Reviewed by Carmina Tessitore

Carmina Tessitore
Contributor

Connecticut is a judicial foreclosure state, which means that your lender cannot take title to your home without first initiating a foreclosure lawsuit in the superior court, and then being ordered to take title by a Judge. The options listed below are available for homeowners who have not yet been served with a foreclosure lawsuit.  While some of these options are also available after a foreclosure lawsuit has been initiated, the anatomy of a foreclosure lawsuit and the foreclosure mediation program available in Connecticut will be discussed in a subsequent writing.
 

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Falling behind on your mortgage payments is a scary place to be, but there are many options available to you.  Doing nothing is the absolute worst thing you can do, as your lender can proceed with foreclosure even if you do not participate or appear in the action.  Getting ahead of the issue is your best option, as being proactive will lead you to find the path that makes the most sense for you.

Loan Workout Options for Home Retention


If you want to keep your home, the options below may be able to assist you.

  • Reinstatement: If you have fallen behind on your mortgage payments and are able to bring your account current by paying one lump sum of the arrears owing to date, and keep current on your mortgage payments going forward, reinstatement may be an option for you.  Reinstating does not change or modify your loan, it simply allows you to bring your account current, so you are no longer in default, and you can thereafter resume making your monthly mortgage payments.  Contact your lender to request a reinstatement figure and discuss the manner in which reinstatement can be made through a date certain. 
  • Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time so that you may catch on your payment schedule.  Forbearance is like a short term modification of your loan, and may be an option if your income is reduced temporarily, but you know you will have enough money to bring the account current at a specific time in the future (for example, if you are suffering from short term disability leave from work).  Contact your lender to discuss forbearance options available and the terms thereof.
  • Repayment Plan: A repayment plan may allow you to pay the arrearage owing for months of nonpayment of your mortgage by spreading that sum over a period of months.  Your lender may agree to a repayment plan, which usually requires an amount given as a down payment toward the arrearage and the remainder spread out over a specified period of time, in addition to keeping current on your monthly mortgage payments.  Contact your lender to discuss repayment plan options available and the terms thereof.
  • Mortgage Modification: A mortgage modification changes the terms of your loan.  This option is an appropriate solution for homeowners with long-term or permanent payment difficulties. If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current monthly payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable.

There are typically two types of mortgage modifications: 1) an  internal modification, which has lender specific requirements, and 2) the Home Affordable Modification Program (HAMP), which is a federal program, the guidelines for review are the same and to be adhered to by all lenders and servicers who participate.

A mortgage modification means that your loan terms could be permanently changed in one or more of the following ways: 

  • Adding the missed payments to the existing loan balance, then reamortizing.
  • Changing the interest rate, including making an adjustable rate into a fixed rate.
  • Extending the number of years you have to repay.
  • Principal forgiveness or principal forebearance (ie. balloon payment at the back-end)

Home Affordable Modification Program (HAMP)


The Obama Administration set up this program in the midst of the subprime mortgage crisis to help eligible home owners with loan modifications on their home mortgage debt. You may qualify for a loan modification under this program if:

  • Your home is your primary residence.
  • You owe less than $729,750 on your first mortgage.
  • You got your mortgage before January 1, 2009.
  • Your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) is more than 31 percent of your current gross monthly income.
  • You can't afford your mortgage payment because of a financial hardship, like a job loss or medical bills.

*NOTE: Not every loan is eligible to be reviewed for HAMP,.  Contact your lender to inquire whether HAMP is an available option for your loan.

Both internal and HAMP modification options require a financial packet to be filled out and submitted to your lender for review.  Contact your lender to discuss modification options available to you and request a financial packet application.

  • Emergency Mortgage Assistance Program (EMAP):  Connecticut homeowners may also qualify for the EMAP program, which is administered through the Connecticut Housing Finance Authority (CHFA). Homeowners who qualify for EMAP will have assistance in reinstating their mortgage, and assistance with the monthly payments going forward for a specified period of time (which must be paid back to CHFA in the future).  For information on whether you qualify for EMAP, contact CHFA and request an application.
  • Claim Advance: If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years.  Contact your mortgage guarantor to discuss whether this option is available to you.

