How to Invest in Your Future When You’re Broke

If you find yourself “barely” living paycheck to paycheck, the worry of not having any money saved can eat away at you. The concept of planning for future events like sending your kid(s) to college, helping them get married, and enjoying your own retirement can feel impossible when you can hardly afford your current lifestyle.

Although it may seem completely unimaginable, you can make a plan for your future; in fact, strategic financial planning may be the one thing that also helps you live better now as well.

The main reason most people don’t have a real savings plan in place is because they simply feel they don’t have enough money to do so. The change that needs to happen isn’t in making more money (although that is obviously not a bad thing) but in getting a new mindset.

The first step in getting a new money mindset is to change your inner dialogue from “I’m broke! I can barely even pay my bills!” to “Let’s see if I can find ways to improve how I spend money.”

While you may feel that you are barely able to meet the financial demands of your life, most people find that they’re spending too much in at least one area that can be cut back. Take a good, hard look at where all of your money goes for at least one complete month. Write down each and every cent that’s spent, organized into three categories:

  •  Necessary/survival: Housing (mortgage payment or rent), utility bills (electric, gas, water/sewer, trash removal), all forms of necessary insurance (homeowners/renters, car, health, life), food (for eat-at-home meals only), vehicle payment(s), vehicle maintenance, gas.
  • Debt: College/student loans, credit cards, personal loans, and any other forms of debt.
  • Luxury: These are things that, while dearly beloved by many of us, can be eradicated without causing you extreme hardship. Examples include: cable/satellite tv packages, streaming services (Netflix, Amazon, Hulu, HBO Now), high speed internet connection, Xbox Live membership, restaurant meals, magazine/newspaper subscriptions, cell phone(s) and their service plans, gym memberships, satellite radio, hair/nail services, frivolous (unnecessary) purchases like new electronics, expensive clothing/shoes, and other items that you simply don’t need.

Once you have a clear picture of exactly what you’re spending all of your money on, you will be able to create a plan to start saving money – it’s that simple!

Your mindset must remain steadfastly dedicated to saving money in order for this to work, however. See that list of luxury items? You are going to have to decide which of them you can either cut out entirely, or scale back. You will likely be surprised at how many companies will be happy to work with you to lower your monthly bill when you explain your situation. They’d rather keep your business at a lower profit than lose you altogether.

Instead of having your nails painted professionally, invest in the supplies needed to do your nails at home. Listen to the (free) radio in your car or pop in a CD rather than paying for satellite radio. Cut out your cable tv and keep your streaming services. Cancel your gym membership and get outside to exercise or start an indoor workout program – there are a multitude of free exercise videos on Youtube.

Even something as simple as not stopping before work to get a coffee and breakfast on-the-go can make a difference. If you spend $5 every day for a breakfast to-go, you can put that money directly into your savings account by eating breakfast at home. This habit can save you over $1,000 a year!

Another potential way to save money every month is to negotiate your interest rates with any lenders or credit card companies. You may also qualify for a loan modification (even for your mortgage loan) wherein the terms of your loan would be adjusted in order to make your monthly payments lower.

After you have found several good ways to save money each month – be sure to put the money saved into the right place! The best way to make sure this happens is to put a set amount into your savings account before you pay any bills or spend any money. That way you will train yourself to live on the money you have left after you’ve already invested in your future.

 

NJ Mortgage Help for Single Parents

Going through a separation and divorce is never easy, but the complication level increases when you add children to the mix. Establishing a stable family life for your kids is something every good parent strives to do, and divorce can throw a wrench into even the best laid plans.

Supporting the expenses required as a newly single parent is a daunting task as you attempt to maintain as much constancy and normalcy for your children as possible. To that end, the marital/family home is most often where divorced parents elect for their children to remain living.

With that being said, finances don’t always stretch far enough for one parent on their own to pay the mortgage on that family home, along with all other monthly expenses. If both parents are able to pitch in financially to keep the children and one parent in the home, the chances of losing the home are lower. However, the threat of foreclosure for recently divorced single parents is real, and although frightening, it is not something that will go away if you ignore it.

