1. Don't lose your home and ruin your credit if at all possible
Call or write your mortgage lender immediately. If financial problems are looming, you need to notify your lender at the first sign of trouble and explain your situation - that would be as soon as you know you're going to start missing mortgage payments.  Many lenders will give you time to help get your financial life back on track.  However, the longer you wait the more difficult it is going to be to help you to stay in your house - there are fees and costs involved in the foreclosure process and, when you begin to incur those, your debts are obviously going to get worse.  If your lender is sending you letters regarding the fact that payments have been missed, DO NOT IGNORE those letters.  Be ready to give your lender your personal financial information, such as monthly expenses and income because, without this information, you will not receive much assistance.  Your lender needs to know what is going on and how to help with the options he or she has to help you!  Mortgage banks and investors aren't just doing this out of the kindness of their hearts. "Workouts" (as they are known) look better from a public relations standpoint and usually cost thousands of dollars less than full foreclosures and home repossessions. They also keep lenders from having to slog through the foreclosure process, which in some states can drag on for a year and a half or more. Regardless of lenders' motivations, the trend toward increased workouts means borrowers have a much better chance today of avoiding eviction than in the past.  Lenders aren't going to want to lose the chance to help you keep your home over the sake of a couple of missed payments - they face the fact that they could theoretically lose out on payments for up to a year and a half while the foreclosure process grinds slowly along and then be stuck with a distressed property to sell at the end of it all.


2. Stay in your home to make sure you qualify for assistance AND Arrange an appointment with a HUD-approved housing counselor to explore your options
Don't move out of your house at this point - if the lender thinks you have abandoned the property, you may not quality for assistance. Contact a HUD-approved housing counseling agency for information on services and programs that could help you. The housing counseling agency may also offer credit counseling and these services are usually free of charge to you. If you bought your home with a Veterans Administration (VA) guaranteed loan, call the VA office nearest you.

A housing counseling agency can help you determine which, if any, of the following options can help you:

Special forbearance - Your lender may be able to arrange a repayment plan based on your financial situation. Your lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan in the near future.

Mortgage modification - You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay). In a modification, the lender actually adjusts the terms of the loan to make it affordable.

Just as credit card companies will adjust your interest rate and payment if you've experienced difficulties, your lender will consider a loan modification. Many people aren't even aware that this is a possibility. Call your lender and ask for the phone number to the "Loss Mitigation" Department. This is different from the people in the collection department who have been calling you over and over asking when you'll make a payment - the LM department will try their best to help you out of a difficult situation. Lenders do not want your property; an REO property (Real Estate Owned) means a liability to them.  The first thing the Loss Mitigation Department will do is send you a Loan Modification package. It will include a Request for Modification form, a Financial Statement form, and several other forms you will need to fill out and get right back to them. You'll need to account for all your finances so they can see that you're not covering up any hidden assets or other properties, and you'll also need to do some mathematical figuring so you can demonstrate your financial ability to begin making your monthly payment again.

You may be asked to provide a "Hardship Letter". This is probably the most important item in the package - the one that will make or break the final outcome and help the lender to decide whether or not you get to work out a solution to keep your family's home. In this letter you'll need to describe, in detail, why you have been unable to pay your mortgage. Explain the medical emergency, loss of job/wages, family or natural disaster that caused the hardship - flood or earthquake, for example.  Be aware that, once a home is in the modification process, the foreclosure sale is continually postponed - you just need to keep checking to make sure everyone in that department stays on their toes in that respect. A "little" mistake on someone's part could mean your home is sold on the courthouse steps to the highest bidder.

The cost of a modification varies from lender to lender, but at the very least you'll be asked to pay for a credit report and title insurance. A "Broker's Price Opinion" will also be asked for, and most brokers/agents will do this free of cost - just be up front with them so they know you are not looking for a listing agent! The BPO is used in lieu of an appraisal.

