Preventing Mortgage Foreclosure
You already know a plan to prevent foreclosure on your home is important, but what should it include? The first steps to take in creating your plan are to:
Save money
Put away some money each month to have an emergency fund in case something unexpected happens, such as losing your job. You should have several months of housing costs saved to protect you and family from unexpected financial problems.
Reduce expenses
Think about where you can save money; for instance, temporarily canceling cable or your gym membership. By paring down to the bare necessities, you may be able to save a significant amount of money. And even if it doesn’t seem like enough of a savings to make a big difference, remember – every little bit helps.
If you have put your plan into action and still find yourself having trouble paying the mortgage, you should:
1. Call your lender: This is the single most important thing you can do. Lenders want borrowers, not properties – they would prefer to see you keep your home. Most will work with you while you get back on your feet.
2. Be honest with your lender: Different situations require different solutions. It will matter to your lender to know if your financial problems are temporary, for example, due to an injury that puts you out of work for a few months, or are more long term, such as a cut in pay or a layoff.
3. Know what you owe: Have a clear picture of what your debts are and make your mortgage the priority if you have to make choices. Debt collectors can be very aggressive, but if you can't pay all your debts, make sure your home is protected from foreclosure by paying your mortgage.
4. Talk to a housing counselor: A non-profit housing counseling agency may be able to help you restructure your bills so that you have an easier time paying them. Additionally, they can help you create a budget that suits your specific needs.
5. Contact a housing nonprofit: A housing nonprofit can give you valuable advice. The HOPE National helpline, (888) 995-HOPE, is dedicated to helping homeowners facing foreclosure 24 hours every day.
Source: Federal Housing Finance Agency
Facing Mortgage Foreclosure
If you are a homeowner that has fallen behind on your mortgage payments, you are not alone. As many as 2.2 million Americans may face mortgage foreclosure over the next few years. Predatory mortgage lending, exploding interest rates, and a tight economy have contributed to a mortgage crisis that threatens to destroy the American dream of homeownership for people across Minnesota. If you are faced with mortgage default or foreclosure, arm yourself with information, ask for help, and take decisive action to protect your interests.
The most important step in preventing foreclosure or the loss of your home is timely action. Don’t be embarrassed to ask for help. Contact the lender and contact a reputable counselor at the first signs of trouble in paying your mortgage.
Non-Traditional Mortgages
If you are one of the millions of Americans who were sold an Adjustable Rate Mortgage, or an “ARM,” over the last several years, you may experience exploding interest rates that may nearly double your monthly payment. Adjustable Rate Mortgages may begin with a low introductory “teaser” rate that a borrower is able to afford, but quickly become unmanageable when the “teaser” period ends and the interest rate resets to a higher rate. These “exploding ARMs” are one of the primary causes of the current foreclosure epidemic. In recent years, some lenders began relaxing standards, no longer verifying whether a given borrower can actually afford the loan. Since most mortgages today are subsequently sold to another entity, the original lender may no longer be interested in the long-term viability of the mortgage, or whether a borrower will be able to afford to keep the home if the interest rate resets to a level that is unmanageable.
How does Foreclosure Work?
Foreclosure is a process by which a lender that is servicing a mortgage loan repossesses the property and forces the borrower out of the home because he/she has failed to meet the terms of the mortgage loan, or has “defaulted” on his/her payments. The foreclosure process takes place in several stages including default, sheriff sale, and redemption period.
Default
A borrower can default on his/her loan as soon as one month’s payment is late. By notifying a borrower that he/she is in default, the lender is putting the borrower on notice that he/she has failed to make payments required in the mortgage agreement and is in jeopardy of losing the home. Generally, the lender will request that the borrower contact the lender to discuss options and may begin additional collection efforts on the mortgage. Borrowers should take affirmative action to contact the lender at this point to try to work out any short-term or long-term payment problems. Do not ignore correspondence from the lender or its legal representatives. The sooner the borrower contacts the lender to address the problem, the better.
Sheriff Sale
In the event that the default is not resolved, the lender may take action to force a sale of the property, known as the “sheriff sale.” The borrower will either receive a notice of sale four weeks before the sheriff sale, or in some cases, a summons to court, where the lender will request the court to authorize the sheriff sale. The sheriff for the county where the property is located will conduct a sheriff sale in a public place. Once the sheriff sale has occurred, it may be difficult to save the home. Generally, the mortgage can no longer be “cured” or “worked out,” but rather a whole new loan must be obtained to cover the cost of the mortgage, late fees, attorneys fees, etc. Obtaining new financing for a loan that is larger than the original loan (due to fees) is difficult and may be compounded by damage to the borrower’s credit caused by the foreclosure. If at all possible, borrowers are encouraged to take action to resolve the defaulted mortgage before the sheriff sale. After the sheriff sale, the borrower does have some options for recourse, however, during the “redemption period.”
