Dear Dr. Don,
My mother has a mortgage payoff balance of about $160,000. The home appraised last week at $362,000. Because of family hardships, her means have been stretched to the limit to help her children survive — loss of jobs, loss of a home due to fire and the bills to go along with them. The result is she is behind on her own mortgage by $32,000, including legal fees after the bank filed a demand complaint for payment, though there hasn’t been a court appearance yet.

With more than $200,000 of equity in the home, there must be an avenue to refinance the payoff balance and start fresh with a new loan, but I don’t know where to turn. Her current lender does not want to consider it. The bank would make more money if we can’t refinance and it takes the home and sells it even below market value. The arrears of $32,000 are included in the payoff. This must be resolvable.

Please, she’s in need of assistance. She is a good mother and always has self-sacrificed for friends and relatives. Now I need to help her before it is too late. We do not want to sell. It is the family home supporting one child at Fordham University in premed, a toddler of 5 years old, and my 90-year-old grandmother.
— Colin Crib

Dear Colin,
You haven’t provided any information about the income side of the equation. You’ve given us an idea how she got behind on the payments, not her ability to afford the payments if she is able to refinance to a new mortgage loan. Ability to pay is a key variable in credit availability along with her credit history, which appears to be in disrepair.

Hindsight suggests she should have tapped into her home’s equity as a funding source early on versus skipping mortgage payments. It appears the hardships that caused the default were not related to the owner’s income but to her decision as to how she would support her family when they needed financial help.

That said, I don’t understand how tuition payments take priority over mortgage payments. Because of the equity in the home, the current lender has no incentive to refinance a debt that has not been paid on time. It’s time to look elsewhere.

I’d suggest your mother talk to a mortgage broker to determine if she could refinance. I recommend an upfront mortgage broker as defined by The Mortgage Professor, Jack Guttentag, in the Bankrate feature, “Want your mortgage wholesale? Try an upfront broker.”

If a mortgage broker can’t help her to refinance, then it’s time for her to talk with a real estate attorney about her options to sell the house prior to foreclosure. The key is to get moving before the bank moves to foreclosure.

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