Q: Due to an illness, I had to work out a loan modification with my mortgage lender several years ago.
The modification significantly lowered the payments, but it requires that we pay off the remainder of the balance at the end of the loan term as a balloon payment.
It’s coming up soon, and I don’t have the money to make the payment. What can I do? – Aretha
A: This sounds scary, but you have options. It has been very common for mortgage lenders to offer this type of loan modification.
The lender requires only that you pay interest and principal on a portion of your loan in order to get you to an affordable payment amount and defers repayment of the remaining portion of the loan – along with any missed payments – until the end. On the maturity date, your last payment would be the total of all of this deferred money.
If you don’t pay this huge last payment, your loan will be in default and you will face foreclosure.
Fortunately, you still have time to prepare for this eventuality. The best thing to do is work to clean up your credit and refinance your loan prior to the maturity date. This new loan would pay off the old loan and spread your payments out over many years at a payment that you can afford.
You should check with several banks now to see if you can do this right away while interest rates are still very low. If you are unable to do this because of credit or income limitations, you should start trying to work with your current lender to see if it will further modify your loan to keep you making payments and extending the maturity date.
Q: Our condominium association recently sued a homeowner and lost. The judge ordered the association to pay the homeowner’s legal fees, which will be costly because the case dragged. I’m concerned that the association will raise our condo fees to cover this. Please tell me I don’t have anything to worry about. – Jerry
A: Sorry, but higher fees are a distinct possibility.
A condo or homeowner’s association essentially is a partnership of all the individual owners. They elect a board of directors to manage the community affairs. It’s not much different than how citizens elect public officials.
Your monthly maintenance dues are used for the care of the common areas, such as the pool, parking lots, roads and landscaping. Your dues also pay professional managers and attorneys to oversee the operation.
The board of directors has to carefully consider its actions, because when your association spends or loses money, it really is every homeowner who is responsible for that loss.
So just as when the government raises taxes to cover large expenses, your association will have to either raise your monthly dues or have a special assessment to cover the shortfall.
Sometimes the association can borrow the money to spread out the payments over a longer period and ease the pain. Or you can cut back on other services, such as mowing the lawns less often. But the money has to come from somewhere.
Even if your association had won the case, it still might have had to cover its own legal fees. Litigation can be very expensive and should be attempted only after all other attempts to resolve the dispute have failed.