1. I am losing my home in foreclosure. What can I do to try to save my house?
The possibility of losing your home because you can’t make the mortgage payments can be terrifying. Perhaps you’re having trouble making ends meet because you or a family member lost a job, or you’re having other financial problems. Or maybe you’re one of the many consumers who took out a mortgage that had a fixed rate for the first two or three years and then had an adjustable rate – and you want to know what your payments will be and whether you’ll be able to make them.
Regardless of the reason for your mortgage anxiety, there are many avenues you can take to save your home, and to avoid foreclosure scams.
2. Why is it important to know your mortgage?
Do you know what kind of mortgage you have? Do you know whether your payments are going to increase? If you can’t tell by reading the mortgage documents you received at settlement, contact your loan servicer and ask. A loan servicer is responsible for collecting your monthly loan payments and crediting your account.
Here are some examples of types of mortgages:
Hybrid Adjustable Rate Mortgages (ARMs): Mortgages that have fixed payments for a few years, and then turn into adjustable loans. Some are called 2/28 or 3/27 hybrid ARMs: the first number refers to the years the loan has a fixed rate and the second number refers to the years the loan has an adjustable rate. Others are 5/1 or 3/1 hybrid ARMs: the first number refers to the years the loan has a fixed rate, and the second number refers to how often the rate changes. In a 3/1 hybrid ARM, for example, the interest rate is fixed for three years, then adjusts every year thereafter.
ARMs: Mortgages that have adjustable rates from the start, which means your payments change over time.
Fixed Rate Mortgages: Mortgages where the rate is fixed for the life of the loan; the only change in your payment would result from changes in your taxes and insurance if you have an escrow account with your loan servicer.
If you have a hybrid ARM or an ARM and the payments will increase – and you have trouble making the increased payments – find out if you can refinance to a fixed-rate loan. Review your contract first, checking for prepayment penalties. Many ARMs carry prepayment penalties that force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of the loan. If you’re planning to sell soon after your adjustment, refinancing may not be worth the cost. But if you’re planning to stay in your home for a while, a fixed-rate mortgage might be the way to go. Online calculators can help you determine your costs and payments.
3. What should I do if I am behind on my mortgage payments?
If you are having trouble making your payments, contact your loan servicer to discuss your options as early as you can. The longer you wait to call, the fewer options you will have.
Many loan servicers are expanding the options available to borrowers – it’s worth calling your servicer even if your request has been turned down before. Servicers are getting lots of calls: Be patient, and be persistent if you don’t reach your servicer on the first try.
You may qualify for a loan modification under the Making Home Affordable Modification Program (HAMP) if:
* your home is your primary residence;
* you owe less than $729,750 on your first mortgage;
* you got your mortgage before January 1, 2009;
* your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) is more than 31 percent of your current gross income; and
* you can’t afford your mortgage payment because of a financial hardship, like a job loss or medical bills.
If you meet these qualifications, contact your servicer. You will need to provide documentation that may include:
* information about the monthly gross (before tax) income of your household, including recent pay stubs.
* your most recent income tax return.
* information about your savings and other assets.
* your monthly mortgage statement.
* information about any second mortgage or home equity line of credit on your home.
* account balances and minimum monthly payments due on your credit cards.
* account balances and monthly payments on your other debts, like student loans or car loans.
* a completed Hardship Affidavit describing the circumstances responsible for the decrease in your income or the increase in your expenses.
4. How can I avoid defaulting on my mortgage and losing my home in foreclosure?
If you have fallen behind on your payments, consider discussing the following foreclosure prevention options with your loan servicer:
Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.
Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed a small number of payments.
Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). Forbearance isn’t going to help you if you’re in a home you can’t afford.
Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov. A loan modification may be necessary if you are facing a long-term reduction in your income or increased payments on an ARM.
Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.
Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.
Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to get credit, buy another home, get life insurance, or sometimes, get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts.
If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.
To learn more about Chapter 13, visit www.usdoj.gov/ust; it’s the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that oversees bankruptcy cases and trustees.
5. What type of information should I have readily available to me before I contact my loan servicer?
Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:
* What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
* Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
* What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?
6. I am now dealing with the bank to try to save my home. What should I do throughout the foreclosure prevention process?
* Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
* Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, “return receipt requested,” so you can document what the servicer received. Keep copies of your letter and any enclosures.
* Meet all deadlines the servicer gives you.
* Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional “workout” assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.
7. What type of housing and credit counseling is available to me to help me contest the foreclosure of my home?
You don’t have to go through the foreclosure prevention process alone. A counselor with a housing counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer. Housing counseling services usually are free or low cost.
