New York is a great place to live, but what happens when you can’t afford your mortgage anymore? Unfortunately, many people in New York are finding themselves in this situation. The good news is that there are ways to get out of your mortgage legally, and we will discuss some of them in this blog post. We will also talk about how to avoid the mortgage penalty, which can be very costly. So if you are struggling to make your monthly mortgage payment, don’t despair – there is help available!
Have you been struggling to make your mortgage payments? Are you in forbearance or worried about the possibility of being foreclosed on? If so, you’re not alone. Millions of people all over the country are in the same boat. Below we will discuss how you can legally get out of your mortgage in New York. Keep reading for more information!
New York Mortgage Laws – Can You Get Out of Yours?
There may be several reasons you need to get out of your mortgage; the good news is you can legally.
Federal and state laws heavily regulate loan servicing and foreclosure processes. And most of the laws give protection to borrowers. For example, servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws.
But before you get to the pre-foreclosure point, you’ll want to see if there are other ways you can get out of a mortgage legally. Below are a few examples of how to do so.
Ways You Can Get Out of a Mortgage Legally
In New York, several mortgage laws can help you get out of your mortgage. For example, the short sale method allows you to sell your home for less than the amount you owe on your mortgage. This is a good option if you are struggling to make your monthly payments.
Another option is the foreclosure method. This allows you to surrender your home to the bank and walk away debt-free. However, this option can be risky and can ruin your credit, so it’s important to talk to a lawyer before deciding to go this route.
Finally, you can look into a loan modification or consider renting out your property. This can be a great way to get some extra income and avoid foreclosure.
But before you decide what to do next, you’ll want to learn more about each option. Below we’ll take a closer look at each method.
The Short Sale Method for Getting Out of Your Mortgage
A short sale is when you sell your home for less than the amount you owe on your mortgage balance. Selling your home in a short sale can be a helpful way to get out of your mortgage if you’re struggling to make your monthly payments.
How to Qualify for a Short Sale?
In order to qualify for a short sale, you must meet specific requirements. First, your mortgage must be delinquent, meaning that you are behind on your payments or underwater on your home. Second, you must have a valid reason for needing to sell your home. Some common reasons people want to do a short sale include job loss, divorce, or medical bills. Lastly, your lender will have to look over your loan balance and determine the market value for the home before they agree to the short sale. If you meet all of these requirements, you may be able to have a short sale and get out of your mortgage. Talk to your lender to learn more about the process and if you would qualify.
Pros and Cons of a Short Sale
When you do a short sale, there are some pros and cons to consider. On the plus side, a short sale can be a great way to get out of your mortgage if you’re struggling to make your monthly payments. It’s also not very expensive, and it can be a good way to avoid foreclosure.
On the downside, a short sale can be difficult to qualify for, and it could affect your credit score. Additionally, you may have to pay taxes on the amount of money you receive from the sale.
Although called a “short sale,” generally, there isn’t anything short about the process. Your lender is the one to approve of the sale and what amount they accept as the home’s value. This can definitely draw out the process and potentially leave you walking away without any profits from the sale. So before deciding to do a short sale, make sure you weigh all of the pros and cons carefully.
The Foreclosure Method for Getting Out of Your Mortgage
The foreclosure method is when you surrender your home to the bank and walk away debt-free. Although this may sound like a great option if you are struggling to make your monthly payments, it’s important to understand that there are some risks involved. Yes, you’ll be able to get out of your mortgage in NY legally, but having a foreclosure on your credit history will last for years to come (7 years to be exact!). Therefore, consider this option as a last resort before walking away from your mortgage.
How the Foreclosure Process Works
In order to foreclose on a home in New York, the lender must file a lawsuit against the homeowner. This lawsuit is called a foreclosure action. If the homeowner doesn’t respond to the lawsuit, the lender will get a default judgment and take ownership of the home.
The homeowner may still have some options at this point. For example, they may be able to stop the foreclosure by filing for bankruptcy or by negotiating with the lender. However, if they choose not to do anything, the lender will eventually take possession of the home and sell it at a public auction.
So while foreclosure may be a way to get out of your mortgage in NY legally, it’s important to weigh all of the risks involved before making a decision. Talk to your lender if you’re considering this option.
Pros and Cons of a Foreclosure
When the bank forecloses on your home, there are a number of pros and cons to consider. On the plus side, a foreclosure can be a way to get out of your mortgage if you’re struggling to make your monthly payments. Furthermore, it can be a good way to avoid filing for bankruptcy.
On the downside, a foreclosure will damage your credit score. Since you’ll be handing over the house to the bank, you may not receive any profits once it’s sold at auction. Lastly, the effects on your credit score, which can last seven years, may cause issues when you try to qualify for a new mortgage, a credit card, and your mortgage rates.
>> Find out How To Sell A House In Preforeclosure!
The Loan Modification Method for Getting Out of Your Mortgage
If you’re having trouble making your monthly payments, you could always look into a loan modification or refinancing instead of getting out of your mortgage. A loan modification is when the terms of your original mortgage are changed so that it’s more affordable for you. This could mean a change in the interest rate, the length of the loan, or even the amount of your monthly payments.
The process for getting a loan modification can be lengthy, and it’s important to note that not everyone will qualify. However, if you do receive a loan modification, it can be a great way to keep your home and avoid foreclosure.
