When housing and the greater economy collapsed a few years back, many homeowners found themselves falling behind on their mortgage and facing foreclosure. To assist homeowners with staying in their home, mortgage modification programs were rolled out to reduce payments, help borrowers become current and prevent the inevitable foreclosure. All well and good, right?
Well, not exactly. What many homeowners are discovering is that the missed payments, forgiven or reduced principal, and even the fees associated with the modification program became second mortgages that are due either when they attempt to sell the property or at some point in the future. These additional mortgages require no payments but have nasty balloon payment due at an agreed upon date. One such modified mortgage I ran across recently had a $90,000 mortgage due 30 years after the original loan modification.
So here’s how this happened:
– A homeowner fell behind on their mortgage due to a job loss or reduction in pay, but wanted to keep their home.
– Based on their new income, they can now only qualify for a mortgage $50,000 less than what they currently have and, as a result of homeowner and lender delays in the modification process, they have amassed $10,000 in unpaid interest and fees.
– The homeowner received a new mortgage with a lower principal and interest. The remaining $60,000 became a second mortgage with no payments due until the property sells or the mortgage matures.
As life changes (job relocation to another city, etc) and the need to sell the home arises, these additional mortgages are once again becoming a factor and many homeowners are finding themselves upside down once again. The good news is that a short sale is possible with one of these modified mortgages however the tax and credit ramifications may make it an unattractive option.
To find out if you have one of these additional mortgages, you can contact your lender and request a payoff of your mortgage. It should contain everything that is owed – which will be different than what appears on your mortgage statement each month. The second option is to have a title search performed on the property, which will reveal any and all liens associated with the the home.