Debt Free or Bust

Mortgage modification trial period started

This is the 4th post on the topic of my mortgage modification. You may read the previous 3 articles at the following links:

  1. Eligible for mortgage nodification
  2. Qualified for mortgage modification
  3. More on mortgage modification

I met with my HUD mortgage counselor yesterday morning and finished the paperwork required to put the modification trial period in motion. I mailed the first check with the modified payment and FedEx-ed the paperwork to Chase Home Finance at lunch. The payment goes to a different address than the paperwork.

My original payment was $951/mo. and my modified payment is $691/mo. That’s a monthly savings of $260/mo and will more than cover the electric, gas, water, sewer, and solid waste bills. I’ll have $90-$100 left over to put toward groceries and out-of-pocket medical expenses.

This first payment starts my trial period and is due on December 1, 2009. The second payment is due January 1, 2010; the third is due on February 1, 2010; and the fourth and final trial payment is due on March 1, 2010. If I make all these trial payments on time, my mortgage modification becomes permanent.

According to the paperwork Chase sent, my modification won’t change after 5 years, or if it does, it will not revert back to my previous agreement. It will be at a lower interest rate and perhaps for a longer loan period, but the payment will not change significantly.

Apparently, Chase does modifications a little bit differently than other mortgage companies. I have to make 4 trial period payments instead of 3. I was not required to make a good faith contribution payment, and there won’t be a balloon payment at the end of the thirty year mortgage if I don’t pay off the principal by then. My loan will be extended until the principal is paid.

Bankruptcy Update

I had to go back to bankruptcy court last week to report on my mortgage situation. I caught up my second mortgage payments last week prior to court, and the judge continued my case until February before he agrees to sign off on my second mortgage reaffirmation. He wants to be sure I’m able to keep my house before he allows me to be saddled with a $20,000 secured loan for which I might no longer own the house.

Income Update

I picked up 3 more students by the second week of November, and they cover my monthly income shortfall plus some. I will be picking up some siblings of current students during mid-term exams in December. I’m still keeping up the extra marketing because I still have a few more time slots to fill. I’ll slow down assertive marketing when all my time slots are filled.

That extra money will go to paying my back taxes and allow me to rebuild my emergency fund. The taxes are the only debts I still owe. Everything else was discharged in the bankruptcy, and I’m turning the student loan over to my friend’s parents to handle.

This month, I will have about $200 left over even though I had to catch up the second mortgage and pay a reconnection fee on my phone bill from August. Future expenses won’t be as high since everything is now up-to-date.

I worked out a good deal with the IRS about monthly payments I can afford, just $130/mo. I’m free to pay more at any time, and if or when any refunds are applied to my account, I can renegotiate my monthly payment if I need to free up more cash. I may have to do that to increase what I pay to the state.

I haven’t worked out a deal with the state yet. I’ve been paying them what I can each month, around $30, and they accept my payments and haven’t started harassing me yet. I’m sure they will eventually, but as long as they are receiving payments, they will get to me after others who owe a lot more and are not paying at all.

I want to be clear. I’ll have about $200 left over after I pay the IRS, LDR, pay for the last prescription of the month, make the last weekly trip to the grocery, and replace the radiator in my car. It’s leaking at the top and will fail big-time soon. I’m okay for a little while adding coolant/water mix to the overflow tank when it starts getting low. I have an appointment Friday morning and will drop the car off at the shop Thursday night so they can look at it first thing in the morning and get the parts. I won’t need my car again until Sunday afternoon, so if they have to keep it overnight Friday it won’t be a problem.

Leftover money will go into my savings account.

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November 18th, 2009 Posted by | Bankruptcy, Cost Reductions, Debt Reduction, Earnings Updates | 3 comments

More on mortgage modification

I got some questions in the comments on my last post. I’m writing this post to explain them more clearly. I was going to write a long reply, but more people will read it if it’s a post. This is the third article about my mortgage modification experience and you can read the previous two articles here:

  1. Eligible for mortgage modification
  2. Qualified for mortgage modification

First of all, right now I’m only short $200 a month based on the modified mortgage payment. I am no longer several hundred dollars short. This month, last month and the month before that I was about $500 short based on my original mortgage payment.

You can’t make partial mortgage payments, so I saved what I had left over each month when I couldn’t make the full mortgage payments, and I caught up on the utilities on which I was behind.

I’m not posting my itemized budget because it’s private. You can assume I have the necessary expenses of a homeowner with one teenager and two dogs. There are few wants in the budget, and I do save for my son’s birthday and Christmas gifts. He doesn’t get a haul from me. He gets mostly what he needs, like clothes and shoes. His dad and grandparents take care of the wants. He is of the age now that if he wants something he goes out and earns the money himself.

