowers.

The people who work in this department are faced with a daunting task made more difficult by delinquent borrowers who fabricate more stories than Aesop. Yet even when dealing with fables, they are still charged with minimizing the company’s losses. And they are ready to do so but there is a protocol that can help any borrower who finds themselves talking with the Loss Mitigation department.

First, get to the right department. The generic customer service representative can only help you find the number to the Loss Mitigation department. Run of the mill customer service is not equipped to negotiate these matters.

Second, make the choice to respond not react. It’s nerve wracking when dealing with anyone to whom a delinquent debt is owed and when it’s your home, the emotions can run especially high. So make the purposeful choice to give calm, accurate and direct answers. Try and remember that everyone involved is interested in minimizing their losses.

Third, understand that they hold the note, so they make the rules. They will require a written letter called a “hardship letter” explaining the circumstances beyond the borrower’s control that led them to the place where they can no longer afford the monthly payment. Just a reminder; evidence will be required for every claim made in the letter, so write a convincing letter, but be able to back it up.

Fourth, be ready to provide financial records. Most likely they will request many of the same documents provided when the loan was closed. Records like two years taxes (all schedules), most recent pay stubs showing year-to-date income, bank statements, and any investment statements, all give the lender a clear picture of your situation.

Fifth, if a settlement is reached or a note is modified, there could still be both credit and tax consequences. Most likely any settlement with your lender will report negatively on your credit report. But hey, over time credit repairs and the house is saved. Some settlements or loan modifications can mean tax consequences so be sure to consult a tax advisor for a more complete understanding of these ramifications.

I’m still negotiating to save the widow’s home and I don’t know the final outcome. But one day at a time we work together to provide the documentation the lender representative requests. Most likely her home will remain on the docket for Sherriff’s Sale, but the amount owed against the property makes it unlikely that it will sell on July 23rd. We’re already planning on continuing the negotiation on the 24th.