FORECLOSURE PREVENTION: MYTH OR MAXIM?

“Stop foreclosure, call 1-800-bla bla bla”:

We see signs all over the place. Can they really stop foreclosure or not?
As I write this article today July 2, 2009, the Washington Post reports that US employers have gotten rid of 467,000 jobs in June 2009, suggesting an increase over the 9.4% in May 2009 to the unemployment rate to 9.5%. New York’s Unemployment rate as at May 31, 2009 was 8.2%.

A new wave of adjustable rate mortgages are now adjusting upwards and that means that interest rate on a lot of sub-prime loans are going up which means that monthly payments on mortgages are going up and therefore, coupled with the unemployment spike, foreclosures will be going up too. Not a pretty scenario. Not a myth, that’s a maxim.

So, can a distressed homeowner prevent foreclosure and if so, how can one prevent foreclosure? Let’s face it; someone is facing foreclosure on a property because they are in some sort of distress, more than likely, financial distress. There are really 6 ways to prevent or avoid foreclosure once you have missed a payment:
1) Pay off the arrears
2) Sell the house
3) Refinance the loan
4) Obtain a loan modification
5) Deed in lieu of foreclosure
6) Short sale

Pay off the arrears if you can get your hands on the money but if you can’t, sell the house if you have equity in it. That is difficult in today’s market with falling property values, you’d be lucky to get a buyer willing to pay the price sufficient to pay off your mortgage.

Refinance if you have good credit and some equity in the house because, if not, you have to apply for a loan modification. Your fico score would not be an issue but income is as regards obtaining a modification of the terms and principal balance on the loan. (email me for a free guide to applying for a loan modification)
Handing the title for the property over to the lender may prevent foreclosure, however, the lender may not discharge the debt especially if there are other lien holders involved. You should consult an attorney to be informed of the legalities of such a move, in fact, for all the actions noted here.

Normally, homeowners in distress do 3 things; (a) try to do a refinance. (b) if credit is not good and property under water, try to get a loan modification. (c) if credit is not good and there is insufficient or too much income, those are issues, a short sale is the final action to avoid a foreclosure.

A short sale reduces the time you spend out in the cold. That is, a foreclosure on your credit will prevent you from obtaining a loan for a period of 5 to 10 years while a short sale reduces that waiting period to about 2 years.

So what is the government doing to help out homeowners in distress? First started in Philadelphia and rolled out in New York June 2008, the Foreclosure Settlement Conference began in 5 New York counties; Kings, NY City, Nassau, Erie and Monroe.
Under the Residential Mortgage Foreclosure: Promoting Early Court Intervention June 2008, issued by the New York State Unified Court System, a property must meet the following 4 critieria:
1. Must be owner-occupied residence.
2. Must be one to four-family residence.
3. Mortgage must have been originated between Jan. 1, 2003 and Sept. 1, 2008.
4. Mortgage must be a sub-prime, non-traditional or high cost loan.

The court mandates that the plaintiff/lender identifies eligible cases and provide the homeowner’s contact information when filing their case with the court. They should also, when sending summons to the homeowner, include “Help Homeowner in Foreclosure” form. The court will then schedule Foreclosure Settle Conference within 60 days after borrower was served with the court papers. The court’s notice will provide contact information for local organizations that have agreed to provide homeowners with legal assistance, financial counseling plus brochures on the foreclosure process, offices for the self-represented and online help resources.

Additionally, the notices should be accompanied by a “Request for early Conference” for and when completed should be mailed to Foreclosure Conference Part. In order that the request is placed on the court’s calendar, the homeowner is required to confirm that he/she have scheduled an appointment for legal assistance or housing counseling with a service provider, or if not, they have to explain why this was not done.

The conference does not alleviate a borrower of their obligation to respond to the lenders’ papers in a timely manner. It is best to consult an attorney at this time; however, if you attend the conference without one, you may be entitled to a court-appointed lawyer.

So here’s what will be discussed at a conference;
1. The rights and obligations of the parties.
2. Whether the parties can reach a resolution to avoid foreclosure.
3. Evaluation of workout/settlement options eg. Payment schedules or loan
modification.
4. Plan to streamline subsequent court proceedings if settlement cannot be
reached.

There are a number of free or low cost services made available to homeowners in distress to help them understand their rights and the legal process, to help them find out about options to save their homes, and to help them decide the best course of action given their particular situation.

So, my friends, is foreclosure prevention a myth or a maxim? I think both.

Resources: www.courts.state.ny.us/litigants/foreclosure, www.nysdhcr.gov, www.hud.gov/foreclosure

Paul Martin is an Entrepreneur and Real Estate Investor specializing in short sales.
entrepreneursmindset@gmail.com

July 3, 2009