Foreclosure is an intimidating word with real life consequences. Behind every court document is a frightened family fighting to maintain the home they worked so hard to acquire. Regardless of what some sources imply, most people suffering in foreclosure are struggling to do the right thing. Often they were not prepared, like many of us, for an unexpected illness, job loss, or divorce. Follow the advice below to regain your financial footing and keep your home.
Most importantly, be vigilant. Open all of your mail and read it. Foreclosure is a multi-step process that can be short-circuited at nearly every stage, but only if you know what is coming. If a court date is listed, make arrangements to attend. Not opening your mail does not stop the foreclosure. It makes the situation worse. First, you do not know what is in the documents from the basic allegations to critical court dates. This leaves you completely unable to defend yourself. Banks make mistakes, but you cannot make that argument if you do not know what it is claiming against you. Second, in most states, if the mortgage company is not able to serve the court papers on you by certified mail it can send a sheriff to your house to serve the papers on you personally or post the papers on your front door. If that form of service fails, many states allow for a legal notice to be published in the newspaper for a certain amount of time to be sufficient notice, even if you never see it.
The latest economic crisis has made one thing painfully clear: anyone’s circumstances can change in an instant. If your income changes be sure to prepare a new budget. This exercise will be helpful for several reasons. First, it will reveal ways you can reduce your expenses – eating out less, smaller cellular phone package, no movie channels, etc. Second, it will show the mortgage company and court that you are committed to working the situation out. Finally, if you know your financial forecast for the immediate future it puts you in a better position to negotiate with the bank – you know what you have to work with and what you do not. You do not want to commit to another arrangement that really cannot afford. It is important that when you compute your budget that you do not include money that you do not have such as a raise or bonus.
Even when your finances start to tighten, do not stop making payments completely. Make partial payments even if you cannot pay the full amount. Banks may not be allowed to continue foreclosure proceedings if they are accepting payments. The burden, however, falls on you to go to the court date and state your case showing proof of payment in the form of cashed checks, money order stubs, etc. Plus, a court will take into account your continued efforts to meet your obligations.
Be aware of your options before a foreclosure ever comes. Mortgage laws are changing a little bit every day, but 5 options to avoid foreclosure have been around for some time: refinance, forbearance, modification, short sale, and bankruptcy.
Before the recent housing collapse refinancing unfavorable mortgage terms to those more palatable was the most common choice. If, however, you have begun missing payments your credit may be damaged enough that you cannot get good refinancing rates. Plus, you may not have the equity available or cash for a closing for this to be a viable option.
If you have experienced a temporary disruption in pay or finances, you may be able to negotiate a forbearance. The key to a forbearance is that the condition that caused your financial trouble must be temporary because you are agreeing to still pay all of the money owed, but for a few months your payments are instead tacked on to the end of your loan. This option has some practical consequences. First, you are relieved of those payments for the time the bank agrees. If the mortgage company agrees to a forbearance it should not charge you late fees for the time agreed upon. Second, the mortgage accrues interest so your balance is still growing at your rate of interest. Third, if you escrow your homeowner’s insurance and/or property tax into your monthly mortgage payments you may experience an escrow shortage that will have to be made up. It may be advisable to at least pay the part of your payment dedicated to the escrow. Finally, a forbearance may extend the amount of time you have left on your loan and/or increase the amount of your payment for the time remaining on your mortgage. Be sure to discuss these issues thoroughly with the bank when negotiating a forbearance. If the bank representative does not have solid answers, ask to speak to a supervisor.
Loan modifications are becoming increasingly commonplace. This option is as straight forward as it sounds. You have analyzed your finances and realize that the current loan terms, usually adjustable interest rates, are not going to work for you any more. Contact the mortgage company to negotiate new terms. Banks are loathe to do it, but stand your ground – the bank does not want to have another house they cannot sell in this market. Know exactly how much you have to spend on the mortgage, taxes, and homeowner’s insurance, and work with the bank to get there.
Next, if your house is now simply more than you can afford, do not just abandon the property and walk away doing long-term damage to your credit and harm to the neighborhood you called home. Talk to the bank about a short sale – how much they are willing to compromise and accept on a sale so you can try to sell the home.
Bankruptcy is another avenue to explore. Chapters 7 and 13 are those most commonly applied to individual consumer cases. If your goal is to keep your home, Chapter 7 is not the best option for you. It is, in essence, a complete liquidation of assets to pay debts. This will almost certainly include your home. Chapter 13 is a better option for keeping your home, but you must have the financial ability to make monthly payments into a multi-year plan, usually 5, designed by the bankruptcy court. As long as the plan is followed, any debts not paid at the end of the plan are discharged and you get to keep your collateral. Under the court plan, a debt holder must be paid at least as much as they would if the collateral or asset is sold outright under a Chapter 7. Bankruptcy laws are very complicated. Plus, credit counseling may be required before a bankruptcy can be filed. The best thing to do is talk to a bankruptcy attorney. They can refer you to credible credit counselors and map out the most appropriate course of action for your family.
Be sure to insist that all new agreements with the mortgage company be in writing. When you receive the paperwork review it to be sure it includes all of the new terms agreed to as you understand them to be. Do not sign the documents until you are sure. If you do not understand what the paperwork says, find an attorney to help you sort through it.
The foreclosure laws vary by state and they can be difficult to understand. There is no need to feel alone through the process. Every state has a legal aid department that can provide free or low-cost legal advice to those who meet income threshold requirements. If you do not qualify for legal aid, do not give up. Find the law school nearest you. Most law schools have legal clinics where students supervised by attorneys can help the public with a wide range of legal issues. For example, working with North Carolina Legal Aid, North Carolina Central University’s School of Law has a group of student volunteers guided by faculty called the Foreclosure Prevention Project. Together, the organizations aim to inform the community homeowners of their mortgage options and assist with ownership issues.
When you feel your financial position start to slip out from underneath you, your greatest tools are tenacity and communication. Banks have cut back on their customer support staff so be prepared to make multiple calls only to sit on hold. The best thing you can do is arm yourself with a pen and paper. Every single time you call the bank write down as much of the following information as you can, even if you never actually get to speak to someone:
- the number you called;
- the time you dialed the phone;
- how long you sat on hold;
- the full name or work identification number of anyone you do speak with;
- as much detail of the conversation as you can jot down;
- the next step; and
- when it is to occur.
This information will help you stay organized and focused through a trying event. You will know what needs to be done next and who is to do it. Plus, if your case does go to court before you have had a chance to get everything straightened out with the bank, you can show the judge, magistrate, or court clerk all of the effort you have made to do the right thing. In this financial climate, the person handling your case will probably be sympathetic, having heard similar stories for months. Your case may not be dismissed, but it may be continued to allow time for you to make arrangements with the bank.
Homeownership is the American dream – until it turns into a nightmare. Life is full of pitfalls that can push even the most fiscally responsible person to the breaking point. There are several options available to keep the keys to your kingdom in your hand, but you have to take the initiative and fight. Know your budget, document all contact with the bank, be vigilant about court dates and deadlines, and seek legal advice if you feel overwhelmed. You can be sure that the bank will have someone knowledgeable in court to represent their interests.