If you are a single parent fighting to keep the home your children have thus far grown up in, you may be overwhelmed by the responsibility of making that monthly mortgage payment on your own. Missed payments are common after significant life events like job loss, illness, death, and, you guessed it – divorce.

The bank will never throw me out since I have young children, right?

Unfortunately, too many people simply give banks and lenders a lot more credit than they deserve. Your bank does not care if you have children, an elderly parent, three sick dogs and a chronic illness – their bottom line is money. You may think, “But there are people working at that bank; surely there is someone there with enough empathy to see that I am struggling.”

While that may be true – of course there are kind people working in banks and lending institutions – they must follow the instructions they are given by their superiors. A mortgage loan that is not being paid on time or at all WILL be sent into foreclosure by the lender. The question is not “If” but “When.”

How can I keep the bank from foreclosing? I just need a little more time!

The best move you can make if you’re in a similar situation is to take action before your home is foreclosed upon by your lender. You may qualify for a loan modification or refinancing. A New Jersey foreclosure and bankruptcy attorney should be the next person you call. Not many attorneys specialize in both areas, so it is important that you work to find a certified NJ attorney who has the experience you need.

Why do I need a bankruptcy attorney? I’m not broke and I want to keep my home.

An experienced NJ attorney who handles both foreclosure defense and bankruptcy matters will be able to stall your foreclosure by using the Automatic Stay. This tactic can only be utilized if the debtor files for bankruptcy.

Even if filing for bankruptcy was not on your top ten list of things to accomplish in life, it is a means to an end that has helped a multitude of people in your exact situation before.

 

Image: “Mother’s Moment” by Leonid Mamchenkov – licensed under CC 2.0

Can a NJ Lender Foreclose for Late Payments Only?

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Like millions of Americans who own their own homes, your largest monthly bill is most certainly your mortgage payment. This is especially true if you’ve wrapped your property taxes in with your mortgage loan. Paying your mortgage each month can feel physically painful at times, especially if you have to write out all of those numbers on a paper check. OUCH.

Nonetheless, you obviously knew what you signed up for when you applied for your current mortgage, so its appearance each month doesn’t necessarily come as a surprise. Why, then, are so many Americans habitually late in paying for this particular loan?

The answer to that is simple. A large percentage of homeowners in this country are living paycheck to paycheck – earning just enough money every month to fulfill their financial obligations. This leads to tense moments when there simply aren’t sufficient funds in the bank to make the huge mortgage payment without fear of bouncing a check.

Nobody wants to bounce a check – we all know that. The hassle combined with added fees from your bank AND your lender mean that bouncing a check is an extremely costly mistake. Instead of potentially writing a check that can’t be cashed, many homeowners simply wait until their bank account has enough money to fulfill the mortgage payment. Sometimes this means the mortgage payment gets sent in a few days (or weeks) late.

The question here, is: Can a lender foreclose on a homeowner if they are chronically late with their mortgage payment? To clarify, we’re talking about a borrower who hasn’t actually missed any payments and technically isn’t “behind” on their mortgage – only slightly late with nearly every payment.

The short answer is that almost no lender will move toward foreclosure if the borrower isn’t actually behind on payments. That’s not to say it has never happened, but if it has, it’s exceedingly rare. In most cases, lenders don’t send out ‘Intent to Foreclose’ notices until a borrower has missed 3 full mortgage payments. Some lenders will threaten foreclosure after one missed payment, but as long as you can bring the mortgage current, they back down.

What can happen to you if you consistently pay your mortgage (or any other monthly bills) late is that your credit score can drop. Even though you may avoid foreclosure, late payments are often reported to credit reporting agencies, and each late payment will ding your score a few points. If you’re late every month for a year, your score may have dropped over 100 points.

