Keeping Your Home After Someone Has Died

by Tony Falzano

In Massachusetts, Bill and Sharon have emotionally “shut down” and ignored their daily responsibilities, including paying their mortgage. Three months after the death of their teenage daughter, they were on their way to losing their home to foreclosure.

In California, a middle aged woman named Sonya, suddenly lost her husband. She had no insurance, no savings and no job. She did have 2 teenagers and a seriously delinquent mortgage. The stress caused by the loss of her husband was now heightened by the prospect of losing her home too. 

Every day, across the country, delinquent loans turn into foreclosed home due to people suffering from some kind of loss. There is the loss of income due to unemployment, divorce, incarceration or a tenant not paying. There is also loss of one’s health. And there is the loss of a loved one that causes our world to turn upside down and in some cases, puts us underwater in our financial obligations. In addition, related medical expenses and funeral costs can extinguish savings or retirement plans. So when someone falls behind on the mortgage, there is no money to fall back on. Tremendous strain can be on the homeowner at a time when they are already carrying a cargo of grief. And one thing is for sure, no matter how tragic the loss, foreclosure is inevitable if the mortgage obligation is ignored.

The good news is dealing with your delinquent mortgage may be easier then dealing with the emotional wounds of grief. Many lenders are eager to make a workout arrangement whenever possible. This is evident by the number of phone calls and letters you receive from the lender if your loan is delinquent. A resolution to your delinquency will save the bank time, money and a property that may be deteriorating in value and condition every month. The simple fact is this: banks want your money, not your home! For many lenders, foreclosure is the last resort.

Here are some suggestions if you or someone you know is dealing with grief and on the way to losing their home. 

It’s important to act quickly at the first signs of trouble. Contact the bank’s customer service department and ask for the Loss Mitigation or Workout department. Make this call even if you are embarrassed. You are not the first individual asking for help under distressed circumstances! Give your loan number to the representative. Many times that will assure you are transferred to the right individual. If you’re not able to perform this function yourself, find a responsible family member or neighbor; one that is trustworthy, knowledgeable of your affairs and one who is patient and persistent as it may take some time to obtain a resolution. Typically, you do not need to spend money on having an attorney or mediation company represent you. Save the money to pay down the debt in the event the lender puts you on a plan. You will need to sign a letter authorizing your representative to speak on your behalf.   

Once with the person handling your account, you will be asked if your situation is temporary or permanent. Another major question will be assessing your financial condition; “Can you afford the house with the monthly income and expenses you have?” If you can, then the lender will most likely want to keep you in the property. They will ask for pay stubs and bank statements to show your monthly income and expenses. They may also ask for tax returns and other documentation.

Here are a few common retention plans; one of which may be offered to you depending on your financial situation.  

FORBEARANCE AGREEMENT:  This is a verbal or written plan that states the lender will temporarily hold off legal action when a mortgage is in arrears. This is an attempt to come up with a suitable arrangement to bring your account current. For example, the bank may give a customer 30-60 days to bring the account current with a pension or insurance payout or cash from a 401K program.

REPAYMENT PLAN: This arrangement provides for the reinstatement of your loan by allowing you to make scheduled payments towards the delinquent amount in addition to your regular payment. For example, if your monthly mortgage is $1,200.00 and you are 2 months behind ($2,400.00) and your income supports this plan, the bank may elect to have you pay your regular payment, $1,200.00 and an additional $200 each month. Then after 12 consecutive months, the loan will be contractually current ($200 X 12 = $2,400.00).

LOAN MODIFICATION:  This solution takes all the arrearages such as late charges, property inspection fees, along with taxes and insurance and foreclosure attorney fees and costs and adds them to the current unpaid principal balance (UPB). For example, if the UPB is $100,000 and the delinquent amount is $10,000, the new loan amount under the modification will be $110,000. Often the lender may extend the amortization period, usually back to the original term. The lender may also adjust the interest rate. Sometimes forgiveness of a portion of the debt is approved.  All or some of these measures will calculate a lower monthly payment that may enable you to stay in the property, as it did for Bill and Sharon. Instead of dodging another call from the bank, Bill answered the phone. On the other end was the bank’s Asset Manager in charge of their account. In 35 minutes the 2 gentlemen discussed the situation. The couple’s financials were taken and since they qualified, Bill and Sharon were eventually approved for a modification. 

Now if the lender determines that you cannot afford the property, do not despair. The news may be initially hard to hear but there are advantages if it’s clear you cannot afford the home. First, your health and pocket book will be better for it. Also, your credit may be less derogatory if you cooperate and work with the bank in this resolution. Finally, there will be less stress as you will now have a helpful solution.

If you cannot afford the property, the two (2) options that may be presented are a deed-in-lieu of foreclosure or a short sale of the property. 

DEED-IN-LIEU-OF-FORECLOSURE (DIL): If the property is free of other liens or encumbrances, the lender may agree to take the property back and release the homeowner from further liability. The benefit to the bank is that they save time and money of foreclosing. This savings can be huge in states where there is a long foreclosure time line, such as New York, New Jersey and Illinois. The benefit to the homeowner is it quickly releases them (usually 30-60 days) from obligations and burdens of a property that they ultimately cannot afford.

SHORT SALE: This is where the homeowner is allowed by the bank, to sell the property for an amount less than that which is owed in order to avoid foreclosure. Realizing she couldn’t afford her mortgage, Sonya listed her property for sale with a reputable real estate broker. Working with the lender, the broker secured a buyer who paid market value for the home (usually the lender’s most current appraised value). Sonya was able to contribute to a successful outcome which made her feel better. She also saved a little of her credit and a lot of her sanity so she could deal with the other life changing issues.

One final thought, you are the homeowner so ask questions about how each option will affect you.   

The loss of a loved one is out of your control. But the stress of a foreclosure as it relates to this can be avoided. If you find yourself in this situation, reach out and ask for assistance. Help others to help you!

Tony Falzano

Tony Falzano has spent over 20 years working in banks, financial institutions and with Wall Street Investors assisting home owners to come to a timely resolution of their delinquent mortgages. He also speaks to groups on this subject and offers the benefit of his experience to guide mortgagors on making the best decision if they are behind in their monthly payments.

In addition, Tony is also an award winning songwriter who has released his new CD, In Abba’s Arms. The album is an offering of 12 original instrumentals designed to be an “inspirational companion” as it brings comfort to the bereaved searching for healing and hope. The CD is often used by many to enhance relaxation and quiet contemplation.

In Abba’s Arms is available through the Centering Corporation, (www.centeringcorp.com) at 1.866.218.0101. This is a non-profit organization providing education and resources for the bereaved. For a complete insight into the album, please go to www.cdbaby.com/Falzano.

Tony can be reached at tonyfalzano@AOL.com