How to Avoid Foreclosure

If you are having a problem paying your mortgage, the first thing you need to do it is to face the situation and take action. Experts suggest that delaying only deepens the difficulties.

Foreclosure Snapshot
The number of properties with foreclosure filings has been rising dramatically, according to Rick Sharga, vice president of marketing for RealtyTrac Inc., the nation’s leading online foreclosure marketplace with a comprehensive foreclosure database.

There are steps you can take to avoid a foreclosure.
There are steps you can take to avoid a foreclosure.

In 2005, there were more than 500,000 foreclosure filings; in 2006, more than 700,000; in 2007, more than 1,200,000; and from January to June 2008, more than 1,300,000.

Who, What, Where
Foreclosures are happening across the country; the national average is one in every 171 households. The states with the highest numbers are Nevada, California, Florida, Ohio, Arizona and Michigan but most areas are seeing at least some increase in foreclosure activity.

Sharga says RealtyTrac data suggests that “a high-level analysis of our data in the first and second quarters shows that about 50 percent of the foreclosure actions for which we have loan information associated (about 600,000) were on loans with interest rates of 8 percent or higher. About 23 percent were on loans with interest rates of 9 percent or higher. That suggests to us that a disproportionately high number of loans in foreclosure would be considered subprime.”

Interestingly, foreclosures are not all primary residences. Sharga said an analysis in May 2008 of owner mailing addresses of homes in foreclosure found that 33 percent of homes in foreclosure nationwide have an owner mailing address that is different from the property address. The implication is that those homes are not the primary residences of the owners, so they may be second or vacation homes or rental properties.

Reasons for Foreclosures
Experts suggest there are many reasons for a foreclosure. Consumer advocates point to “creative” financing options offered to unsophisticated borrowers that trapped them in loans doomed to fail. These mortgage products included cash-out refinancing loans, interest-only loans or 2/28 Adjustable Rate Mortgages that are fixed for two years and then rise.

Sharon Reuss, spokesperson for the Center for Responsible Lending—a nonprofit, nonpartisan research and policy organization—says that subprime borrowers in trouble were given defective mortgage products. With these products and poor underwriting, the initial “teaser” rate is followed by rate adjustments that the borrower cannot afford because he or she was only qualified for the loan at its introductory rate.

Check the Internet to find the state agency that can provide information about foreclosure laws and timeframes relevant to your case.
Check the Internet to find the state agency that can provide information about foreclosure laws and timeframes relevant to your case.

Lenders suggest that some borrowers chose certain mortgage products, such as interest-only loans that allowed them low payments, betting that houses would continue to appreciate.

Some homeowners, caught up in the trend that has had few saving and many spending, are finding that rising oil prices’ far-reaching effects—oil affects food, fuel, transportation costs and more—have cut into their ability to meet their financial obligations. Others borrowed against their home equity and now find that they owe more than their house is worth.

And there are other reasons that drive homeowners to stop meeting their mortgage obligations. Among them:

• Job loss. According to the U.S. Department of Labor, the unemployment rate rose to 5.7 percent in July 2008. Over the past 12 months, the number of unemployed persons has increased by 1.6 million, and the unemployment rate has risen by 1 percent.
• Medical problems and associated bills
• Death in the family
• Loss of second income because of divorce


Before contacting any of the help programs, first gather some basic information about your case. Have the name of the company servicing your mortgage, the loan number, a list of household expenses, your current income (including pay stubs and benefit statements) or tax returns or a year-to-date profit and loss statement if self-employed. Next, check into what programs are available in your area or nationally. Here’s a start:

• Call the HUD automated helpline at 1-800-569-4287 that will direct you to approved housing counselors in your area. HUD funds free or low-cost housing counseling nationwide. The counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender.
• Contact organizations that act as HUD’s national and regional housing counseling intermediaries. They are listed on its Web site.
• If you have a Federal Housing Administration (FHA) loan, contact the FHA at 1-800-CALL-FHA.
• Contact the Home Ownership Preservation Foundation, an independent nonprofit providing free help with HUD-approved counselors, at 1-888-995-HOPE or visit its Web site.
• Contact Hope Now, an alliance between counselors, servicers, investors and other mortgage market participants that reaches out to homeowners in distress. According to the Alliance, from July 2007 through May 2008, nearly 1.7 million homeowners avoided foreclosure through loan workouts. It also offers Project Lifeline, a targeted outreach to seriously delinquent homeowners (90 days or more late) in an effort to “pause” the foreclosure process.
• If you’re a New York resident, contact the New York State Banking Department Consumer Helpline at 1-877-BANK-NYS (1-877-226-5697). New York’s task force, Halt Abusive Lending Transactions (HALT), unites all state agencies that relate to the mortgage market and offers counseling and legal services, outreach and loan modifications, refinancing and mortgage programs, legislation, neighborhood stabilization and enforcement.
• If you live in Nevada, visit the Nevada Department of Business and Industry foreclosure help Web site.

Steps to Take
Community and lender organizations and government agencies such as the Department of Housing and Urban Development (HUD) offer steps to avoid foreclosure. Here’s a quick summary:

Early intervention is key. The more payments you miss, the more difficult it will be to come out of the mess.

Find your mortgage paperwork. Review the terms and conditions of your loan to understand what your lender can do if you don’t make payments.

Contact your library’s reference desk or check the Internet to find the state agency that can provide information about foreclosure laws and timeframes relevant to your case.

Read and respond to all mail from your lender. Early paperwork may bring the foreclosure prevention help you need. If you ignore the letters, later mail will only inform you of pending legal action.

Contact your lender. Depending on how long you have let the situation deteriorate, there are arrangements that might be worked out. Lenders might temporarily suspend or reduce mortgage payments, repackage missed payments into a new loan over a longer timeframe that would make payments more affordable, accept title to your deed in lieu of your mortgage, or, if there is enough equity in your home, allow you to sell the house to pay off the mortgage.

Contact a reputable debt counseling agency. Check with the Better Business Bureau. Look for one that offers free or low-cost help.

Avoid con artists. They may offer such scams as having you sign over your deed with the promise that they will take on the mortgage or say they will work out a deal with your lender for a fee.

Review your finances. Look for areas where you can cut expenses so you can make your mortgage payment.

Review your assets. Look for what might you sell to help reinstate your loan. Determine if someone in the household could take on an extra job to bring in needed money.

With some forward-thinking and quick action, you can prevent your home from going into foreclosure.

Credit: Renovate Your World