If you’re currently struggling to pay your mortgage in a timely manner, there are some things you can do. First, check your credit score to see how much damage you’ve done. That gives you a good starting point. Next, get in touch with your lender and tell them why you’re having trouble paying on time. You may benefit from changing the time of month that your payments are due, paying online, or paying via telephone when your bank account is primed and ready.

If none of the above options is enough to alleviate your tardiness, you may benefit from applying for a NJ loan modification. You can apply for one on your own, but many times a real estate attorney can negotiate with your lender much more effectively, working to extend the life of the loan, reduce the principal amount due, erase late fees, and maybe even lower the interest rate on the loan. One or a combination of these modifications can make paying your mortgage on time much more manageable.

 

Image credit: John Lloyd

Help! I Haven’t Made a Mortgage Payment for 5 Years!

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If you haven’t paid your mortgage bill in a long time, even years, it may be hard to believe that you’re not alone. Shockingly, stories of homeowners living in homes without making any payments aren’t hard to find at all. Commonly referred to as  ‘foreclosure limbo,’ ‘living rent-free,’ and ‘strategic default,’ what some people don’t realize is that there are often complex stories behind how this can happen.

The Adjustable Rate Mortgage/Loan: In this situation, a homeowner often purchases a home with what is known as an ARM (Adjustable Rate Mortgage). ARMs have interest rates that change according to the ‘index rate.’ This means that borrowers’ monthly payments will change as the interest rate goes up or down. Typically, ARM rates are low initially, to entice buyers into agreement. As index rates fluctuate, homeowners can be stuck with a mortgage payment that is more than they can handle – sometimes significantly more. When this happens, borrowers stop making payments because they simply can’t afford them any longer. While they wait for the lender to approve a modification, they often continue living in the home while not making any further payments.

The Financial Crisis/Housing Collapse: Prior to 2008 or so, many business owners were doing quite well for themselves, especially in the real estate industry. Owning multiple properties and collecting significant rent amounts each month, these so-called ‘real estate moguls’  could easily afford to purchase a luxurious home for themselves without worry. However, when the market began to collapse in 2008, property values tanked. Business owners in the real estate market took an extremely hard toll. For those who had purchased a personal home but were now left without any rental income, this meant their own mortgages went unpaid, often for years, as the housing crisis has only begun to right itself in the very recent past.

Judicial Foreclosure: In 23 states, the foreclosure process must move judiciously, or through the court system. What does this mean for homeowners who default on their mortgages? It means, quite frankly, that not much will happen at first. Although the number of new foreclosures in New Jersey is finally beginning to slow down since the market collapse of 2008, there is still a gigantic foreclosure backlog in the NJ court system. Therefore, even if a lender forecloses on a delinquent borrower, it can take years for the case to make its way to the end of the judicial foreclosure process, which culminates with the auction of the home at Sheriff’s Sale, thereby evicting the original ‘homeowners.’ Until the property is sold, homeowners are free to continue living in the home, due to lack of any other recourse.

Statute of Limitations: While rare, and only recently seen in New Jersey courts, the Statute of Limitations can be invoked if your last mortgage payment was made 6 or more years ago. Even if your lender filed for foreclosure in New Jersey within this time period, if they fail to move on the case within a 6 year period, you may be able to use the NJ Statute of Limitations on debt pursuant to N.J.S.A. § 2A:50-56.1(a).

Whatever the reason for your mortgage default, know this: Veitengruber Law has helped homeowners who have found themselves in the most dire situations imaginable. Five years with no mortgage payments? Let’s get you a loan modification so you can keep your home and your dignity can remain intact.

Call us today! We consult with you for ONE HOUR free of charge to help you determine if you think we can help you. We’re now providing consultations in Wall, Bordentown, and Marlton, New Jersey as well as over the phone when warranted.

Image credit: Sodanie Chea

How Can I Improve My Credit Score?

Investors bank march flyerWhether you’re looking to buy your first ‘starter’ home or if you’re in the process of downsizing or upgrading your current home, one thing is certain. Your credit score and report will be very important pieces of information used by possible lenders when they determine your credit worthiness.

