With the crisis in the real estate market, the American dream of homeownership has come to an abrupt end. Lots of people have lost their homes in foreclosure and many more are delinquent on their mortgage payments. Most people are facing such a situation mainly due to job loss. However, there are some homeowners who can afford their mortgage but are struggling to make their payments.  Such borrowers are tempted to walk away from the property in order to make a fresh start.

However, walking away from property is not a very good option in my opinion as it would ultimately lead to foreclosure. Take a look as to how it can affect you:

Credit effects: If you walk away of the property, it will result into foreclosure. The lender would sell off the property to recover his dues. You would be responsible for paying the deficient amount. It will lower your credit score by 250 points and you won’t be able to get a loan for the next 3-4 years. Moreover, the foreclosure would remain on your credit report for the next 7 years.

Tax penalty: If your lender forgives the deficient mortgage balance resulting from the sale, then you will have to pay taxes for that forgiven amount. The balance amount would be considered as your income and the IRS will charge you the income tax. However, with the Mortgage Debt Relief Act in vogue, you won’t be liable for paying the taxes on the deficient amount from the sale of your primary residence if the debt was incurred between 2007 and 2012. After that, the taxes are planned to kick back in.

So, you must be thinking that there’s no respite. No one’s there to help you from this mortgage mess, isn’t it? However, that’s not the case. You can get help provided you take the right step at the right time. Just have a look:
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Your mortgage can disappear – sounds too good to be true, isn’t it? But, it can be true if you are lucky enough. If your lender is unable to find your mortgage paperwork, he will not be able to prove that he owns the mortgage on your property. Thus, the judge can erase the debt and you have a debt-free house.

On 9th October, 2009, in the Southern District of New York, such a ruling was given by the federal bankruptcy court. As per nytimes.com, a lender called PHH Mortgage could not prove that it holds the mortgage for a borrower’s property. As a result, the judge simply wiped out $461,263 mortgage debt on the borrower’s property. Yes, you’re correct in thinking - the mortgage debt disappeared due to a court order.

Why can’t the lenders confirm the mortgage? Well, the notes have gone missing as a lot of mortgage securitizations occurred during the housing boom. Banks loans were sold off to the investors but the notes were never properly recorded during the boom.

However, do you think it’s fair to erase the borrower’s debt completely? I don’t think so. It has to be accepted that the borrower owed to money to a lender. The court should rather come up with an alternative plan wherein the borrowers will have to make payments for a certain period of time to the court.  Meanwhile, the lender will get some more time to prove the ownership of the mortgage. If the lender can’t prove it after a certain period of time given by the court, the judge may erase the debt. This will help the court remain fair to both - the borrower and the lender. What do you say?

If you are among the lucky few to pay off your mortgage in full, you must be thinking -”What now? Will I be getting a letter stating that my loan has been paid in full? Will the lender hand over the title of the property to me? What would I get to prove that I’ve a free and clear property?” Read on to find the answers:

As you pay off the mortgage in full, your lender would give back the original mortgage and note to you. Along with it, you would receive a document called “Satisfaction of Mortgage”. It is a legal document which should be filed at your county recorder’s office.  This will help the title companies to verify that you own your place free-and-clear. Thus, they would issue a clear title when you’re planning to sell off the property. If you do not have a clear title, it would become difficult for you to sell off the property in the future.

There are some lenders who would record the “Satisfaction of Mortgage” on your behalf at the county recorder’s office. However, there are some who would want you to do it yourself. Thus, you’ll have to ensure that the document is recorded at the county recorder’s office. In some states, the homeowner needs to contact the registrar of deeds and get it recorded. This will make sure that you no longer have a mortgage lien against your property.

BTW, Congratulations! You’re a proud owner of a mortgage-free property

After years of overbuilding, over-investing, quick-flipping, and credit over-extension, we are now facing the real estate crisis - a crisis which has been created due to our own faults. As a result, the real estate market has been re-priced. Now, it’s high time that we go back to the fundamentals of mortgage and follow them to save ourselves from further crisis.

Here are 5 tips which you may consider before you take a mortgage for your dream home:

Down-payment: If you are planning to buy a property, it would be a smart move if you start saving from today. A large down-payment of around 20% will help you in getting better interest rates and lower payments. You will also be able to build some quick equity in your property and thus can refinance the loan at a lower rate in the future.

Long term loans: This is not a good time for buying a property for quick flipping. No one knows when the real estate market would be revived. Venture into the real estate market only if you want to stay in that property for a longer period of time.

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If you are upside down on your mortgage and don’t know how to handle the situation, then the Home Affordable Refinance can help your cause. This is a new program introduced by the Obama Government to assist millions of homeowners who can’t refinance their property due to loss of equity.

Home Affordable Refinance Program in brief:
It is a program which lets you to refinance your existing mortgage into a fixed rate loan for 30 years or 15 years even though you owe more on your mortgage than your home is worth. While you refinance the mortgage, you can take advantage of the current rates prevailing in the market.

Eligibility for Home Affordable Refinance:

• You must be current on their mortgage payments. Also, your mortgage should have been originated before January 1, 2009.
• The 1st mortgage on your home should not exceed 105% of the present market value of the property.
• Your loan should be backed by Fannie Mae or Freddie Mac. Homeowners with jumbo loans do not qualify for this program.
• You can take advantage of this program only for your primary residence.
• You should have sufficient income to pay off the loan according to the new plan given by the lender.

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