Foreclosure Process


Posted on Sunday, March 29, 2009

As I covered on Fox News, America’s Newsroom yesterday afternoon, here are some of the tips I discussed.

This is not your father’s foreclosure with all of the old stigma attached. If there’s any comfort in numbers, there are millions. And plenty of people who want to help.

I realize there are plenty of psychological reasons you may not want to do call you lender (fear, embarrassment, intimidation – we’ll cover those and how to deal with them in an entry soon) but which is worse, calling your lender or losing your home???? Not communicating with the bank is number one mistake people facing foreclosure make. I was helping as pro bono client do a mod last week. When I finally reached her (private) lender, he said he wanted to help but was not willing to do so because she had never returned any of his calls. He even tried to talk to her at her house but she never got back to him. When I told her I thought he might agree to a mod if she would call and talk to him she went ballistic asking “why should I talk to him?” I told her that she should only talk to him if she wants to save her home. Eventually she called him and he agreed to a mod. NO relationship can work without communication – that includes the relationship between you and your lender. Besides, how the heck will they know you’re trying to resolve the problem if you don’t tell them. I also realize calling banks nowadays can be a pain in the butt – automated voice mails, long hold times, confusing terms and options and often rude people on the other end of the line. We’ll talk about how to manage this and the information you want to get in an entry soon. In the mean time just CALL YOUR LENDER.

One of the reasons so many people are in this situation in the first place ins because they didn’t take the time or thought they did not have to educate themselves before making a home purchase, mortgage loan or refinance decision. That’s in the past now, let’s move forward. But let’s at least learn from our mistakes and not make the same ones all over again. When you call your lender ask them:

Who owns or guarantees your mortgage? If it’s Fannie Mae or Freddie Mac checkout the new Affordable Home Modification or Refinance plans you may qualify for. If its another investor, ask what kind of restrictions the servicers contract with the investor contain. Remember, the person on the other end of the line may not be your actual lender, they may only have been hired to service (collect payments, etc) your loan. Sometimes these contract prohibit modifications or a certain number of modifications or modifications within a certain amount of time after you first got your loan, etc. Sometimes the contract makes the servicer responsible to the investor for lost money if they breech any of these terms. So the servicer’s hands may be tied. If that’s the case you may as well know up front. For more about this relationship and these types of contracts read my book.

How much is due now and what is the break down? How much more will be accruing and when?

How does the lenders process work now. In other words, how much time do you have to come up with a solution before they actually take back your house?

What are the cookie cutter options they are offering now? Do they think other options may become available soon? What are most other borrowers doing? And what can you expect in terms of the process, requirements, and time frames for each?

Make sure you understand the most common options: Modification, Refinance, Forbearance, Deed in Lieu, Short Sale, Rent to a Tenant. My book includes all the information you need to know about each as well as a worksheet to help you prepare to speak with a professional about which option is best for you. We’ll be posting more information about this on this blog in the coming weeks.

Now is probably also a good time to read the documents you signed at closing and in particular your Promissory Note and Mortgage. These are essentially the contract you signed with your bank, the terms you agreed to with them. It seems silly to ask the bank to change the terms if you’ve never even read what they are in the first place. My book includes an example of typical Note and Mortgage “default” provisions – these are the clauses you’re lender is claiming you did not honor when they send you that default letter and notice of foreclosure.

If you want to be really informed, learning about the worst case scenario is a good idea too. My book explains the foreclosure process so that you can really understand how things will unfold, including examples of all of the papers you may get in the mail from you lender. You’ll learn the difference between Judicial v. Trustee States, what a foreclosure Complaint is and looks like and how to respond to one, the main three ways a foreclosure case can proceed once it is filed , how foreclosure sales work and everything in between. I’d strongly suggest this. Knowledge is power. Once you know the worst case scenario, you’ll be prepared for it and less afraid of it.

Once you have the facts and your lender knows you’re working on a solution, it’s time to take a long, hard look at yourself. How did you get into this situation in the first place? Is the problem temporary (like a one time medical issue or short job loss that caused you to get behind or is it more permanent like a divorce that took you from two incomes to one or just getting in over your head altogether? 60% of Modifications end in default anyway. You need to decide if you can really afford even the modification payments or refinance? And even if you can do you want that pressure? In other words should you be figuring out a long term way to stay in your home or are you better off with a short term solution so that you can have time to scale back and find a more affordable place? Are there other factors such as a second mortgage, co-owner or co-borrower, or bad credit you need to consider? Are the taxes current, are there any other payment issues? Do you own more than one property/are you behind on other loans? Is the property your primary residence? Have you tried to refinance, modify or sell before? Are you working? Is bankruptcy an alternative?
The bottom line if that you need to know where you want to end up in order to start heading head there. The bailout is the greatest American financial “do-over” ever. Who would have believed five years ago that if you couldn’t afford your mortgage your bank would just lower the interest rate or even forgive principal for you????? For some people this will equate the hundreds of thousands of dollars they get to keep in their own pockets over the coming years – like winning the lottery! Lets make sure we get it right this time because we probably won’t have another shot.

Once you know where you want to head, see if you can find a professional to help you get there. If you can afford an Attorney that’s great. If not, there are plenty of free services trying to help; State Bar associations, legal aid groups, consumer groups (see the links on this site to a lot of these groups). For tips on how to vet out the good from the bad check out my book. One caveat, even if you hire someone, remember its still your home and your problem, not theirs. They have thousands of folks just like you they’re also trying to help so its up to you to stay on top of them and follow up at least weekly. At the end of the day if they drop the ball they may end up with an unhappy customer (you) but you’re the one who’s going to lose your home! A friend of mine called yesterday complaining that she’d paid a company $600 to help her get a modification, they’d done nothing and she just got another foreclosure notice from her bank. I told her its time to move on. If they didn’t do what they said they would, they’re probably not going to. At this point she has two choices: either (a) say good bye to the $600 she spent (accept some responsibility for not taking the time to find the right company to hire and not make the same mistake twice) and find another company or call her lender herself and save her home or (b) invest her time and energy in being angry at this company, trying to get them to do what they said that would, waste the precious time she has that way and lose her home.

Economies recover. But right now we are also indoctrinating bailouts and moral hazard and building a national debt in the trillions. These side effects will far outlast the economic crisis and, in fact, define a Foreclosure Nation. The golden rules that can get us all out of this safely are the exact same rules that may have prevented this in the first place:

1. Educate yourself before making major financial life decisions
2. Be careful who you trust with you money, home and major financial decisions
3. At the end of the day no one will, can or should take responsibility for your personal financial choices but you.

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