Not sure what your credit score is? If you have not been tracking your credit score number and have little to no idea what can be found on your credit report – breathe a sigh of relief. This is the easy part; and it’s free, too!

How to order a FREE copy of your credit report

In the United States, there are three national credit reporting agencies:

  1. Equifax
  2. TransUnion
  3. Experian

Each of the three credit reporting agencies (sometimes called credit bureaus) make it their practice to gather pertinent financial information about you as you move through life, making money decisions every day. Every significant financial choice you make regarding your finances (ex.: credit card history, bank account activity, mortgage payment history, utility payments, and late or missed payments) will most likely show up on your credit report and can affect your credit score.

The three credit reporting agencies will provide you with a free copy of your credit report at AnnualCreditReport.com. This is the only site that is federally authorized to share your credit report with you.

One of the areas with a huge effect on your credit score is real estate and mortgages. Buying a home is a huge expenditure, and one that requires most people to take out a large loan. Getting approved for a mortgage loan can be difficult when you’ve made some missteps in your financial history that are reflected in your credit report and score.

If you’ve never given much thought to your credit score before, you are not alone. Many people don’t know what their score is until they are declined by a lender. However, chances are that if you’re reading this, you have learned what your current credit score is, and you want to find out how to make the number go up.

As a certified New Jersey credit repair attorney who specializes in debt negotiation and real estate, I know first-hand how disheartening it can be for my clients when they can’t seem to make a difference in their credit score. Our team at Veitengruber Law works one-on-one to help people in this situation every day.

In addition to consulting with our private clients, we’ve made it a priority to provide free seminars and workshops throughout Monmouth, Ocean, Burlington and Atlantic County. Our next upcoming workshop will focus on the ‘five C’s of credit,’ and will educate attendees about what lenders are looking for when they review your credit report. Event details include:

  • When: March 22, 2016; 7:00 PM
  • Where: Investors Bank; 3265 US Hwy 9, Freehold, NJ
  • Who: Open to the public
  • How much: FREE
  • Why: Consider attending this workshop if you want to gain a better understanding of your credit report and what lenders want to see in order to approve you for a real estate mortgage loan.
  • Who: Presented by Investors Bank and Veitengruber Law
  • More Details: Call Ivy Jacot at our office (732-695-3303 x 103) or Edith Legg at Investors Bank (732-780-0600) if you have any questions or want to learn more about the workshop.

We hope to see you there!

Facing Foreclosure During a Divorce

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Nearly everyone who has been through a divorce has had to deal with at least some level of financial struggle. For some people, divorce necessitated a complete money mindset makeover. One of the biggest transitions that has to be made when a couple splits relates to the marital home. If you are a homeowner who is currently going through a divorce, you may be wondering if your home will be foreclosed upon by your lender.

Most married couples enter into a mortgage agreement jointly, as they happily begin their lives together. Years later when the marriage is breaking up, it’s much less pleasant to have to disentangle yourself from a joint mortgage loan. Tempers flare, children may be involved, and communication can be complicated and tense.

There are many different answers to the question, “Who will keep the marital home?” However, sometimes neither party wants to or is able to keep up with the payments without the other partner. Of course, other situations may also prevent either party from remaining in the marital home, like new relationships and relocation for work, but the most common reason is lack of finances.

A very important thing to keep in mind as you move through your divorce is that your mortgage lender is not even slightly interested  in the state of your marriage. If you and your spouse signed for the home jointly – you are both equally responsible for the debt.

Although it may be quite difficult, it’s important to keep communication as open as possible when it comes to dividing up your marital assets and debts. Miscommunication on important financial issues can lead to devastating results.

If both parties move out of the marital home and both refuse to continue making monthly payments on the mortgage, the home will quickly go into foreclosure. Foreclosure is not a desirable outcome, especially if there are other plausible options for the property. Don’t let your pride or anger get in the way of making a smart decision that can help you avoid foreclosure!

Discuss with your spouse the idea that one of you remain living in the marital home. If this is a situation that you can both agree to, the spouse living in the home should plan to either assume the loan or refinance it in order to remove the other spouse from liability.