Partial claim - Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.
You may qualify if your loan is at least 4 months delinquent but no more than 12 months delinquent;  your mortgage is not in foreclosure; and you are able to begin making full mortgage payments. When your lender files a Partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must execute a promissory note, and a Lien will be placed on your property until the promissory note is paid in full. The promissory note is interest-free and will be due if you sell or leave your property, or when your mortgage matures.

Many companies can and will work out a payment plan with you. Just make sure you can keep up the payments. Try to work with them before they actually file the legal document for your state that starts the foreclosure, as substantial fees are incurred when this action is taken.

Pre-foreclosure sale - This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if the "as is" appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value; the loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date; and you are able to sell your house within 3 to 5 months (depending on what your lender agrees to). An additional benefit to this option is the assistance you will receive with the Seller-paid closing costs.  Talk to a real estate agent for advice on how to handle a pre-foreclosure sale.

Deed-in-lieu of foreclosure : As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it will help your chances of getting another mortgage loan in the future.You can qualify if you are in default and don't qualify for any of the other options; your attempts at selling the house before foreclosure were unsuccessful; and you don't have another FHA mortgage in default.

3. Cooperate with the counselor or lender trying to help you
Lenders really do want to help you to stay in your home - and they should be polite in trying to help you, the borrower, stay there.  When there is a connection between the lender and borrower, the more likely it is that the borrower will try to stay in the home.   Solving a foreclosure situation is far more preferable than having a home end up in the bank's REO (Real Estate Owned) category.  Banks are not in the business of SELLING houses!

Once a borrower is 16 days late, the loan servicer will try to get in touch with the customer at that point and figure out a way to bring the payment current. After the first payment becomes 30 days delinquent and the next month's payment looks to be in trouble, collection attempts will get more and more serious. By about 90 or 100 days, the servicer will refer the mortgage to an attorney or other representative, who will initiate the formal foreclosure process.

During these few months, the servicer will offer the borrower two primary options to cure the mortgage - a repayment plan and a loan modification (see above). With a repayment plan, the company agrees to tack, say, half the amount of the first missed payment onto each of the next subsequent two payments. These plans provide some breathing room for borrowers with short-term financial problems, such as expensive car repairs that make it too difficult to pay the mortgage for one month.

In a more serious case, the customer may have already missed two or three payments and owes a couple thousand dollars in lender legal fees. The servicer will still try to arrange a repayment schedule. But the borrower will likely have to pay a third to a half of the delinquent amount upfront, and then pay off a portion of the remaining balance each month for a year or more.

You can also contact Consumers Credit Counseling. The help is free or extremely cheap. Counselors can work with creditors to help borrowers make their installment payments (credit cards, for example) or even get them eliminated altogether. You should contact them early before things are too far-gone. Don't pay anyone for advice or service - most reputable credit counseling services provide free service. Look in the phone book, check the library, and look for recent magazine articles as sources of advice and resources.

Work with your lender. Don't keep your problems a secret. If you can't pay, tell them why; tell them what you plan to do, when you can pay. Unless this is a short-term problem, you will probably need to sell your house. (And it would be better to sell than have the house repossessed.) Don't delay, but get some good (free) advice. Work with your lender on this. They might be willing to give you breathing room to let you sell the house. They don't want to repossess it, either.


4. Explore every alternative to losing your home
The lender may agree to help the borrower get rid of the house via a pre-foreclosure sale. In more dire circumstances, the servicer will agree to a "short sale." In such sales, the lender lets the borrower sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining overage. Banks are willing to do so because they often lose less on these deals than they do in foreclosures. Some companies may consider a "short refinance," too. With these, the lender agrees to forgive some of the debt and refinance the rest into a new loan. That way, it still gets more money than it would by foreclosing. One last way to bail out of a home before things get really ugly is a "deed in lieu of foreclosure" agreement. The borrower surrenders the property deed to the bank and the bank then sells it.  If you have no other prospects and there's no way you can save your property, getting with a real estate agent who can help you sell the house as quickly as possible is another good choice in saving your credit.

