Mortgage Hardship after Disaster
When homeowners struggle to make their mortgage payments, there are options to consider. Fortunately, most mortgage loans (three out of five) made in the United States are government-sponsored or government-insured, and, as a result, the rules governing how homeowners with these mortgages will be treated after disasters or set-backs are somewhat uniform.
Freddie Mac and Fannie Mae, the guarantors of most mortgage loans, provide some protections after declared disasters: Both authorize their servicers to permit a 90-day suspension of foreclosure proceedings immediately after a disaster. This initial 90-day period may be extended, depending on the circumstances and effects the situation, servicers are instructed to work closely with homeowners to develop workout or relief plans to cure the delinquency. Unfortunately, there is no absolute right to a forbearance. Typically, however, a homeowner will be offered a forbearance plan that temporarily reduces or suspends the monthly mortgage payment for at least 90 days.
The remaining third of mortgage loans made in the United States are not provided by these government-related entities. Relief from foreclosure after non-payment resulting from a disaster for homeowners with these mortgages will be left to the discretion of the owners and servicers of these mortgages, subject to the rules for mortgage modifications issued by the Consumer Financial Protection Bureau (CFPB).
If the disaster makes it impossible to make your monthly house payments, you may want to ask your servicer for mortgage forbearance. A forbearance “allows you to stop making your payments for an agreed-upon time,” says Lisa Tibbitts, director of public relations for Freddie Mac. Remember though that forbearance is not forgiveness so you will eventually have to make up the missed payments. Hence, you may only want to consider this option if your income, employment, or expenses have been temporarily impacted by disaster.
In a forbearance agreement, you might make partial payments or stop making payments for a specific time. Generally, a forbearance lasts up to six months and can be extended up to another six months. Interest still accrues during the time you aren’t making full monthly payments. But under a forbearance agreement, the lender won’t charge late fees or report you to credit bureaus. The lender will want you to catch up on your missed payments after the forbearance period is over. That might involve paying extra every month for a few years, modifying the loan or reaching some other negotiated agreement.
WHAT ARE YOUR RIGHTS?
When it comes to mortgage hardship, most topics cover what the lender “may” offer or what you as a borrower “may” seek from your lender. The topic of mortgage hardship is rarely defined according to your “rights” as the programs that dictate many of the options that become available in disaster recovery situations are temporary in nature. For instance, Fannie Mae and Freddie Mac have programs to help borrowers affected by disasters. If a declared disaster impacts your ability to pay your mortgage, and your loan is owned by Fannie Mae or Freddie Mac, you may be eligible to delay making your monthly mortgage payments for a period.
If you have trouble catching up at the end of this temporary relief period, additional assistance may be available. You can work with your servicer to resume making a mortgage payment that is like what you paid before the natural disaster. Or if you need additional assistance, you can work with your servicer on other foreclosure prevention options to keep your home.
Depending on who your lender is, for example, government-sponsored or insured or a private not government-related lender, you may have rights to the following, if you were affected by a natural disaster:
- During the term of a moratorium, your loan may not be referred to foreclosure.
- You won’t incur late fees.
- You won’t have delinquencies reported to the credit bureaus.
- Foreclosure and other legal proceedings may be suspended for up to 90 days.
- Your lender will evaluate you for any available loss mitigation assistance to help you retain your home.
- Your lender may enter a forbearance plan, or execute a loan modification or a partial claim, if these actions will help retain and pay for your home.
- If saving your home is not feasible, lenders have some flexibility in using the pre-foreclosure sales program or may offer to accept a deed-in-lieu of foreclosure.
WHAT DO YOU NEED TO DO?
- File claim with FEMA for assistance;
- File claim with insurance company;
- Contact your mortgage servicer to discuss your mortgage hardship and work with them to develop a plan and determine assistance options for your hardship situation.