If you plan to go this route, find out if your mortgage contains a due on sale clause.

Remember that one spouse may be entitled to either child support, alimony or both after the divorce is final. This money may be enough to make staying in the marital home a reality for the support receiver, even if they don’t earn enough income on their own to pay the mortgage.

If one party remains in the home but fails to refinance or assume the loan – trouble could be nigh. If at any time, that person decides to stop making mortgage payments, the bank/lender will not care if the parties are happily married, platonic roommates, or divorced and divided.

The only thing that matters to the lender is whose name(s) are on the mortgage loan and promissory note. If both names remain on the documents, it doesn’t matter if you’ve been divorced for a decade – both parties will still be held responsible. Foreclosure of the property will be significantly damaging to both parties’ credit scores.

If you are dealing with foreclosure and divorce, find out what your options are now, before you end up facing a deficiency judgement and a rotten credit score. Ask us all the questions you want in your free consultation so that we can help you decide what steps you want to take next.

Image credit: Don O’Brien

Why is My Home Being Photographed?

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Assuming your last name isn’t Kardashian and you’re not a member of The Real Housewives of New Jersey, having your house photographed every day probably isn’t something you’re accustomed to. If you’ve recently felt like you’re being hounded by the paparazzi, there’s probably a very simply explanation.

Anytime you fall behind on their mortgage payments (even if only one or two payments have been missed), your mortgage lender or bank may start the process of filing for foreclosure. This is possible even if you haven’t caught wind of the news yet. While your lender is required to notify any homeowner on whom they plan to foreclose, you may not have gotten the notice yet if it’s very early in the process.

If you’re aware that you have indeed missed some mortgage loan payments, or if you have already received the foreclosure notice in the mail – you have the answer to why your home is being photographed.

When mortgagees start missing payments, lenders start losing money. As soon as one of their loans goes into default, lenders know that a foreclosure may be their only way to recoup any money out of the situation.

Lenders also know that some people are so fearful of the potential embarrassment of being forced out of their home that they voluntarily move out prematurely. In reality, homeowners who are behind on their mortgage payments are allowed to continue living in the home until the very end of the foreclosure process. In New Jersey, foreclosure timelines are still remarkably long because there are so many foreclosures clogging up the court system.

Although you have the right to remain in your home until it has been sold at Sheriff’s Sale (if you choose to go forward with foreclosure), your lender is acutely aware of the fact that you may abandon the home before then. Many people also leave their foreclosed homes prematurely due to divorce or other life circumstances that have changed. If your home is left vacant, your lender lawfully has the right to sell the property at any time.

Because lenders know that they legally have the rights to any vacant home that is in default, they regularly check to see if any of their defaulted mortgage properties have been abandoned. Thus, the photographer that has been giving you the creeps is simply making a photographic record of whether the home is still occupied or not.

Sadly, some mortgage companies will purposely photograph your home when they know you won’t be there. This gives them the ability to paint the picture of an empty home (no cars in the driveway, no lights on, etc). Although it may be clear that the home is still quite lived-in, some unscrupulous lenders will attempt to declare it as unoccupied so that they can attempt to take possession of the property early.

If you’re in a similar situation, your best move is to stay in contact with your lender even though you are in default on your loan. You can do this yourself or with the help of a real estate attorney, but keep record of your communications with your lender either way. A good way to avoid any miscommunication with your lender is to have your attorney draft a letter explaining that you will be living in the home throughout the duration of the foreclosure.

 

Image credit: Philip Male

Can My Mortgage Company Lock Me Out of My House?

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Recently, we’ve heard several stories of people being locked out of their homes by their mortgage servicer. Under normal circumstances, a mortgage lender does not have the right to prevent you from entering and living in your home – even if you are in the middle of a foreclosure. There are some mortgage companies who have found a way to side-step the rules, however.

If you have missed a few payments on your home mortgage loan but have not received notice of your lender’s intent to foreclose, you may be on the slippery slope, heading toward a foreclosure.

