HOW TO GET RID OF A MORTGAGE?

 HOW TO GET RID OF A MORTGAGE?

To finance your property in the United States, you have resorted – like many Americans and foreign investors – to a real estate loan.

The mortgage repayment forbearance measures implemented by the U.S. government in response to the coronavirus crisis have allowed many homeowners, who were facing income loss and therefore repayment difficulties, to retain their property.

The mortgage repayment exemption has been extended, giving homeowners a 15-month reprieve, up from the original 12. For some, this measure remains insufficient, which begs the question: how can you get out of a mortgage?

Getting Free from a Mortgage: Current Status

Wanting to get out of a mortgage when it becomes impossible to repay it has become commonplace in the United States. In fact, in November 2020, 3.9% of mortgages were in arrears, with an average minimum delay of 90 days (source: Corelogic ). This rate of nearly 4% is three times higher than the same period the previous year. However, it is nothing compared to the peak of defaults of more than 90 days, reached in April 2020, at 4.2%.

The main reason cited by homeowners seeking to get out of a mortgage in the United States is job loss. Other reasons include divorce, medical expenses, retirement, moving for work, or excessive debt. It's important to note that whatever the reason for homeowners' desire to get out of their mortgage, it must be tied to a legitimate financial approach.

Sale of the property covered by the loan

Selling the property on which repayments are due is undoubtedly the most efficient and fastest way to get rid of the loan. In just a few weeks, the preparation, registration, sale, and finalization of the real estate transaction can put an end to loan repayments.

With the U.S. housing market booming, this option is likely to appeal to many homeowners. Borrowers will also find that they can rarely sell their home for more than the repayment amount. It's possible that since purchasing your U.S. property, you haven't had the opportunity or time to build up enough cash to repay your loan, after factoring in real estate transaction costs.

Return the property to the lending institution

After selling the property, another option is to voluntarily surrender the property to the lender to avoid foreclosure. This agreement, known as a "deed in lieu of foreclosure," requires homeowners to convince their lender to take back the deed in exchange for forgiving their mortgage. In some cases, the initiating homeowners may have to prove they cannot afford to repay the borrowed money.

The property repossession process can be relatively quick and, although it impacts the owner's credit history, it is far less damaging than a foreclosure.

It's important to know that the lending institution is under no obligation to accept the offer of a deed in lieu. In fact, the lender can decide to recover part of the money owed through a traditional foreclosure. Furthermore, if the lending institution sells the property for less than the loan balance, the owner may be asked to make up the difference.

Allow the lending institution to request seizure of the property

The health crisis has brought foreclosures on government-backed loans to a grinding halt. These occur when a borrower falls significantly behind on payments, forcing the lender to force them out of their home.

This solution requires no action on the part of the owner: stopping repayments automatically triggers the foreclosure process. However, be aware that this process will affect your credit history, potentially preventing you from purchasing another property for several years.

This legal process can take several months or even years before the owner has to move out. This period is sometimes enough time to reach an agreement between the owner and the lender, thus ending the foreclosure process and allowing the borrower to remain in the property.

Using a short sale

If the value of the property to be repaid is less than the outstanding loan balance, a short sale may be considered. This technique allows the homeowner to obtain the lender's approval to sell the property at a price lower than the outstanding amount. The lender's approval also means the lender's acceptance of the amount equivalent to the sale proceeds to cover the mortgage loan.

As with the deed-in-lieu technique, the lender is not obligated to accept a short sale. In the United States, laws vary by state. In some areas, the lender can seek redress from the borrower for any shortfall. This technique also requires the lender to go through the process of preparing, registering, and selling the property, which must, of course, be vacated once the transaction is complete.

Rent out your property to free yourself from a mortgage

A borrower who wants to free himself from a mortgage can certainly consider renting his house at a price that allows him to cover the repayment of the loan.

This solution is possible in a strong rental market or when the amounts to be repaid are below the current rents.

Renting out a property can be relatively quick; it doesn't necessarily require expensive repairs or lending approval. Furthermore, it allows the borrower to retain ownership of their home.

Of course, renting out your property to get rid of a mortgage in the United States requires finding another place to live. To do this, the borrower's income must be sufficient to pay rent.

Request a modification of the mortgage loan

Because the foreclosure process is lengthy and costly, many lending institutions are quick to grant borrowers a repayment break. This break can take the form of a loan modification, lowering the interest rate, extending the term, or simply waiving the principal owed by the borrower.

Any modification to the loan that allows the borrower to repay their monthly payments allows both parties to achieve their goals.

Please note, however, that a request to modify the mortgage loan is not always accepted by the lending institution, as the latter has no obligation.

Resorting to “strategic” default

In the United States, defaulting on payments has a name that translates to "strategic default." During the last financial crisis, many property owners resorted to this tactic, unable to sell their property for sufficient money or rent it out to cover their repayments.

This strategic default isn't about disappearing into thin air... It's important to inform the lender of your plans. The lender may, in turn, offer one of the solutions listed above to help reach an agreement.

Getting out of a mortgage in the United States is possible. It's worth weighing the pros and cons, keeping in mind the credit score, which, if negative, can simply prevent a person from buying a house or apartment for several years.