Are there other ways you can try to pay your mortgage?  Sure. Here are some drastic options but remember that these too can damage your credit and/or cause other problems if not handled correctly.  Credit card companies will more than likely cut off your credit and other creditors can repossess your belongings. Utilities can cut off your water and electricity, but only the mortgage company can make you homeless:

Defer all other expenses. Pay only the minimums on your credit cards or don't pay anything on them if it's that or the mortgage.  Your credit could suffer in this way but write letters to your creditors explaining your circumstances - do this with all other bills.
Don't do anything that will cause you to put out cash. Postpone your dental work, home repairs, cancel your subscriptions, cable service, Internet access. Eat what you have on hand, and learn to like beans, oatmeal, ramen noodles, etc.
Don't use your air conditioning, cut back on all utility use.
Use all other assets. Sell your savings bonds, cash in insurance policies; take money out of your retirement plan. Raid your coin collection, kids' college funds, penny jar, whatever you have (or have forgotten you have.)
Have your kids' contribute their savings and allowances. Borrow from relatives.
Sell everything you don't use or need. Then start selling what you do use and need. Have a garage sale; consign items at thrift shops.
Generate some more income. Deliver papers, phone books, do telephone soliciting. Check the want ads. You may be able to work for a housecleaning service, store, fast food place, tax prep place, etc.
Collect cans and bottles. Baby-sit.
Make a list of everything you could possibly do. Rank order them by what would be smart to do anyway. Perhaps have a garage sale to get rid of unused junk and paring unnecessary expenses and see what will generate the most cash quickly.
Take in a roommate.

If all else fails ...
Consumers who can't use any of these methods still have some choices. A debtor who can afford the normal monthly mortgage payment, but can't afford to make up the delinquent amount and legal fees because the lender is proposing a relatively stringent repayment plan, may want to consider filing Chapter 13 bankruptcy. Doing so temporarily halts the foreclosure process and can force the mortgage lender to accept a more borrower-friendly repayment plan, such as one that grants five years to repay the amount in arrears rather than one or two.  If you really feel that things will not get better, a bankruptcy will stop the procedure, for a while. A Chapter 13 bankruptcy, which is actually a payment program mandated by the Court, must be accepted by all creditors.. The other types of bankruptcies usually liquidate all of your assets and you usually lose the house. You can file any kind of bankruptcy without hiring an attorney.  If you do have to engage Counsel, make sure the firm is well known for handling real estate problems.

Borrowers who just need some extra time to sell their homes, on the other hand, should consider refinancing via a "hard money" loan. While they have very high rates and fees, the loans, usually from private individuals, can give people the couple extra months they need to find buyers. Most banks will be more than happy to take cash no matter how close it is to the foreclosure sale too. If a relative steps in with $10,000 to bring the loan current, a borrower can usually just hand it to the lender and go back to business as usual. Remember, the bank doesn't want your house. The bank just reinstates the loan back to the old terms, takes all the arrearage, all the legal fees, all the late fees and they pay it off and you get back on track.

While all this sounds simple, borrowers shouldn't be lulled into complacency. Lenders want your money. Just because they're negotiating with you, it doesn't mean they won't turn around and foreclose if that's the way they lose the least money.

Around the 90th to 120th day is when the loan is reported to foreclosure and from that point on, two things are going on simultaneously.  The foreclosure department is moving as quickly as possible to get to the foreclosure sale and the loss mitigation department is working with the borrower to try to do a workout. If the workout can be done before the foreclosure sale takes place, then everybody wins and the workout is done. If that can't be done, the foreclosure sale is held.

