Common Sense Mortgage Tips
by Bill Bronchick
Your Own Real Estate Is Your Best Investment
You probably have heard the concept of making extra principal payments to reduce
interest and payoff your mortgage early. The concept may be simple, but it is
often overlooked and rarely practiced. A typical promissory note amounts to
incredible interest over thirty years. For example, on a thirty year $100,000
loan at 9%, you will pay over $189,000 in interest.
If you have a positive cash flow on your rental properties, consider using it to
make extra principle payments. By making extra principle payments, even small
ones, you can save significantly on interest. This is because interest is
charged on the outstanding balance owed. For example, if you paid an extra
$50/month the loan described above, you would save $49,000 in interest and pay
off the loan balance six years earlier. If you paid an extra $100 per month, you
would save over $75,000 in interest and pay off the balance ten years earlier.
Save Money on Late Fees
If you are in danger of paying your mortgage late, send your payment via
overnight mail. The cost of doing so is probably much less than your late
payment. For example, a 5% late penalty on a $1,000 payment is $50. Snding the
payment via Federal Express will cost you less than $15.
A Few Tips if You are Holding a Mortgage in Default
If you sold a property and took back a mortgage (or you bought an existing
mortgage), you have an alternative to the foreclosure procedure . . . sue on the
promissory note. Remember that a mortgage is security for a note, and you can
always forego the foreclose proceeding and sue the borrower directly for
nonpayment on the note. This may be desirable if the property has little equity
and the borrower has other assets to attach. Keep in mind, however, that you
have to elect one remedy or the other; once you choose to sue on the promissory
note, you waive your right to foreclose the property (and vice-versa).
Watch for Bankruptcy
A borrower in default can run into federal court and file for bankruptcy to stop
your foreclosure proceeding. Once the federal bankruptcy petition is filed, the
state court foreclosure proceeding is subject to an automatic "stay" (which
means you must stop all collection efforts). This will delay your foreclosure,
but not deprive you of your rights. As a secured creditor you will have first
crack at the property over unsecured creditors (credit card debtors, etc.).
Simply have your attorney march into federal court and ask the judge to have the
stay lifted against you. However, if the debtor files for chapter 13
reorganization, he may be able to ask the court to force you to accept a payout
plan. Either way you will get paid, even if it means having to wait.
Consider a "Deed in Lieu of"
If you are in a mortgage state, a borrower can delay the proceeding for months
by simply filing an answer to the complaint, raising any number of defenses,
including improper service of the summons. If you are on speaking terms with the
borrower, try and work it out. It may be cheaper for you to waive the back
payments and even pay him to give you a deed in lieu of foreclose. That is, he
gives you the property back and you spare him the embarrassment and credit
devastation of a foreclosure (as well as a possible deficiency judgment against
him). Time is money when it comes to foreclosure, so use it wisely!
Bio:
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney,
author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows including CNBC
Power Lunch. He has been featured in Who's Who in American Business, Money
Magazine, the Los Angeles Times and the Denver Business Journal. William
Bronchick has served as President of the Colorado Association of Real Estate
Investors since 1996.