5 Steps To Prevent Mortgage Default When You Lose Your Job
Job loss can bring about a significant emotional and financial toll. One of the first thoughts about money for many people who lose their jobs is what they’re going to do when it comes to paying for the house.
It can be helpful to know what to do so you can prevent mortgage default. According to Chad Cummings, an attorney and certified public accountant (CPA) at Cummings & Cummings Law, in his residential and commercial real estate law practices, he’s seeing delinquencies and defaults ticking steadily upward. He noted it’s not yet at 2008-09 levels, but the trend is real.
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Read on for some steps to consider taking to prevent mortgage default when you lose your job.
1. Make the Call
“Your first call should go to your mortgage servicer, not your bank,” Cummings said. “I tell clients to contact their servicer within 72 hours of job loss or even before if they are aware of the possibility of a layoff.”
Cummings noted that most servicers have a menu of formal and informal options for temporary relief or forbearance. Federal rules also require servicers to evaluate you for loss mitigation before filing foreclosure, he added.
2. Request Loss Mitigation Explicitly
“Don't assume that anything else will be offered or wait until you are contacted with something to sign,” said Cody Schuiteboer, president and CEO of Best Interest Financial. “There are at least three options that need to be explored: Forbearance where your payments are paused or decreased, a repayment plan where your missed payments are paid over the next few months, or modification where your loan is revised into a permanently smaller monthly payment.”
If you have an FHA, VA, Fannie Mae or Freddie Mac backed loan, there are additional programs, including partial claims, that you are eligible for, Schuiteboer added.
3. Prioritize Securing Your Basic Cash Flow
There is no need to touch the home until your basic income and monthly costs are sorted out, according to Schuiteboer. He said to take advantage of severance, government unemployment payments or any other income source including gig or contract income. Then, reduce monthly costs to your minimum necessary expenses in the same way that we would determine your emergency savings needs.
4. Leave Retirement Savings Out of It
Schuiteboer said this is the best thing you could ever do for yourself in the long run: “Taking money out of retirement savings accounts often only postpones foreclosure by several months,” he added. “It's also costly in terms of taxes and penalties. Use forbearance instead and maintain financial security going forward.”
5. Leverage Federal Requirements to Your Advantage
Federal regulations give you the power to negotiate as long as you contact your servicer first.
“They have 36 days after your first payment miss to contact you, and within 45 days after your first missed payment they must designate a point of contact who will discuss your options with you,” said Schuiteboer. “The more you know about this timeline, the better off you'll be.”
The Bottom Line
“While having your employment end does not mean that you are doomed to lose your home, not contacting your servicer means certain foreclosure,” Schuiteboer said. “Homeowners who manage to save their homes always get there because they called first.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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