The Loan Modification Process in New York
In order to apply for a loan modification or refinance in New York, you’ll need to contact your mortgage lender. They will likely ask you to complete a loan modification application. This application will require information about your current income, expenses, and mortgage. After submitting the application, your lender will review it and may ask for additional documentation.
If you’re approved for a home loan modification, the terms of your mortgage will be changed so that it’s more affordable for you. Keep in mind that the process can take several months, and not everyone who applies will be approved.
Pros and Cons of a Loan Modification
A loan modification can be a great way to keep your home and make your mortgage more affordable. On the plus side, you’ll be able to keep making monthly payments that are within your budget. You may also be able to get a lower interest rate and avoid foreclosure.
On the downside, there’s no guarantee that you’ll be approved for a loan modification. Furthermore, if you are approved, the process can take several months. And finally, even if you’re approved, your mortgage may not be as affordable as you’d like it to be.
>> Find out how to Sell a House After a Loan Modification
Renting Your Property
When you rent your property, you are allowing someone else to live in it and cover your mortgage payments. This can be a great way to get out of your mortgage if you’re struggling to make your monthly payments. Furthermore, it can be a good way to avoid foreclosure, a short sale, or a loan modification.
How to Rent Your Property
Before you’re able to get a tenant for your home, there are several steps involved that may take some time. Also, you’ll want to make sure to learn more about being a landlord in NY before considering this option.
Below are some of the steps involved:
- Get your house ready to lease (move out, make repairs, and clean)
- Figure out if you’ll manage the lease or hire a property management service
- Find a tenant, conduct background checks, and run a credit report
- Sign a lease agreement and collect a deposit
- Collect rent each month
- Pay the mortgage each month
- Handle any repairs that may arise
- Be prepared to cover missed rent
Pros and Cons of Renting Your Property
When you rent out your property, there are some pros and cons that you need to take into consideration. Some of the pros include generating extra income, getting someone else to pay your mortgage, and tax benefits. Some of the cons include having to deal with repairs, dealing with bad tenants, and not being able to claim the property as a tax deduction.
If you do decide to rent your property, make sure to learn more about landlord/tenant laws in NY and have an attorney create a legal lease agreement.
Getting Out of a Joint Mortgage with Someone
What happens if you’re in a joint mortgage with someone and you need to get out? Unfortunately, there is no easy answer. If you and your co-borrower can’t come to an agreement on how to pay off the mortgage, the lender may foreclose on the property. So no matter what, try to work something out.
See if the other person can buy you out or see if they are open to selling the property. And if you need help discussing and making a plan, find an attorney that can provide legal advice and help mediate.
Avoiding a Mortgage Penalty
If you choose to get out of your mortgage in New York, you might have to pay a penalty. If you haven’t owned the home very long and would prefer to sell, you may owe a prepayment penalty.
A prepayment penalty is a fee that some lenders charge when you pay all or part of your mortgage loan term off early.
Another mortgage penalty may be in the form of late fees or walking away from your home. The mortgage penalty is usually a percentage of the outstanding balance on your mortgage, which can be expensive.
There are a few ways to avoid this penalty:
- Pay off the entire mortgage before you leave
- Transfer the mortgage into the name of the person who will be taking over the property
- Sell the property to someone and have them take over the mortgage
- Get a release from the lender
It is best to try and work something out with your lender rather than paying the penalty in most cases.
Getting Out of a Mortgage Without Ruining Credit
Unfortunately, several of these options that involve getting out of your mortgage may ruin your credit. However, one way that won’t affect your credit score as a foreclosure would be to sell your house.
So another way to legally get out of your mortgage in New York is to sell your home. You can go about this several different ways:
- Sell your house with a real estate agent on the MLS
- Sell your house by owner
- Sell to a “Buy my house New York” home buyer
Of course, there are some pros and cons to selling a house. One con is time. Usually, time is of the essence in matters like these. If you need to sell your house quickly to avoid foreclosure or further late payments, then you’ll need to figure out the fastest way to sell your home.
To give you an idea of how long this could take – In 2021, the typical duration from listing to closing in New York was 104 days. That’s 69 days to get an offer, followed by the standard 35-day closing period. And both selling with a realtor and by owner could take this long to sell. That doesn’t include making home repairs and prepping your home to sell.
However, if you were to sell to a “We buy houses Long Island” company, you would be able to get an offer within 24-hours and close within 5-days. Also, you wouldn’t need to make any repairs or do any prep work to sell your home. Cash home buyers in Queens by properties as-is -meaning no repairs or renovations necessary.
Another con to consider is realtor commissions. When it comes to selling a house with a listing agent and a buyer’s agent, there are fees involved. Realtor fees in NY typically cost 5-6% of the sale price. Most people don’t realize how expensive selling a house can be when real estate agents are involved. If you were to sell to a cash investor like Leave The Key Homebuyers, they don’t charge agent fees and may even help pay closing costs.
Those looking to get out of their mortgage in NY prefer selling to a local home buyer for its stress-free and quick process. Not only can this help you to legally get out of your mortgage without ruining your credit but also save you thousands of dollars on repairs and agent fees.
Final Takeaways
If you’re getting behind on your mortgage payments and are trying to figure out how to get out of your mortgage legally, it’s helpful to know you have options. The important thing to remember is to do something. Late or missed mortgage payments can affect your credit score. So the sooner you decide how to get out of your mortgage, the better.
DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. Leave The Key Homebuyers always encourages you to reach out to an advisor regarding your own situation.