On the other hand, if your lender has already filed a Notice to Foreclose with the courts, you will soon be served with that notice. After you receive your lender or bank’s Notice to Foreclose, you’ll have to make a decision. Do you want to continue (are you able to afford) living in the home?

If you can afford the cost of your mortgage payment or would be able to afford it if you had it modified slightly to meet your income, your best next move is to contact your mortgage servicer in order to apply for a mortgage modification.

In the instance that you are not able to afford the mortgage payments, even with some modifications being made, your home will go into foreclosure in the next several weeks or months. It is important for you to know that you are allowed to continue living in the home throughout the entire foreclosure process.

Unfortunately, what has been happening in some foreclosure cases is that the mortgage company sends a representative to examine the home or property to determine if it is occupied or vacant. This is within their rights. However, upon a cursory glance at a property, many mortgage company reps deem homes as “vacant” when they are, in fact, occupied.

This can happen when you and your other family members are at work, school or otherwise engaged in activities outside of the home. Once the mortgage representative deems a home vacant, it is legal for the company to change the locks and to remove any personal items that they will say were “left behind.”

The result of this action is obviously devastating to home owners who were simply out of the house only to come home and discover that not only are they locked out, but all of their personal property has been taken.

Why are mortgage companies locking people out of their homes?

Homeowners who are behind on their mortgage payments are legally allowed to live in their home until the foreclosure process is completed. Mortgage companies cannot legally remove the homeowner until the end of the foreclosure case.

However, if the homeowner voluntarily relocates and leaves the home empty, the mortgage servicer can take control over the home. Unfortunately, some mortgage companies are attempting to falsely label properties as “vacant” when they are clearly still being lived-in.

In order to avoid this situation – if you’re behind on your mortgage, call your mortgage lender and write them a letter, stating that you intend to continue living in the home until the end of the foreclosure case. This will leave a paper trail of your intentions, should anything untoward happen in the future.

If you’ve found yourself locked out of your home currently and don’t know where to turn, call us today. We can (and want to) help!

Image credit: Luke Jones

New Hope for ‘Zombie’ Foreclosures in New Jersey

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Foreclosures are still being filed at a staggering rate in New Jersey, and Atlantic City has the highest foreclosure rate in the country among cities of comparable size. Foreclosures occur when financially distressed homeowners become unable to pay their mortgage bill, and their bank or lender repossesses the home, effectively evicting the homeowner.

Since the number of NJ homes in foreclosure is currently so astronomically high, the court system has become bogged down and way behind schedule. In fact, New Jersey presently holds the title for the state with the longest foreclosure timeline, coming in at an average length of 1,103 days. That comes out to just over three years from filing date to eviction and sale of the home.

When faced with an impending foreclosure, some homeowners hit the panic button. Without knowing much about  foreclosure timelines, these homeowners quickly pack up and move out, likely feeling that they’d rather leave willingly than be evicted by their lender.

These abandoned properties are then left empty and in disrepair for the duration of the foreclosure process. Their owners are gone but they are not owned by the lender yet, either. These empty homes are referred to as “zombie foreclosures” because they’re seen as a threat to the safety of their neighborhood, much like the mindless undead creatures in horror movies. Zombie homes also threaten the vigor of the surrounding housing market. Squatters and/or drug dealers frequently occupy these empty homes, making the area seem seedy and undesirable to potential new residents.

The real horror involving zombie foreclosures affects the home’s original owner who packed up and left town. Under the impression that their lender would follow through with foreclosure, many homeowners wash their hands of the problem, find a more affordable place to live, and move on with their lives without giving their former home any more thought.

Unfortunately, there are circumstances under which a bank or lender simply decides not to follow through with a foreclosure. Oftentimes, this occurs in lower income areas in which lenders don’t see any real benefit in owning property. Rather than become responsible for the home’s taxes and repair costs (particularly if there are squatters involved), a lender may simply cancel the foreclosure altogether.

