One of the many laws of Shemitah deals with the release of financial obligations at the conclusion of the seventh year. Theoretically, this means that any debts owed are discharged. There are obviously many challenges to such policy. Who’s going to lend money knowing the debt will be forgiven? As we exit the Shemitah year, this issue is being addressed in synagogues through the use of such legal items as the prozbol.
It’s important that society as a whole honors its financial obligations. There would be crisis if anybody who wanted to could walk away from debts. However, at times, there are exceptional circumstances and the need to make exceptions.
In the last few years there have been settlements with a number of major banks regarding mortgage servicing, foreclosure and bankruptcy abuses. The banks agreed to pay billions of dollars as restitution for various issues regarding mortgage policies. Much of these funds are translating into benefit to homeowners in the form of lower interest rates, reduced principal and even loan forgiveness.
Imagine receiving a letter stating that your loan plus all accrued interest has been forgiven. If you have a second mortgage that you simply cannot pay or a first mortgage with a high rate of interest, how would your life change if you received such a letter?
I currently work for a major bank, helping people secure mortgages with the understanding that they will repay these mortgages. However, in a prior life I worked as a bankruptcy attorney. In that role I helped people who had experienced financial hardship, to utilize the law to help them discharge or restructure their debt. While I stopped working in this field five years ago, I still have contact with a number of people who I had helped.
One of those people had a second mortgage in the amount of $200,000 which we had tried to negotiate. I offered a partial payment in full settlement of the debt. I was turned down numerous times. The loan went to foreclosure, the borrower responded to the lawsuit and set aside funds to again offer a settlement.
Two weeks ago, the bank sent a letter to the borrower forgiving the entire debt along with any interest that was owed. This is truly an unexpected gift.
There are possible ramifications of having your debt forgiven. It will be a negative mark on your credit, but if you are experiencing a hardship it’s likely your credit score has already suffered. You may have to include the amount of forgiveness as current income but there may be an exemption for debt on your primary residence. That’s a question for your tax professional.
In this particular instance, the letter came unsolicited, and without the need of an attorney. Before you incur the cost of an attorney, it may be wise to do a little work on your own. However, if you are having financial difficulty it likely would make sense to seek professional help.
This story is certainly the exception. Don’t expect total forgiveness. However, if you are experiencing financial hardship and especially if you have a second mortgage, go to this link, get educated and contact your bank.
Now is the time to call your bank. Act while the funds are still available. Perhaps there is no connection between this letter and the end of Shemitah. Perhaps it is too much to hope that you could also benefit. However, you have nothing to lose by exploring this possibility except perhaps the obligation to continue making payments you may not be able to afford.
General information concerning the National Mortgage Settlement including settlement documents, general FAQs, and other important documents can be found at www.nationalmortgagesettlement.com
David Siegel is a Home Lending Specialist with Citibank in its Englewood office. Siegel can be reached at [email protected] or 201-419-1330. Call for mortgage rates and compare before you buy.
By David Siegel