Following the same logic, customers should try to negotiate the best deal they can get without feeling guilty. Someone whose property has fallen in value below the mortgage amount because of a neighborhood decline, for example, should consider pushing for a short sale or short refinance rather than a repayment plan. That way, the borrower doesn't pay more money than necessary. Nevertheless, the best way for consumers to get out of foreclosure without racking up extensive legal bills and ruining their credit histories is to start working on a solution before their problems get out of hand.  DON'T IGNORE YOUR FINANCIAL PROBLEMS!


5. Beware of scams
Beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

Equity skimming. In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services call a HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

MOST POPULAR SCAMS:
1. The Ploy: An agent or attorney says they are experienced in "Short Sales" or "Short Pays" (selling a property where there is not enough equity to repay the entire amount owing to the lender - the majority of foreclosures. Heavy negotiating with the lender is required). They may even tout themselves as the area expert in this difficult field, and state that this will get you off the hook and protect your credit. Beware!

The Scam: Even if an agent or attorney has done hundreds of short sales, it doesn't mean they will protect you! There are things that most agents aren't even aware of or don't care about!

If the proper verbiage is not used in the purchase contract when your buyer makes the offer to buy your home, even if the lender agrees to take less than is owed them, it could show up on your credit as "Sold Short" - this is almost as bad as a foreclosure! It shows future potential creditors that you walked away from your financial obligation owing thousands of dollars!  Unless your agent knows the proper verbiage on the negotiating contracts, your lender could issue you a "1099" for tax reporting. The IRS will receive a copy of this 1099 that shows the dollar amount that the lender basically gave you, i.e., Income. Guess who pays taxes on that...Not your agent!   Again, your agent needs to know the right working to negotiate with your lender. Unless your loan is the original loan you purchased the home with (not a refinance), your lender, at their discretion, could seek a deficiency judgment against you for the balance owing. This judgment could follow you to the end of your days and beyond!


2. The Ploy: A seemingly professional entity will suggest you deed the property over to them to avoid foreclosure (of course you will have to vacate the premises, but they will help you find a rental). They will then dispose of your home at fair market value and you won't owe them anything.

The Scam: Not only does deeding over a property not avoid a foreclosure on your record if the payments are not made or the loan not paid in full, often times these clever scammers will simply rent out your property and collect rents until the home is foreclosed on. You are on the loan, not them! Think about it...it's the same reason people are reluctant to co-sign! And the poor unsuspecting renters get to meet the Sheriff when he comes to evict the tenants because the house now belongs to the bank. Sometimes all of their renters are people who deeded over their homes to them in the first place!   Reading the fine print in some of these bogus offers revealed that the commission actually paid by the original homeowner was in excess of 10% and was written so that the monies could be collected for years after the sale at a very high interest rate.


3. The Ploy: "List your home with me and I'll pay you $XXXX."

The Scam: This is illegal. If you can get it in writing, I'd be very surprised. One of the forms you and your agent will be asked to sign is one stating that there is no money, you are not expecting any money and you are not getting any proceeds from the sale of your home. If you don't get it in writing, good luck trying to collect after the sale closes!

These are only three of the most popular scams out there. People come out of the woodwork professing to help you, but just who are they really trying to help? And filing Bankruptcy only stalls the inevitable after all.


6. Do not sign anything you don't understand
Remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation. Don't sign any papers you don't fully understand, make sure you get all "promises" in writing, beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale, check with a lawyer or your mortgage company before entering into any deal involving your home.

If you're selling the house to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.

Since the formal notices regarding foreclosures have to be made a matter of public record, anyone can find out. Do not sign anything that transfers your property such as grant or quitclaim deed offered to you by someone you don't know or is making you a fantastic offer. Do not make any type of agreement to a third party that promises to get you out of default for a fee. You may want to contact a reputable real estate agent and look into selling if you are out of options.

Act now. Delaying will not help. If you do nothing, you will lose your home AND your good credit rating.

If you have decided that foreclosure is your only option and you need to list your house for sale quickly, please give me a call at 1-877-SCONLEY

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