How to Stop a Home Mortgage Foreclosure
I usually write about aquariums and frugal or green living, but to be able to enjoy either of those things you have to be comfortable in your home. Falling behind on your mortgage makes this impossible. And, while frugal tips can help, they aren't always enough. After seeing one of my close friends almost lose her home after being laid off, and how devastated she was by the whole process, I thought it would be a good idea to reach out to others that are in a foreclosure situation and let them know there are things that can be done - not only that there are things out there, but exactly how to stop a home mortgage foreclosure in its tracks.
Has a Notice of Default Been Issued?
A notice of default is a formal notification that you have not made your loan payment by a predetermined deadline. This is a legal communication required as part of the foreclosure process. If you have been served a notice of default you must act quickly to try to rectify the situation. The terms to rectify your past due amounts will be clearly spelled out in the notice of default (in some states it can be as little as 60 days from receipt of the notice). If you have received this notice skip directly down to the "What to Do if You've Been Served" section.
If you haven't received a notice of default, there are far more things you can do to stop a home mortgage foreclosure. The earlier you face the problem, the easier it will be to get it taken care of. Take the following steps and you'll be surprised at how much help the lender will give you to get your payments back on track.
Always Submit Copies of Documents
Things get lost in the mail, in files, in cars and in various other places. Always keep you originals locked in a safe place so you have access to them if necessary.
Don't Ignore Correspondence
It's easy to be embarrassed when you get letters telling you that you are behind on your payments. But, that's not what the letters are for. Your lender is trying to contact you to get the debt figured out. . If you believe that the amount claimed in your notice of default is incorrect, file a dispute of the claim within 30 days and include copies of any supporting documents you have.
Lenders only have one thing in mind; getting their money back. They are highly motivated and usually more than willing to make arraignments other than foreclosure to get it done. Foreclosures are expensive. After all of the legal fees and paperwork, a typical home foreclosure can cost a lender an average of $30,000. This means it's in the best interest of the lender not to foreclose. Once you understand that, you can see why they are so willing to work with you.
Have You Dealt With Foreclosure
Make a Phone Call
Invariably, on the correspondence from your lender there will be a phone number to call. Don't be afraid to pick up the phone. Your lender has specialists specifically to help people having financial difficulty. These are not collections agents. They are authorized members of the lending agency that can make modifications to your loan agreement to help you get your payments to a reasonable level.
The first thing you should ask about is their forbearance plane. These plans allow you to pay partial payments or even to skip payments for an agreed upon period of time. If you have been injured or laid off and have an expected back to work date, this is an excellent option (and one that many lenders will be happy to extend to you).
For other situations, like job loss, you may be able to renegotiate the length of your loan to reduce your monthly payments. Because a lender is looking to get paid the total amount that is owed without taking a potential $30,000 hit, this option could work even if you don't have employment lined up. This is also an option if you have a balloon type mortgage and the payments have jumped to a level that you are not able to afford.
Get Professional Help
If you've tried contacting your lender and haven't been able to reach some sort of workable compromise, don't throw in the towel yet. There are professional housing counselors who deal with this every day. They can step as moderators between you and your lender. This helps because lenders who think you are being unreasonable will see that you are making a serious effort by bringing in a third party negotiator. But be careful when choosing your counselor, those with "guarantees" can charge thousands of dollars and may not always leave you in better shape than when you started. To get a list of reputable counselors visit the Department of Housing and Urban Development's website.
What to Do if You've Been Served
If you have been avoiding dealing with back payments, you may be behind the 8 ball. The ship has probably already sailed on renegotiating your situation with your current lender because the legal process has already been started. At this point you have three options; fight the foreclosure, sell your home before the foreclosure or file for bankruptcy. None of these options are ideal (although successfully fighting a foreclosure might void the lender's claim against your property). Each course of action has its own set of stresses and costs. Still, doing any of these things is better than doing nothing. At least this way you may be able to reduce the debt you will be saddled with.
U.S. Service Members Take Note
Service members on active duty have special protections when it comes to foreclosure. The Servicemembers Civil Relief Act (SCRA) allows you to postpone foreclosure proceedings while you are engaged in active duty. Service members must contact their military legal assistance office to get this assistance. From there, the case will be forwarded to the Department of Justice.
Fighting a Home Mortgage Foreclosure
If you are going to fight a home mortgage foreclosure, it is imperative that you file a written answer to the foreclosure complaint within 30 days of receipt of the notice of default. By filing the complaint and attending the court scheduled hearing, you immediately stop the lender or the county from getting a default judgment against you.
Common Defenses to Foreclosure:
The circumstances surrounding the mortgage are unconscionable. This defense centers around claim that the loan was misunderstood or vast misrepresented by the lender. This defense usually only works for people who don't speak English as a first language and can argue that the language barrier made the terms of the loan difficult to understand.