The lender can file for foreclosure on your home. You will receive a written foreclosure notice. Nonpayment may also be reported to credit agencies which may seriously affect your ability to rebuild your life. Even if you had insurance, if the amount the insurance company pays is less than what you owe for your mortgage, you are still responsible for paying the difference. You may find it helpful to contact legal counsel to determine available legal options. For instance, you might be able to file Chapter 13 bankruptcy.
It is a good idea to contact your mortgage company and ask them what you should do. If your mortgage is FHA insured or subject to similar federal regulation, you may be entitled to reduced or suspended payments and your lender is required to inform you of that. If your monthly mortgage payments include an amount for insurance and taxes, you may want to ask your mortgage company if payment of insurance premiums and taxes will be deferred as well and how they anticipate these payments will be handled after the deferral period.
Yes, you must pay your mortgage even while waiting for payment on your claim.
You are responsible for paying your mortgage while your insurance claim is pending unless you’ve received forbearance (see above). Your homeowner’s policy may provide living expenses while your home is unlivable and under repair. If your claim was approved and repairs are underway, you must still pay your mortgage as usual.
The lender can file for foreclosure on your home. You will receive a written foreclosure notice. Nonpayment may also be reported to credit agencies that will seriously affect your ability to rebuild your life. If the insurer determines that your home is a total loss and the insurance settlement is less than what you owe on your mortgage, you are still responsible for paying the difference.
No. There is no law that requires a mortgage lender to offer you special consideration for late or missed payments, even if you are experiencing financial hardship following a natural disaster. Lenders make accommodations on a case by case basis. If you can’t make your payment, contact your lender or loan servicer as soon as possible to discuss your situation and see if you can make a temporary deal on your payments until your financial situation improves.
- Tell the lender or loan servicer that you’ve been affected by a natural disaster. Let them know if your county has been declared a state and/or federal natural disaster area.
- Ask for “forbearance.” By granting forbearance, the loan servicer can defer mortgage payments, waive late fees, and not report you to the credit bureaus. You have no legal right to forbearance; you must ask for it. It is not automatic, and the lender does not have to approve it.
- Ask that any late fees be reversed.
- Be sure you understand what the forbearance will include. Get all lender promises to you in writing.
- Ask the lender or loan servicer:
- How many months’ payments will you postpone?
- Will the lender or loan servicer impose any fees for the payment deferral?
- When will the deferred payments be due?
- Will the missed payments be repaid over a long time, rather than all at once?
- Will the lender stop any negative credit reporting for the deferred payments?
Always start by contacting your lender. Mortgage lenders and servicers may provide relief from foreclosure by offering flexible loss mitigation options to borrowers following a disaster. Possible relief options include:
- Loan modification
- Temporary suspension or reduction in payments
- Waiver of late payments, and/or
- Suspending delinquency reporting to credit bureaus.
Contact your mortgage provider ASAP. You can also contact the HOPE Hotline at (888) 995-HOPE (4673) for other FREE confidential support options. If you have a government-insured mortgage (Fannie Mae/Freddie Mac), you may be eligible for up to 12 months assistance to avoid late fees charged, delinquencies reported to the credit bureaus, or to have to catch up on payments at once.
You may be able to deduct some of your loss on your federal income tax return. Only major losses normally result in tax savings. Check the IRS web page at www.irs.gov or call your local IRS office.
WHAT TO CONSIDER BEFORE TAKING ACTION?
- Don’t rush to sell your property because you are financially desperate. Instead, you may want to consider that financial help may be available from sources that you don’t know about yet.
- Don’t fall for scam artists who promise to save your property from foreclosure for a fee, or if you “temporarily” sign your property over to them.
- Don’t borrow money, especially from contractors, in order to rush into home repairs. Instead you may want to work with your insurance company to get an accurate estimate and payout for your claim.
- Don’t rush into declaring bankruptcy. Bankruptcy can damage your credit for years to come. Instead, you may want to seek credit help from your local nonprofit consumer credit counseling service to help develop a plan.