7520 Montgomery Blvd. NE #E-16
  Albuquerque, NM 87109

(505) 830-6070

Fax: (505) 830-6080

Toll Free 1-877-240-9443

Introduction

Be Prepared For Home Ownership

Planning For The Unexpected

If Your Mortgage Becomes Delinquent

What To Do When You Default On Your Mortgage

Mortgage Loan Workout Plans

Introduction
Buying your first home usually focuses on accumulating the down payment and qualifying for the financing on the property you have selected. There is a sense of relief when the loan is finally closed and you have settled in the house. It will not take long, however, before you will have to face the financial responsibilities that home ownership imposes.

If you are a first-time home buyer, you were probably renting before, your landlord took care of the problems. However, now you have to fix and pay for repairs. Careful planning and budgeting are essential in order to guard against financial problems in the future.

Your home is a major investment and you have a great deal to lose if you default on your mortgage payments or fail to maintain the property. Planning for unexpected situations as well as the routine costs of owning a home can help you avoid foreclosure o r bankruptcy when emergencies arise.

Be Prepared For Home Ownership
The expenses of owning a home go beyond the monthly mortgage and utility payments, and can create financial difficulties. Mechanical failures in the plumbing, electrical and heating systems seem to occur at the worst possible times, but have to be repaired. You should draw up a budget before beginning your search for a home, making allowances for such expenditures.

If you have selected new property, your expenses may be confined to landscaping, interior decoration and furnishings. Under normal conditions, mechanical items and appliances will be under warranty for six months to a year and will not require major expenditures, but may need minor repairs.

If you have selected older property, replacement of major items can be very expensive. You should have determined the age of the furnace, hot water heater, air conditioning system, kitchen appliances and the roof. Your home inspector's report probably noted the ages o f these major items. If they are older then half their expected useful life, you will need to plan for the costs of the replacement.

You should set up a budget and plan for both regular maintenance and major repairs. Establish an emergency fund for repairs and appliance replacement. Know what sources of financing are open to you when a major item such as the roof or heating system has to be rep laced. These are things that can cost thousands of dollars and you may have to finance them through a home equity loan, a second mortgage or an installment loan. Determine which kind of loan you are likely to qualify for, the pros and cons of the alternatives and have a plan for dealing with a major expense.

Plan For The Unexpected
     Over-obligating yourself or unexpected repair bills may jeopardize your ability to keep up your house payments, the primary causes of foreclosure and bankruptcy are unanticipated personal crisis. More homeowners lose their homes because of illness, loss of employment or marital problems.

There are a number of local sources that can help you get over the hump. Churches and civic groups may have assistance programs or may know what is available. Non-profit organizations, particularly housing assistance groups or counseling agencies, ma y manage special assistance programs. State and local housing agencies are also places to inquire to help.

If Your Mortgage Becomes Delinquent
Your payment is considered late of the lender receives it after the due date, and the lender usually will charge a late payment fee when the money is not received within 15 days of the due date. Payments made, including any late charges assessed, before the next payment due date will be accepted by the lender, but if you owe two or more mortgage payments, your home is in serious jeopardy. Unless specific arrangements are made with your lender, you must remit all payments and late charges before the money will be accepted and the loan considered current.

When three or more mortgage loan payments are due and unpaid, the loan may be given to the lender's attorney for foreclosure proceedings. The entire balance of the loan may be due and payable immediately. In addition to the loan payments due, you are liable for legal fees incurred by the lender. At this point, you are in serious danger of losing your home.

What To Do When You Default On Your Mortgage
     No lender wants to foreclose on a mortgage. Foreclosure costs them more money than they can make back from the foreclosure sale. Therefore, lenders do not foreclose in order to make money, but only reluctantly as a way of limiting losses on a defaulted loan. This is why, if you get behind on your mortgage payments, your lender will work with you to devise a practical plan to cure the default and bring the loan current. In order to do so, however, you must stay in communication with your lender and be honest in evaluating your financial situation.

If you are falling behind in your payments, or know that you are likely to in the immediate future, there are some steps that you should take before talking with the lender about alternative payment arrangements.

First, you need to prepare a monthly list of your income and expenses, using realistic figures based on your current financial situation. You will also need to put together a complete financial disclosure package, showing your assets and liabilities, including all debts and monthly payments and when they are due. Pay stubs, unemployment check stubs or other proof of current income should be in the package, along with two years' tax returns. Get an estimate of the value of your property. You can usually get a local real estate broker to give you an idea of the current market value, free of charge. Finally, prepare a written explanation of your situation for the lender and offer any plan or suggestion you may have on how you can bring the loan current.

Mortgage Loan Workout Plans
A loan workout plan is an agreement between you and your lender that sets out the steps to be taken to cure the delinquency and prevent loss of your home. It may be written or oral and will have specific deadlines which you must meet in order to avoid foreclosure. Therefore, it must be based on very realistic estimates of your ability to meet the plan schedule.

The nature of the workout plan will depend upon the seriousness of the default, whether your financial problems are short-term or your payment ability has been impaired for the foreseeable future, your prospects for obtaining funds to cure the default and the current value of your property.

If the default is caused by a very temporary condition and is likely to be cured within 30 to 60 days, the lender may consider granting you temporary indulgence. Some examples of cases where this approach would be considered are where the house ha s been sold but the sale has not settled or where an insurance settlement is pending. It is usually possible to determine a date certain for curing the default. The lender will want documented evidence, such as the sale contract, before granting indulgence.

If you have suffered a temporary loss of income but can demonstrate that it has returned to previous levels, you may structure a repayment plan to bring the loan current. This type of workout arrangement requires your normal mortgage payments be made as scheduled, plus an additional amount that will cure the delinquency in no more than 12 to 24 months. In some cases the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of workout agreement.

In some circumstances, it may be impossible for you to make any payments at all for some period of time. If you have had a good record with the lender, a "forbearance plan" will allow you to suspend payments or make reduced payments for a specified length of time. The forbearance plan will be in writing, have a definite term and spell out the method of ending the delinquency. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if you default on the agreement.

Any workout agreement is a last-ditch effort by you and your lender to avoid foreclosure and keep you in your home. It is not a substitute for good budgeting and financial planning on your part and will probably not be available if your payment record has not been consistently good up to the present time. Lenders will work closely with good borrowers who are having a period of real emergency and hardship, but are not inclined to cooperate with those who demonstrate little financial discipline.