Redemption Period
After the sheriff sale, the borrower typically has a “redemption period” of six months, and can remain in the home during this period (in some cases, the redemption period may be extended to twelve months). During the redemption period, the borrower may attempt to refinance the home through a new mortgage. Remember, however, that the borrower may be responsible for fees incurred during the foreclosure process in addition to the amount of the defaulted loan. Alternately, the borrower may attempt to sell the home in order to take advantage of any equity that he/she has built up in the home. If the borrower has been unable to refinance or sell the home after the six month redemption period, he/she must vacate the property.
I’m Behind In Payments – What Can I Do?
Contact the lender as soon as possible. Ask the lender what the options are. Don’t ignore the problem or correspondence from the lender, as late charges (and other fees) can pile up, compounding the problem. Be realistic about your financial situation. Since each person’s situation is different, there may be a range of solutions. For instance, some borrowers may fall behind temporarily due to a change in work status, health issues, or other short-term economic changes. Other borrowers may have long-term problems in their ability to pay a given mortgage, because they could not afford the loan in the first place, or are a victim of exploding interest rates. If you’re behind in your payments, consider the following tips:
1. Find a reputable mortgage counselor. Contact the Minnesota Housing Finance Agency or U.S. Department of Housing and Urban Development (“HUD”) to find an approved counselor. A reputable counselor may be able to help you locate funding assistance or negotiate a solution with your lender.
2. Request a loan modification. The lender may be willing to permanently modify the terms of the loan to make it more affordable for you. For instance, if you have an exploding ARM, ask the lender to modify you into a fixed-rate loan that you can afford.
3. Refinance with a new loan. You may be able to find another lender that will give you a loan with better terms (such as a fixed rate) that are more manageable. Before pursuing refinancing, however, review your current loan to determine whether it contains a prepayment penalty.
4. Consider reinstatement. Under a reinstatement, you pay off the past-due amount and any fees in order to bring the mortgage current again. Reinstatement may be a good option if your default was caused by temporary financial fluctuations that you are able to rectify.
5. Ask for a forbearance. A forbearance may reduce or temporarily suspend your monthly payments until a set date, allowing you to get back on your feet and begin repaying the mortgage.
6. Set up a repayment plan with the lender. Ask the lender to allow you to pay the past-due amount in partial payments along with each of your monthly payments, rather than all at once. This may be more manageable than having to pay back the past-due all at once.
7. Ask the lender to waive fees or penalties. A lender may be willing to waive fees, penalties, or other charges if it believes in good faith that a resolution can be reached where you can begin making timely monthly payments and repay the past-due principal and interest.
8. Explore selling the home. In some cases, selling the house may be the best option. If you have equity built up in the property, this may allow you to benefit financially, and perhaps afford another home.
Beware of Scams
Unfortunately, scam artists often attempt take advantage of people in vulnerable financial situations such as default or foreclosure. These unscrupulous actors prey on people while pretending to offer them assistance. Don’t be fooled by these scams! If you seek assistance from a third party, make sure that it is a reputable counseling agency. In particular, homeowners should be on guard against two forms of scams: 1) equity stripping scams; and 2) foreclosure consulting scams.
Equity Stripping Scams
This scam works in a variety of ways, but typically starts when someone promises the home owner that he/she will solve all their problems and keep them in their home. The scammer may promise loan money that never appears, or have the home owner sign a lot of complicated papers. The scam artist may convince the homeowner to sign the property over to him/her, claiming that only he/she can get a loan to save the home. In reality, the loan does not exist, and the homeowner becomes a renter in their own home, until they are eventually forced out by the inevitable foreclosure. In most cases, the homeowner receives little or nothing for their home equity, which has, in essence, been stolen by the scam artist. Under Minnesota law, homeowners must be paid at least 82 percent of the fair market value of their former homes (minus certain permitted costs or expenses) if they are not able to stay in their homes following a foreclosure.
