Back taxes plague loan mod survivor

Q: I fell several months behind on my mortgage and my property taxes when my hours were cut back earlier this year. Fortunately, my lender agreed to modify my loan, and now I'm on time with my mortgage again. Unfortunately, this did nothing for my property taxes, and now I'm about $5,000 behind. There's no way I can come up with that lump sum on what I make. Do you have any suggestions for how I can catch up?

A: Count your lucky stars that your lender worked with you at all. Your efforts to obtain a modification -- and your lender's cooperation -- have definitely put you in a position to recover from the financial trauma of lost income. This is a great time to get a handle on your tax situation.

Mindset Management

While people who've never had a financial crisis might assume that someone in your situation is a deadbeat or irresponsible, by now almost everyone has had a financial crisis (or is close to someone who has) and understands that it's just not that simple. When the money isn't there, bills don't get paid, and my experience is that most people in your situation stay awake nights with anxiety when they fall behind and desperately wish they could have stayed current on everything.

So, kudos for taking the bull by the horn and working to get your situation resolved. Two things will be critical for your continued recovery. First, you need to ensure that you don't fall any further behind on your property taxes.

Assuming your loan modification did not require that you pay into an impound or escrow account for your property taxes, I would encourage you to institute an automatic deduction from your regular household bills account into a separate, interest-bearing savings account from every paycheck for that time period's prorated amount of the property taxes.

Do not get any further behind -- as you've seen, those monthly amounts can snowball into a big lump-sum arrearage, and those lump sums are emotionally daunting, as well as realistically difficult to tackle.

Second, you need to make sure that you stay "simpatico" with your lender. Being in default on your property taxes might be a violation of the terms of your loan modification. The very last thing you need at this moment in your career as a homeowner is to have your modified payment jeopardized.

Even more likely than revoking your modification agreement, though, is that your lender will notice the default and simply pay off the tax arrearage themselves. While this seems fabulous, the way this works is generally that the lender pays an arrearage then increases your monthly mortgage payment by the amount it would take to pay them back for the property tax payment in a year or two.

This could be a significant increase to your monthly payment, and could very well negate the savings you achieved with your loan modification.

If keeping your mortgage payment at the lower, modified payment is essential to keeping your home, get very aggressive about eliminating your back property tax bill. Getting current on your property taxes might be necessary to save your home, in the final analysis, so use that as your motivation to get current as quickly as possible. ...CONTINUED

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