Loan Workout Options for Liquidation


If you want to leave your home, the options below may be able to assist you.

  • Sale:  If you no longer wish to stay in your home, selling your home is always an option.  If your home's fair market value is greater than your debt, a traditional sale may be the best option for you.  Speaking to a realtor in your area, and enlisting the services of a real estate/closing attorney will assist you in selling your home.
  • Short Sale:  If you no longer wish to stay in your home, and your home's fair market value is less than your debt, a short sale may be an option for you.  A short sale simply means what your home will sell for in the market is not enough to pay off the debt.  A short sale functions much like a traditional sale, except that you must submit a short sale application to your lender which is a lengthy financial packet, and your lender must approve the price offered for purchase.  You must also be aware that unless you and your lender negotiate a waiver of the deficiency balance between what you owe and what you sell your home for, then you will be responsible for that balance, and/or it may have tax implications for you.  Contact your lender to discuss whether short sale is an option, to request a short sale financial packet application, and to discuss what your lenders requirements are (ie. some lenders require homeowners to list their home at a certain market price for a period of months before entertaining a short sale offer).  Also be sure to enlist the services of a realtor experienced in short sales in your area, and the services of a real estate/closing attorney experienced in short sales, and be sure to discuss the financial implications of a short sale with your accountant.  It's important that you work together as a team, and clearly distinguish whose role it will be to submit certain documentation and follow-up with your lender. 
  • Deed In Lieu:  Deed in lieu may be an option for you if you no longer wish to remain in your home and have no other liens or encumbrances on your property aside from your mortgage.  Some lenders may be willing to release you from your mortgage and accept title to your home in exchange.  Others even offer programs such as "Cash for Keys" where your lender will pay you an amount of money in exchange for agreeing to a deed in lieu.  Contact your lender to discuss whether this is an option for you, and whether any specific requirements must be met.

Home Affordable Refinance Program (HARP)

 
If you want to keep your home, are current on your mortgage payments, but your house is underwater, HARP may be an option for you.  HARP is a program also created by the Obama Administration geared toward helping homeowners whose home's value has declined and owe more to their lender than their house is worth. 

You may be eligible for HARP if you meet all of the following:


  • Your mortgage is owned or guaranteed by Freddie Mac or Fannie Mae
  • Your mortgage was sold to Freddie Mac or Fannie Mae on or before May 31, 2009
  • Your mortgage cannot have been refinanced under HARP previously, unless it is a Fannie Mae loan that was refinanced under HARP from March-May of 2009
  • Your current loan to value (LTV) ration must be great than 80%
  • You must be current on the mortgage at the time of refinance, with a good payment history in the past 12 months.

Bankruptcy


If you and your lender cannot agree on a solution, you may want to consider bankruptcy options.  If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose in other bankruptcy options. In Chapter 13, the bankruptcy court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrendering the property. After you have made all the payments under the plan, you receive a discharge of certain debts. While bankruptcy sounds like an appealing option, it's best to exhaust all other options before filing; bankruptcies can stay on your credit report for up to 10 years, and once you file you cannot file again for a set amount of time. Choosing the right bankruptcy filing is also essential to effectively managing and discharging your debt.  If you are considering bankruptcy, contact a bankruptcy attorney to evaluate your case.

Get started Visit Our Home Ownership Center Answer a few questions. We'll take care of the rest.

Get started Visit Our Home Ownership Center Answer a few questions. We'll take care of the rest.


About Carmina Tessitore

Carmina Tessitore is focused on the practice of family and matrimonial law, civil matters, foreclosure, business law, and mediation services. Her mission is to provide excellence in service and quality, tailored to the unique circumstances of each client's matter.