While the CARES act provided some homeowners in South Carolina with mortgage forbearance during the COVID-19 pandemic, the respite was only temporary. Most homeowners were overwhelmed by mortgage interest payment rates, and the lump sum payment they had to make once the moratorium on foreclosure was lifted.
With no means to earn extra money to satisfy overdue monthly mortgage payments and piling bills, Most homeowners were looking for ways to get out of mortgage payments early without incurring penalties because their credit cards were maxed out.
While job loss is the most prevalent reason for homeowners seeking to refinance, there are additional variables to consider; divorce, job relocation, medical bills, retirement, and mounting debts are factors that pushed homeowners to skip mortgage payments.
No matter the reason, it’s important to remember that this is a sound financial decision, even though some of the methods for paying down your mortgage will harm your credit. This article will advise you on how to avoid mortgage-paying trouble in South Carolina and get more ideas about penalties and fees.
South Carolina Mortgage Laws
If you’re having difficulties paying your mortgage, knowing what to expect from South Carolina’s mortgage laws can help.
A mortgage lender in the state of South Carolina has no claim to funded property under state law. On the other hand, the lender has a claim on the loan proceeds and can arrange for the sale of the property to settle the obligation.
If you default on your mortgage, your lender is required to submit a “lis pendens,” or default notice, with the local courthouse. If you do not pay the bill, the lien holder will file a court petition to sell your home, with the revenues going toward the outstanding liens.
A judge can impose a deficiency judgment, in which case the foreclosed homeowner is responsible for whatever portion of the debt that remains unpaid after the foreclosure sale. A judge can compel you to repay the outstanding amount, which may include using your cash assets to pay off the mortgage.
Even if you abandon the property, your lender must take certain measures before proceeding with the foreclosure. If you stop paying mortgage payments, it will most likely be a month or two before your lender contacts you to find out when you may anticipate payment. After that, you’ll get an official notice indicating you’ve gone into default. Usually, the notification offers you another month to pay before the lender starts foreclosure proceedings.
A loan is considered flipped if it is made within 42 months of the previous mortgage loan and the borrower receives no net tangible gain. There is a presumption of advantage if the interest rate was significantly reduced, the borrower’s total obligations did not exceed 50% of their income, the borrower received a significant amount of cash in comparison to the fees, and the loan period was adjusted. If the loan amount was a special low-interest loan, such as a Habitat for Humanity loan, it is assumed to be a flip. 37–23–20 (8).
The Mortgage Broker now has a new obligation to the borrower as an agent, giving her the highest care, loyalty, and honesty (Section 40-58-78). Breaches of this requirement may result in a statutory penalty of $1,500.00 to $7,500.00, as well as the recovery of the mortgage broker’s fees, plus lawyer’s fees and expenses.
The new South Carolina legislation prohibits lenders from guiding good credit prospects into high-cost mortgages. Under the law, borrowers must be referred to a professional housing counselor to assess the home loan mortgage terms and conditions if the terms of the mortgage make it prohibitively expensive. According to Section 37-23 of the new law, the counselor is obligated to advise the borrower on the “advisability” of the loan.
This comprises the borrower’s capacity to make monthly payments, the adequacy of fees and levies, and the amount of interest. The Consumer Affairs Department has created a checklist for the counselor. A study of the borrower’s credit record and credit score is included on the checklist. A counselor can advise a borrower if his or her credit score is good enough to qualify for a prime or superior interest rate.
Repayment Penalties in South Carolina
Prepayment penalties are believed to be included in 80% of subprime loans, compared to 2% of normal loans. When a borrower pays off their loan early, generally through extra mortgage payments, refinancing, or the sale of their home, the penalties become payable.
Prepayment penalties lock borrowers into high-interest loans, which all too often result in foreclosure. They are hidden, delayed fees that rob over half of subprime borrowers of considerable equity. Prepayment penalties are typically 5% of the loan’s outstanding sum. This cost is $7,500 for a $150,000 loan, which is higher than the typical African-American family’s lifetime net value. Other prepayment penalties are specified as “six months interest,” which is roughly comparable to six times the monthly payment in the early years of the loan because of the majority of the payment interests.
When mortgage prepayment penalties are combined with an adjustable-rate loan, they can have a particularly negative impact. Borrowers are sold a loan with a lower interest rate that will rise dramatically over the next two or three years. When they look to refinance because of the new higher interest rate, they discover that they will have to pay a prepayment penalty.
Borrowers are usually ignorant of the existence of a prepayment penalty on their loans. Lenders’ agents either fail to point it out or intentionally mislead borrowers by informing them they may refinance to a lower rate later while failing to warn them of the prepayment penalty that would be incurred if they do so. Even after receiving the legally necessary disclosure, many borrowers are misled in this manner. This and other critical documents are often overlooked among the mountains of documentation required to close a loan.
Mortgage Penalties and Fees
If you’re a homeowner considering selling a house for cash or refinancing for lower mortgage rates, you’ll almost certainly need to break your mortgage early. Unfortunately, you’ll have additional payments, but it might be worthwhile.