He doesn’t have a car and he isn’t old enough to drive. His bike was stolen last year so we trash-picked a pretty good one and fixed the minor problems with it. We don’t rent movies or go to the movies, we don’t buy books that aren’t needed for school and we don’t partake of entertainment that costs money. We check out books and movies from the library (free). Our libraries have huge DVD and video collections of entertainment movies, TV series, and documentaries. If they don’t have a book I want to read, they get it through the inter-library loan program, though I may have to wait for it to get here.

I spend 5-6 days a week at the public libraries with students. There is no reason not to use the free resources available. They have plenty of free programs that are informative and entertaining on top of the usual library resources.

Ok, back to my income discussion. A couple of hundred dollars is one student, and the really heavy business of the tutoring year is about to start. Mid-term exams are in December before Christmas break. I had a college student who made up that income but she dropped the class and quit tutoring because she was supposed to take a different one. So I need one more student again.

Keep in mind my budget is based on my tutoring income, not on my online income. Online income isn’t stable and it isn’t much, but it does provide a small cushion. I reported it, but my HUD counselor agreed it wouldn’t be a good idea to base a budget on an unstable income source. Anything net business expenses from that income goes into savings.

A balanced budget for a modification is required. If you show that your financial situation is steadily improving and stabilizing at a point where you can meet all your obligations, and that your budget will be balanced in a month or two, they accept it.

The HUD counselor won’t call your mortgage company unless he or she feels you are financially stable or close to it and will make it within 30-60 days. The mortgage company won’t give you the modification if they don’t agree with the HUD counselor’s analysis. They both go over all the paperwork thoroughly. They verify your income, bank statements, and tax returns before they accept your budget.

My budget just went through my lawyer and federal bankruptcy court. I have no desire to go to prison, so I was not only 100% truthful about it, I have the receipts to back up my numbers, which agree with my bank statements.

A balanced budget isn’t required to discharge a bankruptcy under Chapter 7. It is under Chapter 13. Financial education classes about budgeting are required and I took those classes. Even though I don’t subscribe to all of Dave Ramsey’s teachings, his budgeting methods are very good, and I’ve kept a detailed monthly budget for a couple of years.

The HUD counselor and  mortgage company did a second budget based on the modified mortgage payment, and I’m one student away from having enough to meet all our expenses including savings for an emergency fund and once-yearly expenses. Right now I don’t have enough to save for the once a year payments or reestablish an emergency fund.

I have enough saved to make the one-time contribution payment and the first modified payment required for my mortgage modification. I saved the money left over that would have gone toward mortgage payments for the 3 months I couldn’t pay (partial mortgage payments aren’t accepted).

My marketing plan isn’t a pie-in-the-sky plan that may or may not pay off. There are a lot of students out there who need a tutor and I need to find one of them. Every time I do any marketing at all I get a couple of students. I got 3 new students in October, but lost the one who dropped her class.

Getting one more student will not be difficult. I hope to fill my schedule completely this month and start a waiting list. I have one hour to fill on Mondays, two on Tuesdays, and two on Thursdays. My tutoring schedule for high school students is constrained to 5 hours per weekday (M-Th) because of the time school lets out and the time the libraries close, excluding homeschool students. They’re available during the day. I can add students who are willing to meet on weekends. I have one weekend student so far.

There aren’t enough high school and college math and science tutors to go around. We have the largest population in the state, a ton of public and private high schools, one large community college, a major historically African American university, and the flagship state university (LSU) right here in town. Getting my name out there is all I have to do to get more students.

I started with marketing to the families and schools I worked with when I was an employee of the tutoring company. I marketed to my local homeschool lists and I have one homeschool student. I have been branching out since school started and I’ve gotten students from referrals, web searches (Google local), and directly visiting some schools I haven’t worked with before.

I have students from Baton Rouge Community College and LSU. Friends who went back to college are students. One of my friends is the director of Student Support Services at LSU and she gives out my contact information whenever a student asks for a non-campus tutor. I start working with a student tomorrow whose mom was a previous colleague from when I was a chemist.

I get referrals from my previous tutoring employer. Her number is still all over town so she refers her previous tutors whenever people call and find out she closed her business. I worked with her for 3 years and she provides me with a highly respected reference as well as referrals.

I hope this answers the questions from the previous post comment. If not, please leave more questions and I’ll do my best to answer them.

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November 2nd, 2009 Posted by | Bankruptcy, Cost Reductions, Earnings Updates | no comments