What do I tell the bank?

July 11, 2012 5:35 PM

Should I be honest with my big-4 (USA) bank when it calls to find out why I haven't paid my mortgage? I'm selling the house and need the $ for rent.

I'm divorced. We tried to sell the house when we first separated a year+ ago, but the market was down & we would have had to sell short. Now, miraculously, inventory is low, there's high demand (SF Bay Area) and I want to move to the nearby town where my kid's enrolled in school.

I've rented an apartment in that town & signed a listing agreement-- the house goes on the market in early August. I haven't made my July mortgage payment yet (not late until July 15) and don't plan to make my August one. If (big if) market conditions hold, the house will at least be in escrow by Sept 15.

If it doesn't sell in the black, we'll ask the bank for a short sale. The agents have experience with that. For a short sale you need a hardship (divorce) and often to be behind a bit anyway.

So...

What do I tell the bank when they start calling about the missed payment(s)? Dissemble and say I'm "broke" or be honest about selling? They might start bugging my ex-wife too. She could honestly say that I've been making the payments for the past year & doesn't know what's going on with me.

I honestly am "broke" in that I don't have the funds to either 1) furnish the house appropriately for it's (nutty, but it's the Bay Area) supposed value 2) move out to show it empty ("move in ready!"), keep paying the mortgage and rent a place also.

I have a small 2nd (that's officially a HELOC, not a mortgage) that I'll keep paying.

posted by anonymous to work & money (4 answers total)

I think you're overthinking this. Only consider one of the following two options.

1. Ignore all phone calls from the bank. Never engage them, and only read letters sent to you.
2. Answer all phone calls with "stop calling me, only communicate with me in written correspondence." Hang up afterward. Never engage them, and only read letters sent to you.

Option 2 is preferred, but requires a bit more effort on your part to not say anything else on the phone.

There's no obligation on your part to communicate with the bank on their terms. When you have a plan on how to sell the house, tell them your plans.
posted by saeculorum at 6:25 PM on July 11, 2012 [8 favorites]

The only moral responsibility that you have to the bank is to live up to the letter of the law as contained in your mortgage agreement. That is how the bank views the relationship - and some of the big banks can not even live up to that meager moral standard.

So, do not feel some social, personal, spiritual moral obligation to somehow do right by the bank. You do what is legal - not what your heart tells is personally honorable or something. You want to do what is legal to achieve your goal.

What is goal? You want time - to try to sell the house. The first real legal move belongs to the bank, namely file foreclosure. You want to delay that as long as possible. Do not lie or misrepresent the truth - but offer no information beyond the absolute necessary.

You say:
I can't talk now, please call back. Let me check with my accountant. I am not sure about that. Thank you for calling. Let me look into that, and I will give you a call back.
posted by Flood at 6:27 PM on July 11, 2012 [2 favorites]

Just ignore them completely until a notice of foreclosure arrives. They can wait for anywhere from 1 - 3 missed payments before they start making that kind of noise, and then it takes a while.
posted by DarlingBri at 6:44 PM on July 11, 2012 [2 favorites]

With the number of foreclosures out there, it is now taking a very long time for borrowers to move from your position to an outright foreclosure. More than a year, sometimes YEARS! So, you have very little to worry about in terms of foreclosure coming b4 you sell, unless of course it takes years for you to sell the place.

A lot depends on what you are asking/expect to get. If you have owned forever and are way above water on the home, then you're particularly good on this plan. Say, the house will sell for above $800k and you owe like $400k or something. No prob. When the house sells, really no matter how long it takes (within reason), your note gets paid off and everyone is happy. Oh yeah, and you get your equity, too!

But if you are underwater, beware. Heck, even if you're just in a little bit of equity, still beware. the reason i say this is because, say you owe 720k and your house sells for 700k. But say it has taken awhile for the place to sell, and you've missed a bunch of payments. Interest, and maybe penalties, will accrue. So if you're going to be caught underwater in a sale, the bank may not allow the sale. The bank has to approve the sale since they have the lien. Naturally, if your offer is way above your loan principle, the bank will go for it immediately. But if the bank is going to be left short, this will then fall into the realm of short sale. And not one that was stated from the start. Short sales can take a long time to complete as banks become very slow at this stage. Then what happens, the buyer says "WTF! I made offer at asking, and now the sale isn't going through because the note wouldn't be satisfied, and the bank is holding this up!"

Guess what the buyer does? Moves on to another less complicated deal. Particularly if the market is hot as you say it is.

So, to execute your plan, price your home so it sells at a price that clears the note. But don't get greedy. Sell it when you can. If you get into the above situation then you could prolong your misery as the bank holds everything up.

I have spent the past 7 years as a full-time writer covering the finance industry. That's my background for what it is worth.

Anyway, good luck!
posted by Salvatorparadise at 7:08 PM on July 11, 2012 [1 favorite]