Mortgage Foreclosure Consulting Scams
Some organizations or individuals may represent themselvesas counseling agencies, but are actually only outto make a profit off the misfortune of others. Typically,these entities will ask for up-front fees in exchange for“counseling” services such as financial advice, negotiatingpayments or other solutions with the lender, or exploringthe sale of the property. These are services thatborrowers can do themselves, and may be offered forfree by reputable organizations. Scam artists that collectup-front fees may not actually provide any of theservices promised, or may even disappear overnight.Under Minnesota law, a foreclosure counselor is prohibitedfrom collecting a fee until after it has provided aservice to you. Don’t be scammed by Mortgage ForeclosureConsulting Scams.
Source: www.ag.state.mn.us
Do's and Don'ts of Foreclosure
Facing a foreclosure is a scary thing, but there are things you should do – and shouldn’t do – to avoid making the situation worse.
DO answer the phone and read your mail
Avoiding your lender won’t make the problem go away. In fact, it will only make the problem worse. Your lender may be able to help you, so be sure to answer the phone and read any mail they may have sent you.
DO realistically assess your situation
Are your financial problems temporary? If you are temporarily out of work and will be fine once you find a new job, call your lender. Lenders may be able to offer a forbearance or repayment plan.
DO consider your options
If you are not in a position to keep your home, consider selling it before you face a foreclosure. If you have already missed a mortgage payment, call your lender. There may be purchase options, such as a short payoff or assumption (see sidebar) that help avoid foreclosure.
DO be aware of certain financial responsibilities Even if your lender sells your property, you may still be responsible for the difference in the sale price and what you owe. It is also important to realize that you may be responsible for certain taxes when a lender forecloses on your property. However, the IRS does provide tax relief in
certain situations.
DO protect your wealth
Recognize that you may have significant equity in your property that must be preserved.
DON’T move out of your home.
In order to qualify for assistance, homeowners are often required to be living in their home. Be sure to talk to your lender before you think about moving.
DON’T ignore the problem.
It may be possible to keep your home, but if you wait to take action, fewer options will be available. You have certain rights and can take certain actions to help you keep your home; however, you only have a limited amount of time to assert those rights or take those actions.
Talk to a lawyer or legal aid organization, since your rights vary from state to state. Most states and large cities have legal aid organizations; to find one near you, go to the
Legal Services Corporation, a government-sponsored organization that provides high-quality civil legal assistance to low-income Americans.
DON’T convince yourself you can afford a home if you can’t.
Most lenders will only lend what a borrower can afford, but some less scrupulous lenders will allow borrowers to get in over their heads. In some cases, a home that was affordable becomes unaffordable due to changes in your life circumstances. If your mortgage is truly beyond your means, consider selling your home and purchasing a less expensive home or renting for a period of time before the only option left is foreclosure. Call your mortgage company; they may be able to help you avoid foreclosure by agreeing to an assumption or a short payoff.
DON’T fall victim to a scheme.
Some people want to profit by your misfortune by offering to contact and conduct all work-outs and negotiations with your lender on your behalf – for a fee. View a helpful video Freddie Mac posted YouTube titled “Foreclosure Scams 101.”
Source: Federal Housing Finance Agency
Homeowners Assistance Resources
If you experience financial trouble that may jeopardize your mortgage payments, ask for help. Timely action can make the difference. The following federal, state, and local agencies and organizations may be available to provide information, referrals, and assistance to homeowners regarding foreclosure issues:
U.S. Dept. of Housing and Urban Development
451 7th Street SW
Washington, DC 20410
(800) 569-4287 or TTY: (800) 877-8339
HOPE Now Coalition
(888) 895-HOPE
Minnesota Housing Finance Agency
400 Sibley Street, Suite #300
St. Paul, MN 55101
(651) 296-7608 or (800) 657-3769
Minnesota Home Ownership Center
633 South Concord Street, Suite #250
South St. Paul, MN 55075
(651) 659-9336 or (866) 462-6466
Dakota County Community Development Agency
1228 Town Center Drive
Eagan, MN 55123
(651) 675-4471
Carver County Community Development Agency (formerly HRA)
705 Walnut Street
Chaska, MN 55318
(952) 448-7715
(Carver and Scott)
Lutheran Social Services Financial Counseling
(Including Rice, Goodhue, and Le Sueur Counties)
424 West Superior Street, Suite 600
Duluth, MN 55802
(888) 577-2227 or (218) 529-2227
Twin Cities Habitat For Humanity
3001 Fourth Street SE
Minneapolis, MN 55414
(612) 331-4090
Veterans Mortgage Assistance
(877) 827-3702
