How to Negotiate a Mortgage Write Down

Foreclosure risks increase in a negative equity situation, where you owe more on your home than it is actually worth. At that point, you would be unable to sell the home for enough cash to pay off the mortgage. For relief, you may consider a mortgage write down to avoid foreclosure and further damage upon your credit report. It is critical that you first become familiar with how the foreclosure process works, before you attempt to negotiate a mortgage write down.

Mortgage Default

Your full mortgage payment generally comes due on the first of the month. The payment due date is also attached to one 15-day grace period. You will owe late fees, if the lender has not received your mortgage payment by the time the grace period expires. After 30 days of missed payments, the mortgage falls into default and the foreclosure process begins with the pre-foreclosure stage. Be advised that you will not be able to negotiate a mortgage write down until your home loan actually falls into default.

Pre-Foreclosure Stage

In pre-foreclosure, your mortgage has fallen into default, but your home has yet to be seized and auctioned off. In most states, the pre-foreclosure stage lasts for a total of 150 days. During this time, you will receive a notice of default and demand letter in the mail, which both order you to immediately bring your mortgage back current. You can also expect to field several phone calls from lender representatives, who will demand an explanation for your missed payments. At that point, you may propose a mortgage write down.

Mortgage Write Down Package

If your home has lost significant value, you may be able to secure a mortgage write down through your bank. A mortgage write down is a permanent reduction in your mortgage principal that is originally set to match the value of your home. As a result of the mortgage write down, you should be able to afford your monthly home payment. As part of the mortgage write down negotiations, the bank will analyze your recent bank statements, tax returns, and pay stubs to verify that you have done everything possible to keep the mortgage current. You should therefore eliminate discretionary spending from your budget and liquidate taxable investments to raise cash for making payments before you sit down at the negotiating table. Lastly, the bank will have your home appraised to determine whether the mortgage is actually under water.

Real Estate Short Sale

Be advised that the bank is under no obligation to approve of any mortgage write down proposal. If the mortgage write down is rejected, you may be forced into a short sale. In a real estate short sale, the bank is the main catalyst for the deal, as it must agree to accept less cash on the home from a buyer than the outstanding mortgage balance due. Bank approval of the short sale, however, may be unlikely if the original mortgage write down package was rejected.

Foreclosure and Eviction

The bank will post a notice of sale within your local newspaper, if 180 days of missed payments have passed without a mortgage settlement. The notice of sale announces a time, date, and location for your home to be auctioned off. The foreclosure auction typically occurs within 30 days of the notice of sale. The bank will repossess the property as real estate owned, if a buyer does not emerge with a winning bid at the auction. Immediately after the auction, the bank or the home's new private owner will file a 30-day notice to quit and eviction lawsuit that order you removed from the premises.

How to Negotiate a Mortgage Write Down, Sources:

U.S. Department of Housing and Urban Development: Loan Modification FAQs

RealtyTrac: Property Foreclosure Overview and Foreclosure Process

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