New Jersey homeowners who have missed mortgage payments are often anxious about their financial circumstances. They do not want to lose their homes to foreclosure. For most people who fall behind on mortgage payments for their primary residences, four back-to-back missed payments are adequate justification for a mortgage lender to foreclose.
The property owners then face a loss of equity and housing, as well as a major credit blemish that could affect their housing options for years to come. Those trying to prevent foreclosure may consider negotiating with their lender to modify their mortgage. Others might consider filing for bankruptcy.
Which solution is better for the average New Jersey homeowner?
Each option has certain benefits
Some homeowners can potentially avoid bankruptcy and foreclosure by negotiating specific mortgage modifications with their lenders. Successful negotiations may require legal representation, as lenders are not always receptive to modification requests when people have already fallen behind on their financial obligations.
Mortgage modifications help people catch up on missed payments, make their mortgage obligations more sustainable and prevent foreclosure. A mortgage modification can lock in a lower interest rate. People can also change the type of mortgage they have. For those with adjustable interest rates or a future balloon payment due, converting the type of mortgage to one that is more predictable can help them maintain a sustainable budget.
Lenders may agree to extend the mortgage repayment period. Homeowners can even ask to move the payments they missed to the end of the repayment timeline instead of scrambling to come up with thousands of dollars for multiple missed payments immediately. Mortgage modifications are often effective tools for those with reliable income or assets they may not be able to exempt in a bankruptcy.
Bankruptcy filings are especially helpful in scenarios where homeowners are already three or more payments behind on their mortgages. With foreclosure imminent, the automatic stay can prevent the lender from initiating foreclosure or force them to halt the process.
In a Chapter 13 bankruptcy case, property owners have more leverage to negotiate a mortgage modification with their lender. The company may be more open to the idea of altering the mortgage to minimize the legal expenses and other losses triggered by foreclosure.
A Chapter 7 bankruptcy can provide a much faster bankruptcy timeline than Chapter 13 proceedings. Filers who can exempt their home equity and other valuable assets and who can pass a means test may benefit from eliminating other debts to help them rework their budgets and make their mortgage payments consistently every month. The best option depends on what caused missed mortgage payments, the income of the property owner and other case-specific details.
Reviewing mortgage paperwork and any communications about potential foreclosure with an attorney can help homeowners evaluate mortgage modification as an option or begin the bankruptcy process. Taking action promptly can help people protect their homes.
