Home Buying
What to do if you're facing foreclosure
by
Keith Russell
Monday February 21, 2003
What should I do if I start falling behind on my mortgage?
Tell your lender as soon as possible. Howard Dvorkin,
founder of the nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla., suggests
asking for a representative in the lender's loss mitigation department. These people
deal with borrowers having difficulty paying their mortgage on a regular basis and
may be able to design a plan to give you time to catch up on your loan.
''People need to pick up the phone,'' Dvorkin said. ''Unfortunately, people think
that the bank wants to take your home. The reality is, banks don't want your home.
Banks want money.''
Can I sell the home before my lender forecloses?
Yes, and a lender may be willing to give a borrower a special forbearance that will
suspend mortgage payments until the home is sold. This may not help much, however,
if a home's property value hasn't appreciated enough to pay for Realtors' commissions,
the loan balance as well as late payment penalties and other costs.
Are there other options to avoid foreclosure?
There is something called a pre-foreclosure, which is a sale that doesn't cover
all of a loan's costs. Dvorkin says lenders will sometimes agree to such a transaction
because it will let them avoid the cost and hassle of going through with a formal
foreclosure process.
A whole industry also has cropped up to buy homes and other properties from financially
distressed borrowers. While this can sometimes mean a quick sale for a borrower
facing an impending foreclosure, Dvorkin said consumers should go into such arrangements
with their eyes wide open.
''These guys are bottom feeders,'' he said. ''They are trying to take advantage of the opportunity that exists when people are desperate.''
Finally, Dvorkin said, a borrower can try a ''deed in lieu of foreclosure.''
''It's when you say, 'Here, I'm behind on payments, I'm expecting you to evict me,
so I'm going to sign the deed over to the lender and walk away.' ''
But Dvorkin warns that such a move may be a ''fruitless effort,'' since the borrower
still technically owes the lender for any money still owed from the mortgage after
the home is sold. Even if the lender doesn't go after you, it will still appear
on your credit.
What if there is no avoiding a foreclosure? Are there legal options that might help
me keep the house?
About the only legal avenue open to a borrower at this point is to file for bankruptcy,
say attorneys who work with people facing foreclosure.
''If somebody comes to me who is three or four months behind on their payments because
they were laid off from their job six months ago, a way for them to stop a foreclosure
is to do a Chapter 13 bankruptcy reorganization and cure the three or four months
of payments under bankruptcy protection,'' said Maria Salas, an attorney who works
with debtors in bankruptcy.
But Salas conceded that such a scenario assumes borrowers can get back on their
feet enough to pay their previous financial obligations, in addition to current
bills.
''Sometimes the numbers just don't work,'' she said.
