Post-Ownership & Surviving Financial Instability:

The Dreaded Foreclosure

Financial Crossroad

HomeBuyers, Incorporated, wants to be sure that you’re a well-informed consumer. It is our goal to assist you in making your dream of homeownership a reality, but also to make sure that you are well informed about what might happen should you find yourself in a financial crisis. That could mean the loss of your home, your dream!

Many homeowners find themselves at the crossroads of financial risks. An unexpected illness or medical problem may arise, a job layoff, poor financial management, liens against your property, or just taking on more debt than you can manage can put you at risk of delinquency, default, or the need to work out a repayment plan with your lender. Some homeowners may even find themselves caught in the situation of foreclosure and having to file for bankruptcy.

The following are some survival skills to help you through such a situation.

• Do not take on any additional debt to pay off old debt. Take the time to identify the cause of a crisis that arises and determine if it is a long-term or short-term situation. This allows you an opportunity to decide on your strategy for handling the situation.
• Remember to prioritize. Make a list, on your own or with a professional, of priority payments. Your list should look something like this:
  • Monthly mortgage payment: (If not #1, then definitely in the top three). You should be aware of creditors that might take action against your home.
  • Household necessities: Such as food and health expenses. Reduce your spending as much as possible without neglecting your health.
  • Housing related bills: Any bills that are associated with your home are a high priority. That means the mortgage, homeowner’s insurance fees, and if you live in a condominium, that includes maintenance fees.
  • Utility service bills: Cable is a luxury utility. Essential are the telephone, water, electric and gas or oil bills. It is important to pay your bills on time to avoid late fees. Check your utility companies, some have plans that help reduce and stabilize your monthly payments.
  • Car loans: If the car is an absolute must form of transportation to and from work, then it is obviously a priority. However, if your household has more than one car and can afford to sell one of the vehicles, here is an opportunity to save some money. This may mean paying for public transportation, but using public transit reduces or eliminates payments for vehicle maintenance, gasoline and auto insurance.
  • Child support payments: Your children are always a priority regardless of where and with whom they live.
  • Income taxes: Just on of those things that everyone must pay, even if your tax debt can’t be paid right away. Most states and the federal government will create a payment plan to pay off the debt.
  • Student loans: The government has many options to pay off loans. The government also has the power to seize up to 10% of your wages without a court order, and it can charge up to 43% in collection fees.
  • Loans without collateral: These are your credit cards, health care debts, and any open accounts you may have with retailers or other merchants. These debts do not share the same priority payments during a financial crisis. *Contact all your creditors to make arrangements to repay all your debts.

Other Important Tips

Your home and vehicle necessary for you employment are top priorities. The threat of lawsuits by a creditor of a debt owed on anything other than your home or car should not change your priority of payments of debts.

Should you feel the need to withhold payments due to the conduct of lenders, collectors, contractors or other service providers, make sure you put everything in writing. Write out your complaint and send a copy to the creditor. Make sure you keep a copy for your records in your file. Be sure you contact the Better Business Bureau and/or an attorney should you need legal defense.

Should you receive a court judgment, move this particular debt up in payment priority. This does not mean placing this debt payment above your immediate household needs. Check the laws of your state before deciding how to prioritize payment of a court judgment debt.

Please don’t make things worse by writing bad checks! When you write a bad check, you bank and the creditor charge a fee for “rubber” checks, the initial fee and your bank fees. Whether intentional or not, you can be investigated for criminal wrongdoing and subsequently prosecuted.

Communication with your mortgage loan servicer at the earliest point of your financial difficulty is crucial. Your lender may be able to assist by making arrangements to help you through this difficult time.

If you do not know your mortgage loan servicer, contact your mortgage institution. Remember, this is the agent to whom your monthly mortgage payments are owed.

Call your lender/servicer and keep a record of all your calls (date, time, person you spoke with, any response or conversation, telephone number, addresses and contact names). You will probably speak to someone different each time you call. Make sure that you contact the appropriate division and give complete details of your financial situation.

Write a letter explaining your situation and the reason for any delays in payments. Make a reference to your phone call with the names, division, date and time. This letter should state your willingness to continue to make payments on your home loan.

It’s important to respond to inquiries from your lender or servicer in a timely fashion. Make sure you have your paper trail at hand. Answer all their questions. If you have questions, make sure you take notes. Be professional and show your willingness to cooperate. The lender/servicer may be willing to refer their low- and moderate-income customers to the services of community or non-profit organizations that assist in resolving some of the circumstances regarding delinquency and default.

Establish a crisis budget. List your anticipated income and your expected expenses. Check your spending habits. Write everything down so you can see where your money is going. Watch how you spend your money for at least one week and decide where you can and cannot cut corners on your spending.

Analyze Your Financial Situation

Sometimes a professional credit counselor is your best option. A professional trained to analyze your financial situation can provide recommendations that you may not see because you are emotionally involved. These counselors are emotionally detached from your situation and can most times better evaluate the situation to bring things into perspective so you can best alleviate the stress and burden of the debt.

There are two types of counselors to help you through this crisis:

• Credit Counselors – trained in money management and financial planning
• Housing counselors – help homeowners resolve default on their mortgage loans and other mortgage problems

There are options for homeowners in default:

To work out an agreement with your lender to prevent foreclosure.

A debt repayment plan to resolve future and past due payments (arrears). The homeowner agrees to make monthly mortgage payments when they are due, along with a partial monthly payment on the arrears. Or the homeowner may request the lender or servicer for a temporary interest rate or payment reduction.