How Zombie Foreclosures are Haunting their Former Owners

When an abandoned property drops out of the foreclosure process, guess whose name is still on the title? That’s right – unbeknownst to them, those homeowners who fled as soon as foreclosure was mentioned will remain legally responsible for the home if foreclosure never occurs. This can be literally devastating to people who haven’t thought about their former home in possibly years.

When a foreclosure is halted, for whatever reason, the property’s unpaid debts (property taxes, home association dues, property maintenance) default back to the homeowner. As these debts have often been compounding interest for years, the ultimate cost to the homeowner (and his credit score) can be disastrous.

How the U.S. Senate is Trying to Fix the Problem

The U.S. Senate Subcommittee on Housing, Transportation and Community Development wants to help. Subcommittee member Senator Robert Menendez (D-NJ) recently introduced a bill called the Preserving American Homeownership Act. The Act’s main goal is to help underwater homeowners stay in their homes rather than face foreclosure and the financial destruction that comes along with it.

Menendez’s proposal aims to help both homeowners and lenders alike. The best way to help distressed homeowners is by reducing their mortgage principal. Historically, lenders have been hesitant to reduce principals out of fear of losing too much money. The Preserving American Homeownership Act proposes that banks offer a reduced principal to those homeowners that qualify. In return, the bank will receive a fixed amount (up to 50%) of the home’s increased value when it is refinanced or sold in the future.

In order to be eligible for the program, homeowners must continue to make their new, modified payments on time every month. Failure to make timely payments going forward will disqualify them from receiving a reduced principal. This legislation offers a great deal of hope to struggling borrowers, their lenders, and the New Jersey real estate market.

Image credit: T.A. Bain

What is an Underwater Home?

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The number of underwater homes is currently at a record high all across the nation, with New Jersey in the lead. Additionally, Atlantic City has the highest number of properties that are underwater when compared with all similar metropolitan areas in the United States. The term “underwater” is being used more and more frequently – but what exactly does it mean?

During the financial crisis of 2007/2008, lenders started granting adjustable rate mortgages to people who weren’t really qualified for a home loan. Many lenders also weren’t requiring buyers to make a down payment, which meant that just about anyone could (and did) buy a house. This led to a housing boom or “bubble” that saw home prices soar.

“Housing bubble borrowers” were able to make their monthly payments at first. However, several years later, many borrowers saw their payments spike much higher than they could afford due to their loan’s adjustable rates. When borrowers could no longer afford their mortgage payments, they started missing payments and quickly defaulted into foreclosure, letting all of the air out of the housing bubble with a giant hiss. Home values tanked rapidly, and the number of underwater homeowners quickly became staggering.

When we talk about “underwater” properties, we’re not referring to that sea pineapple inhabited by an energetic and optimistic sea sponge. Alas, in the real (estate) world, an “underwater” home is one whose owners owe their lender more than the property is actually worth.

Today, the number of Americans who are still underwater on their mortgages is astounding, even eight years after the financial crisis and resultant housing boom. Although we are seeing home prices on the rise again, it’s not enough for those who owe at least 25% more than the actual value of their home.

If your home’s value is less than you actually owe, but you aren’t having any difficulty making the payments, you can ultimately continue living in and paying for an underwater home. It will be more akin to renting, though, due to the fact that you’ll have no equity in the home at all.

Because so many homes are currently worth less than they are mortgaged for, those  homeowners who are struggling are having a hard time selling their home in order to move somewhere more affordable. In order to do so, they would have to actually pay their lender the difference between their home’s value, and what they could sell it for.

Underwater homes lead to missed mortgage payments, which leads to lenders putting home after home into foreclosure because they are afraid of losing too much money.  Currently, approximately 1 in every 594 New Jersey homes is in foreclosure.

While underwater homes and the shocking number of foreclosure filings in New Jersey certainly don’t make for a happy ending, tune back in to our law blog next week when we discuss something even more frightening……

…..Zombie Foreclosures.

 

 Image credit: Stock Monkeys