Realty Times January 11, 2002

How To Save Your Home From Foreclosure
by Broderick Perkins

A weakening economy and poor home economics have been pushing up mortgage delinquencies and foreclosures for much of the past two years, but there are steps you can take to avoid becoming a statistic or worse -- losing what's likely your most valuable asset.

In the Mortgage Bankers Association of America's (MBA) latest National Delinquency Survey, the national delinquency rate for loans on one- to four-unit residential properties was 4.87 percent in the third quarter of 2001, up 24 basis points from the second quarter of 2001. The percentage of loans in which foreclosure started during the quarter rose 2 basis points to 0.38 percent, while the percentage of loans in the process of foreclosure at the end of the quarter rose 4 basis points to 0.95 percent.

The increases are relatively small, but they continue a nearly two-year trend of rising delinquencies. Foreclosures were been up every quarter in 2001, according to MBA.

Meanwhile, consumer spending has grown as the rate of savings decreased. The average savings rate nationwide plunged from 8.7 percent in 1992 to a paltry 1.0 percent in 2000, while the average household now owes 104 percent of its annual after-tax income, compared to only 85 percent in 1990 at the start of the last recession, according to Standard & Poors' "Over Our Heads: Can U.S. Consumers Repay Their Debts in the Recession?".

What's more, easy credit available during the longest economic expansion on record generated larger loans, more sub-prime loans and a greater use of equity, all of which add to the greater numbers of delinquencies and foreclosures nationwide.

"Homeowners facing difficult times should call their mortgage servicing, or customer service department and see what programs are available for forbearance of payments," said Manuel Bernal, a real estate broker and appraiser in San Juan Capistrano, CA.

For starters.

The key that many home owners miss is that they shouldn't have to roll over and play dead until their home is lost to the lender -- or the highest bidder.

"Should you need to choose between paying credit card debt or your mortgage? Choose your mortgage. Remember, the lender's security is your home. Protect your home first, worry about your credit cards later," Pam Foley, broker-owner of E. F. Foley & Co., Inc. in San Jose, CA.

  • Experts say a financial game plan before financial trouble hits can keep you out of the red when times get tight. First, don't borrow more than you can truly afford. Your mortgage loan amount should be based not only on your income and current ability to make a mortgage payment, but also on your other financial goals, including retirement investments, kids' education savings and others.

    "One of the things I advise all my clients considering refinancing is to pull out some extra cash or obtain a line of credit just in case they get laid off so they can continue making the payments until they either sell the home or get rehired elsewhere," says Rob McCarthy a mortgage planner with First Portfolio Mortgage, Campbell, CA.

  • Rather than scrambling at the end of each month to come up with the mortgage payment, regularly save money from each paycheck for your monthly mortgage payment. If you get paid weekly save a fourth or fifth of your mortgage payment from each paycheck.

  • Know what "late" means. Grace periods are typically 15 days and a borrower generally won't get a black mark if the payment is made within 30 days.

  • Keep tabs on your mortgage servicer. Too often, a home owner's mortgage or mortgage servicing is transferred, but the borrower continues to pay the old servicer.

  • If your best laid plans go awry, stay in touch with the correct servicer and let them know immediately if you think you might be late.

    "When you keep your creditors in touch with why you are going to be late, they will work with you. If you have a partial payment now, make it, and then work out a time when you can send the rest of money," said Fargo, ND real estate agent Sandra Kay Holte with the Park Co/GMAC.

  • Avoid scams. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick solution.

  • Get financial counseling. National Foundation For Credit Counseling is a good bet. Certified consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.

    "The fact is, there are several positive options available to those facing foreclosure. Homeowners should view the foreclosure process, which lasts at least four months, as their window of opportunity to resolve financial problems and develop and implement a plan to stop the foreclosure," says attorney Lloyd M. Segal, author of "Stop Foreclosure Now" (Nolo.com, $29.95).

    Lenders can begin foreclosure when you miss your first payment, but most don't begin actual proceedings until after several months of consecutively missed payments.

  • Special programs are available for those with FHA, VA loans and others covered by state government programs. Ask your lender what's available for you.

  • If you are in the military, you have special rights under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate.

  • Procedural errors in the lender's foreclosure or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure, according to the National Consumer Law Center a consumer law clearing house that advises obtaining legal help with foreclosure looms.

  • Consider restructuring your loan -- but not to borrow more money. If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years. Examine how any restructured debt will play out if your situation worsens or improves. In each case, determine if restructuring is your best move.

    "Many employer retirement savings plans offer account holders the ability to borrow from them. Just be sure that if you do borrow this money, you can stick to the repayment schedule. You don't want to trigger early withdrawal penalties and taxes which can gobble 40 percent or more of the amount at stake," said Eric Tyson, financial counselor and author of Personal Finance for Dummies (Hungry Minds/John P. Wiley, $19.99).

    "Another source of cash is to tap into account balances from cash value life insurance plans. While it may be hard to ask, also consider borrowing from relatives," said Tyson.

  • Keep the lines of communication open. Communicate with your lender -- in writing -- to establish a paper trail of evidence that you are trying to resolve the problem. Communicate with someone in authority, not the bill collector who is only after the back payments.

  • Selling the property is another end-game option. Either sell the property out right as quickly as possible or deed it to the lender in exchange for ending the foreclosure.

  • If all else fails, bankruptcy is an option that can stop foreclosure, at least temporarily, and give you some legal leverage to resolve it.

    "I just closed on a house in New Hampshire that had gone to auction. I contacted the owner, quickly listed the house and they claimed bankruptcy, which ended the auction," said Dane Hahn, owner/broker of Exit 11 Real Estate in Stratham, NH.

    "I had an open house on the day scheduled for the auction and while many of the people who came were disgruntled that there was not a huge bargain to be had, still, I sold the house to one of them for what we all said was fair market," Hahn added.

    "There were penalties and expenses at closing, plus legal fees--but the people might have had a complete loss of the property, and worse, a history of losing a house to a finance company. This way they have a voluntary bankruptcy with all creditors paid off, and clearance of the bankruptcy within a month on their credit report," said Hahn.

    Careful with any changes to the headline and capsule. I've tried to be thorough in the story to detail some of Ohio's market, which is indeed mixed because of the state's economic turn of events in several sectors, however, overall, the 2001 market managed to remain a tad stronger than 2000.

    For more articles by Broderick Perkins, please press here.


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