For homeowners with mortgage payments that are too burdensome for the family finances in the current landscape of lost jobs, payroll reductions and economic uncertainty, the thought of getting out from under that mortgage becomes an all too pervasive theme. Unsecured personal debt, or credit card debt have been aided by debt settlement and credit counseling services, but what about that mortgage loan that was taken out when the homeowner purchased his home?

There are some important aspects of a mortgage that must be understood before answering the question of whether a mortgage debt settlement is possible, or not.

Mortgages are not unsecured, personal debts. Mortgages represent secured, or collateralized loans made to borrowers who have pledged their property as collateral for the loan. This means that if the borrower defaults on his promise to pay the loan, the lender then has recourse to take ownership and possession of the property as payment in full for its loan. This process is called a foreclosure on the mortgage.

In today’s economic market, many homes are worth much less than what the outstanding balances are on the mortgages. Does this indicate that lenders should now be willing to accept a lesser amount as payment in full for their mortgage? The answer is yes, and no.

If the borrower cannot continue to make the mortgage payments, the lender will accept a lesser payment as payment in full, from a qualified buyer of the property. This is referred to as a “short sale” situation. The borrower must negotiate with the lender to accept the lesser payment from a qualified third-party buyer of the property. This is how a mortgage debt settlement works.

Borrowers who do not want to have their homes foreclosed upon or sold in a short sale, may find lenders willing to negotiate a “modification” of the mortgage loan itself. The borrower would need to furnish the lender with financial proof of economic hardship in the form of recent unemployment, pay reduction, personal debt burden, unexpected medical expenses, etc. A modification will not be an acceptance of a lesser payment in full, but rather, lesser monthly mortgage payments that the borrower will be able to handle under present circumstances.

When it comes to dealing with mortgage lenders, the rules are changed to protect the institutions. Individuals definitely should seek qualified, expert advice when their economic situations take sudden turns for the worse.

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