While some agencies limit their counseling services to homeowners with FHA mortgages, many others offer free help to any homeowner who is having trouble making mortgage payments. Call the local office of the U.S. Department of Housing and Urban Development (www.hud.gov) or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby. Or consider contacting the Homeownership Preservation Foundation (HPF) at 888-995-HOPE or www.hopenow.com. HPF is a nonprofit organization that partners with mortgage companies, local governments, and other organizations to help consumers get loan modifications and prevent foreclosures.
When choosing a counselor, beware of anyone charging large up-front fees or guaranteeing you a loan modification or other solution to stop foreclosure. They shouldn’t be charging you high fees or making any guarantees. Take your business elsewhere.
8. I simply can’t save my home. What other types of options do I have available to me?
Not every situation can be resolved through your loan servicer’s foreclosure prevention programs. If you’re not able to keep your home, or if you don’t want to keep it, consider:
A. Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.
B. Short Sale: Your servicers may allow you to sell the home yourself before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance. This approach avoids a damaging foreclosure entry on your credit report. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov, and consider consulting a financial advisor, accountant, or attorney.
C. Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe. However, it still must be reported on your federal tax return. For more information, see www.irs.gov. A deed in lieu of foreclosure may not be an option for you if other loans or obligations are secured by your home.
9. What types of scams should I be aware of during the foreclosure process?
Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:
A. The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges high fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
Some of these companies even use names with the word HOPE or HOPE NOW in them to confuse borrowers who are looking for assistance from the free 888-995-HOPE hotline.
B. The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.
C. The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.
1. I have just been served with a lawsuit. I am being sued by one of my credit card companies that I owe approximately $10,000. What should I do now?
If you are served with a collection lawsuit, and if you believe you have a defense to the case, then you should file an answer to the case. You are legally required to file an answer with the clerk within 35 days from the date when you received the complaint. If you do not file a written answer within the 35-day time period, then the court could enter a default judgment against you. You are also required to pay a filing fee when you file your answer. It is important to emphasize that before a judgment can be entered against you, New Jersey law requires that the creditor must verify proof of the debt. The creditor must either submit affidavits and copies of any credit card bills to establish that the veracity of the debt. Credit card debt is constantly brought and sold. Therefore, if you have legal counsel then he may be able to object to the creditor’s proofs when they are submitted at any proof hearing. At the very least, these objections may provide a debtor with some meritorious legal arguments to use in any settlement negotiations.
2. If one of my creditors obtains a judgment against me, what can they do against me?
If one of your creditors obtains a judgment against you, then the Sheriff or a Constable may be able to levy or seize your checking and savings accounts or to garnish your wages. In a wage garnishment a creditor simply obtains a court order that permits it to deduct approximately 10% from your wages. The garnishment may not legally exceed 10% of your gross salary. Additionally, any monies may not be withheld if disposable weekly earnings are less than $154.50 per week or $309.00 every two weeks. If a debtor has more than one creditor who has obtained a wage execution order they will be applied in turn. A debtor can only be garnished by one judgment creditor at a time.
In some default cases the court will set the case down for a proof hearing. In these cases, the court may not be able to enter a judgment without some type of testimony from the creditor as to the nature of the debt, and the amount due and owing. At the proof hearing the creditor will submit proofs to the court to establish the debt and how much is still outstanding. However, in the majority of book accounts or credit card cases, the judgment will simply be entered on the papers. The creditor will simply submit detailed legal paperwork to the court that verifies the debt.
3. Does filing for bankruptcy stop a wage garnishment and/or bank levy?
Yes, one of the best advantages of filing for bankruptcy are that it will stop a wage garnishment and a bank levy. When a person files for bankruptcy it automatically stays (stops) any and all collection activity against a debtor. The main purpose of the bankruptcy is that it gives a debtor some breathing room, and it also gives him a fresh start. Moreover, many debtors are absolutely petrified at the prospect of having their paycheck garnishment. Many of my clients advise me that they would get fired if their employer had to garnish their paycheck. Many debtors also will have their bank account frozen or levied by their creditors. This can be an ultimate disaster! Many debtors live pay check to pay check. If their bank account is levied, then their rent payment is lost. A bankruptcy will stop a bank levy. However, in my experience it normally takes four to five weeks before a bank will release a levied bank account back to a debtor. The Constable freezes and levies bank accounts in massive numbers. If your lawyer sends a bankruptcy notice to a Constable to release a levied account, unfortunately they do not take efforts immediately to release his levy. It normally takes four to five weeks to have the monies released from a levied bank account. Therefore, a distressed debtor should not wait until the last minute to file for bankruptcy.