The lender didn't follow the correct procedures to file for foreclosure. Most lenders have plenty of experience filing foreclosure paperwork. Major error can still occur, but they are very infrequent. The most common errors are procedural and will only slow down the foreclosure, not completely stop it. Errors like a misspelled name will not be enough for the court to take action.
The lender has no proof of ownership of the mortgage. This is the most common defense against foreclosures in the current environment (and the one that my friend used to fight her foreclosure). During the housing heyday between 2000 and 2007 lenders often sold their mortgages to secondary owners who subsequently sold them as well. If a completely unbroken chain of custody cannot be determined for your mortgage, the lender has no legal recourse and you do not need to pay them. That doesn't mean you don't owe the money to someone, just that you must be provided with the proper documentation to know who to pay.
The servicer made a mistake. Usually, if a mortgage servicer makes a mistake the lender will not hold you liable for the missed payments. Unfortunately, if you haven't been communicating with them and it has gotten to the point that you are in court, you'll need to produce documentation showing that you made payments to the servicer and that you are not at fault. Crediting the wrong party for a payment is a common mistake, but some servicers engage in fraudulent activities like charging fees that are not authorized or overstating the amount you need to pay to re-instate your mortgage.
The lender used unfair lending practices. While this is close to unconscionable, this defense covers situations when the lender has broken federal or state laws while providing the loan. There are two laws that are usually cited in these cases, the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA).
Make sure your letter includes the defense or defenses that fit your particular situation and that it is addressed to the county court where the foreclosure complaint was filed. Filing in the wrong court will not stop the foreclosure and the court will not re-file it for you.
Selling Your Home
If you can sell your home before the mortgage company takes control of the title, you can use the proceeds from the sale to pay off your mortgage debt. If you have substantial equity, you could even come out with cash in your pocket. Selling your home quickly could be hard, but it isn't impossible. And, although it isn't the best possible outcome, it might give you the opportunity to start fresh. Of course, if you haven't gained much equity, you may be saddled with a debt even after the home has sold (but it won't be as large as it might have been).
If you can't find a buyer for your home, you may be able to negotiate a deed in lieu of foreclosure. This is a strategy where you ask the lender if they will forgive the balance of your loan if you sign the deed over to them. The loss mitigation department for the lender will do some calculations to decide if this is the best option for the company and may take you up on your offer. This option doesn't work for people who have suffered significant property value loss or have very little equity in their homes. The longer you've been paying on your mortgage, the more likely it is that the numbers will come back in favor of a deed in lieu.
Filing Bankruptcy to Stop a Home Mortgage Foreclosure
If you are absolutely out of option, consider filing for personal bankruptcy. This is a last ditch effort to stop a foreclosure and should only be considered after all other avenues have been exhausted. It could actually be the smartest way out of an underwater mortgage. As soon as you file for bankruptcy all foreclosure activities will be put on an automatic hold. This assumes that you qualify to file. This involves credit counseling, a means test that determines your income vs. expenditures and filing of the correct paperwork for your particular bankruptcy.
There are two types of personal bankruptcy, chapter 7 and chapter 13. You will probably want to secure a lawyer for bankruptcy proceedings. You will attend meetings with creditors to discuss your debts and where the repayment and foreclosure processes currently are.
Which Bankruptcy Should You Choose
How is Debt Handled
Ask for some or all debts to be discharged
You agree to pay off debts in a determined period of time
Affect on Foreclosure
Stalls foreclosure about 3 months
Home saved with payoff usually between 3 to 5 years
What You Need to Know
Courts can take non exempt items and sell them to pay your debts
Repayment time is based on income vs expenses
Do Not Do These Things
No matter which of the methods you select to stop your home mortgage foreclosure, there are some things you should absolutely never do.
- Don't sign over the title to anyone except the lender.
- Don't get counseling from non-HUD approved organizations.
- Don't ignore court documents.
There are plenty of unscrupulous individuals out there that prey on people facing a foreclosure situation. They offer to buy out your mortgage and bring it current and then sign it back over to you. What really happens is they take all of the equity out of the home and allow it to go into foreclosure. You are left without a title and without any way to get it back.
Another common con is the counselor that charges an up-front fee to help you with your situation. You may get to keep your home, but you'll end up paying loan-shark type rates on the loan that you took out to save your home.
And, even though you might want to bury your head in the sand and forget about the issue, that will only make things worse. Courts are much more likely to take your situation into consideration if they see you are actively working to make things right. Not responding to court requests, showing up to hearings or responding to court documents are all things that will take you out of favor with the court.
Resources for People Facing Home Mortgage Foreclosure
If you are in danger of losing your home due to foreclosure, these people are here to help you.
This is the line to HUD's National Servicing Center (NSC) (877) 622-8525
This gets you the FHA Outreach Center 1-800-CALL FHA (800-225-5342)
The federal government also supports the Making Home Affordable program
If you are currently facing a foreclosure, contact one of these places right away. They can answer all of your questions and get you set up with someone in your area to start the process of saving your home. You've already taken the first step by looking for a solution online, now make that first call.