There are many loss mitigation tools available, such as:

• Mortgage Modification
• Partial Release
• Special Forbearance
• Capitalization
• Pre-Foreclosure Sale (PFS)
• Compromise Offer
• Assumption

Making Financial Legal Decisions

NOTE: Be sure to discuss your options thoroughly with your lender or servicer. Have a complete understanding of the terms and how any one of those options may affect you and your household.

Deed-in-lieu of Foreclosure:

This is another option for homeowners deep in debt. This option allows the homeowner to voluntarily give their property to the foreclosing lender or servicer. This stops the process of foreclosure. Essentially, you sign a document that transfers your property to the lender/servicer. This process is usually done when the homeowner believes the property is not worth saving or there isn’t any equity or there is negative equity in the property. It’s also done when there isn’t any money to afford the scheduled loan payments, even if the foreclosure was stopped, or if the homeowner would prefer not to have the consequence of foreclosure on their credit report, or if the property did not, or could not, be sold.

What are the benefits of a deed-in-lieu of foreclosure?

• It stops the foreclosure process
• The property will not be sold at a foreclosure sale
• The homeowner’s credit is partially protected from a foreclosure sale, although the homeowner’s credit has already been affected by delinquent and/or default payments.

Please note that the deed-in-lieu does not make you immune to the possibility of a deficiency judgment.

Take the time to negotiate your terms of a deed-in-lieu of foreclosure:

• Will the servicer/lender cancel the mortgage note or deed of trust?
• Is the homeowner allowed to maintain residence in the home until the homeowner finds a new residence?
• Is there a timeframe that the homeowner has to find a new home before being evicted?
• How soon will the deed-in-lieu be reflected in the homeowner’s credit report?
• Will the deficiency judgment be waived by the lender/servicer?
• Should you consider refinancing as a means of handling default?

Give lots of though to analyzing your secured and unsecured debts, interest rates, balloon loan payments, and up-front charges. Take the time to talk to your lender to discuss your best options before deciding to refinance. This can be a very costly endeavor. Avoid predatory lenders. Make sure you are not digging a deeper hole for yourself.

Filing Bankruptcy and/or Foreclosure

Seek legal advice before you make the decision to file bankruptcy!

There are different types of bankruptcy that meet different needs. Some may actually help you keep your home. So what works for a co-worker, a friend or a relative may not be what’s best for you, your household or your circumstances. Don’t’ ask your friends. Call a qualified legal advisor.

When all else has failed and you’re faced with foreclosure…

This is the process when the lender/servicer has the legal right to force you to move out of what used to be your home, and sell the property at a public auction in order to pay off the loan.

The laws regarding foreclosure vary from state to state. Check the local practices in your jurisdiction by discussing your case with both an attorney versed in real estate law in your area, and your lender/servicer.

There are several methods of foreclosure:

• Judicial: the lender/servicer must file a court action to receive a judicial decree authorizing the foreclosure sale by providing:
  • A valid mortgage between the parties
  • The homeowner is in default of the mortgage
  • The proper procedures were followed prior to filing the judicial foreclosure
  • The homeowner may raise defense to procedural and substance of the foreclosure
• Non-judicial: (“power of sale”): the lender/servicer is allowed to sell the property without filing a court action. The “power of sale” is written in a clause included in the mortgage or deed of trust. The clause essentially states that should the homeowner default in payment or breach any terms of the loan, the mortgage holder can sell the home after notifying the homeowner. This is stated in the terms of the mortgage or it is written in the state or jurisdiction statutes.

Seek legal advice and make sure you understand all terms of your mortgage long before you find yourself in such circumstance.

Other forms of foreclosure that are not as well known are strict foreclosure and entry & possession.

There are several phases to a typical judicial foreclosure.

1. A complaint is filed by foreclosing attorney representing the lender/servicer.
2. A notice of “lis pendens” is posted: This states that the title to the particular property is in litigation. In some areas the court has jurisdiction over the property.
3. The homeowner files an answer to the court complaint
4. There is a reinstatement period
5. Discovery of all the facts on both sides
6. A court trial
7. A redemption period
8. The writ of sale and notice of levy
9. The notice of sale
10. The foreclosure sale: Prior to this even the homeowner has an opportunity to pay the money owed to the lender/servicer, plus any fees and expenses to stop the foreclosure process.
11. Deficiency Judgment
12. The post-sale redemption period. This part of the process may vary from state to state

Phases of a non-judicial foreclosure include:

1. A notice of default and election to sell the property is sent to the homeowner
2. Reinstatement period
3. Notice of trustee’s sale
4. Redemption period
5. The trustee’s sale

There are several notices forwarded to the homeowner at various stages of the foreclosure process. The number of notices and their scheduling varies according to jurisdiction and state. The whole process takes several weeks, sometimes months.

It is rare that upon the completion of a foreclosure sale that a homeowner is able to recover the home. Some states provide redemption periods to reclaim the property by paying the entire debt within a certain timeframe. In states without redemption periods, the mortgage company or the highest bidder takes immediate possession after the sale.

If the lender/servicer did not recover the money owed from the sale of the property, the homeowner may be liable for the balance due and any outstanding property taxes. Again, this varies from state to state. If the property sells for more than what is owed on the property, the homeowner may receive some money back. But the homeowner may still be responsible for the taxes.

Aside from losing the home after a foreclosure sale, the homeowner now carries the burden of the foreclosure on his/her credit record.

*Remember, there are certain forms of bankruptcy to help keep you in your home should you find yourself in financial constraints. Consult with a professional legal advisor to make an informed decision.

Again, the goal of HomeBuyers is to be sure that you’re an educated consumer. We want to assist you in making your dream of homeownership a reality. Don’t be frightened by this section of foreclosure, but take this information and use it to help you make a conscious decision regarding your home and money management.

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