The penalty for defaulting on a mortgage varies depending on the type of loan and the amount owed. There is no fee to break your mortgage if you have an open mortgage. Due to the fact that the majority of people have a closed mortgage, you will be subject to penalty fees.
The penalty on fixed-rate mortgages is usually calculated using an interest rate differential. The current mortgage rates are subtracted from the listed rates at the time you signed your mortgage. The result is divided by 12 and multiplied by your remaining amount. Then double that by the number of months left on your mortgage contract.
The penalty for defaulting on a variable-rate mortgage is three months’ interest. There may be other closing costs to consider, such as administration, appraisal, and discharge fees, whether you have a fixed-rate or variable-rate mortgage. If your lender gave you money back, you may have to pay back a portion of it.
Ways to Get Out of a Mortgage Without a Penalty in South Carolina
A strategic default is when a borrower decides to cease paying mortgage payments. When the market value of a property falls below the amount owed on a mortgage, the choice is usually taken. Rather than waiting for circumstances to improve, the mortgagee abandons the property and the loan.
When investors select a strategic default plan, it is typically because they owe more on the property than it is worth, a situation known as being underwater on the loan. When this occurs, many investors choose to cease making payments and allow the property to go into foreclosure.
Nevertheless, if a mortgage holder in a tactical fallback situation ends up taking other initiatives to strengthen their overall financial situation – by using mortgage payments to pay off several types of investing or loans or saving that money – individuals may be eligible to secure another loan whereas the tactical fallback stays on his\her credit report.
After a strategic default, commercial real estate investors will have a tough time securing loans.
Another point to consider is deficiency judgment. Whenever a homeowner defaults on their mortgage, whether intentionally or inadvertently, and the mortgage company forecloses but it doesn’t get enough funds from the foreclosure auction to settle off the whole debt, the lender may be able to recover the shortfall from the borrower. If the bank secures a shortfall judgment against the borrower, it may garnish wages or bank accounts in order to recover the money.
Walk Away from Your Mortgage
You have the option of simply walking away. Also referred to as strategic default is when you feel trapped in a home you can’t sell for home equity, can’t rent for enough money to cover the payments, and couldn’t persuade your lenders to give you a break during the last recession.
Rather than simply disappearing, inform the lender of your intentions. One of the alternatives listed above may be suggested by the lender as a better option. Some experts suggest walking away from a house is a good financial option if you can rent a similar-type house for much less than the mortgage payment. If you’re underwater on your home and facing higher mortgage interest rates (due to an adjustable-rate mortgage), the temptation to walk away is considerably stronger.
Short Selling a House
A short sale, commonly referred to as a pre-foreclosure sale, occurs when you sell your house for less than the remaining balance on your mortgage. You can sell your house and use the cash to pay off a portion of your mortgage balance if your mortgage servicer agrees to a pre-foreclosure sale.
Either the lender will forgive the difference, or the borrower faces a judgment. The borrower is then compelled to pay the shortfall between the initial amount of the mortgage and the sale price in full or in part.
The homeowner uses this strategy to persuade the lender to allow the home to be sold for less than the loan balance. The lender then takes the funds as payment for the mortgage loan. The lender does not have to consent to a short sale, just as they do with a deed in lieu.
Luckily, cash home buyers in South Carolina ensure a sale takes as little as several weeks to prepare, list, sell, and close.
Renting Your House Out
You must notify your mortgage provider if you decide to rent out your home. You won’t be able to rent out your home under the conditions of a residential mortgage, thus renting without your lender’s permission is a contract violation.
Permission to let is not intended to be a lengthy solution for letting your home, but rather a shorter-term alternative to cover the expenses if you really are facing the possibility of getting a mortgage loan on an empty building.
This means that you don’t have to bother with the hassle of permanently switching to a purchase-to-let mortgage, but you will still have to cope with an array of other fees and legal issues that come with leasing a house.
A homeowner may be able to rent the home for enough to satisfy the mortgage payment. Although you aren’t officially free of your mortgage, you are free of your mortgage payments.
This is a potential option in a strong rental market or if you took out the loan so long ago that rental rates have risen above the mortgage payment.
On the other hand, renting necessitates finding a new place to live. It may be an excellent option if you have the money to pay for a lower-cost apartment or if you can move in with family.
If you decide that walking away from your mortgage is the best option for your financial situation, be prepared to face the terms of your loan.
A level playing field for both consumers and corporations would indicate that homeowners ought to have no reservations about withdrawing from a loan, unlike enterprises that have properties foreclosed on or default. Borrowers who withdraw must be prepared to endure the consequences, which might include collection agency harassment, poor credit, and trouble getting credit for years since the level of competition is not level.
Before you leave your current house, make sure you get a place to live, either by purchasing a new, smaller home or renting an apartment. Purchase a car or any other big-ticket items that necessitate financing before your credit score is affected. Put money aside to help with the transition.