Should you stop the foreclosure & save the house
By Cathy Moran, California Bankruptcy Attorney on Mar 15, 2009 in Featured, Mortgage Issues
The first step in deciding what to do with a monster mortgage is calculating whether the “best case” modification would make the house affordable.
I ran such a calculation for recent clients who were current with their payments but saw a train wreck coming when the loan adjusts in a few months. Their interest rate was below today’s market, but they could still only pay the negatively amortized amount. The property had fallen some in value.
I went to a mortgage amortization calculator and ran the “best case” scenario:
- Reduce the principal to today’s value of the house
- Maintain today’s favorable interest rate
- Extend the term to 40 years less the three years the loan has been in place
The resulting number was more than they were struggling to pay today. I had to conclude that in the absence of significantly more household income, this house was simply unaffordable.
The story may yet have a happy ending, as it turns out. I sent them home to get the package of documents from the refinance that generated the current loan. Those papers revealed a glaring violation of Truth in Lending. Stay tuned, as they say.
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