Media Coverage
Mortgage Matters
Worried about foreclosure?
Take action to address your problem
Column by Steve Rockefeller, The Virginian-Pilot, December 8, 2007
FORECLOSURES ARE TAKING the country by storm, with a record number of homeowners defaulting on their mortgages. According to RealtyTrac, a foreclosure tracking firm, the number of third quarter filings rose to more than 600,000 nationwide, or about one foreclosure for every 196 households.
Foreclosures are at twice the level they were a year ago, and August and September posted the highest totals of foreclosure filings, the most since RealtyTrac began issuing foreclosure reports in 2005.
What causes foreclosure? Most are caused by one or more of the following:
• Divorce
• Job loss
• Serious illness that results in an inability to work
• Risky financing, such as subprime loans or ARMs
• Declining real estate appreciation.
If you find yourself in one of these situations, you may be having difficulty making your mortgage payments. What can you do?
Call your lender
Do this at the first sign of financial difficulty. You can’t hide from this situation; your lender will notice the change in your payment history.
It will be much easier to work out an agreement with your lender if you initiate the action and not the other way around. Notifying your lender signals that you take your debt seriously and that you’re not trying to avoid your financial obligations. And the sooner your lender knows you’re in trouble, the sooner the two of you can work together.
The lender does not want to foreclose and will be more willing to review your situation and discuss alternative payment arrangements with you.
Consider the alternatives
Yes, you may be in a tough situation, but all hope is not lost.
If you have a government-backed loan through the Federal Housing Administration and VA, you may qualify for a “hardship” program. Advisers take your situation into account and work with you to restructure a loan with more affordable payments. Some lenders may offer to modify the loan at a lower interest rate, or you may be eligible for a “forbearance,” in which the lender suspends or reduces your mortgage payments for a short period to give you time to gather your assets.
At the end of this period, you must work out a payment option with your lender that will bring your account up to date. The forbearance also may be combined with a reinstatement or repayment plan, provided you are confident you can have the funds available to pay off the past-due amount by a specific date.
Another alternative is a deferred payment plan. You may be eligible for this option if you have a conventional loan. Your lender may create a payment plan that adds a certain portion of your past-due payments to your regular payment each month until your loan is up-to-date. Penalties and interest will probably be added to these payments.
Don’t go for a quick fix
Whatever you do, don’t be lured by companies that advertise “stop foreclosure” services. Also, avoid the “quick fix” of taking out a second mortgage with an extremely high interest rate. These and other desperate measures could get you in deeper financial trouble.
Get some good advice
Ask your lender to refer you to someone who can advise you on the process. Seeking help from a third party shows your lender that you are serious about working out a solution. Choose an attorney who specializes in real estate law or an accredited, nonprofit credit counseling agency.
Be wary of bankruptcy
Some homeowners are opting for bankruptcy rather than filing a foreclosure. A bankruptcy can help you hold on to your home and gives you the opportunity to work out payment arrangements with your creditors.
As a general rule, a bankruptcy stays on your credit report for seven years, while a foreclosure remains for 10 years. However, as long as the bankruptcy is on your credit record, it will be difficult and expensive to obtain a loan. Scott N. Alperin, a local attorney who specializes in real estate law, says there are no simple answers as to whether a homeowner should file bankruptcy to delay a foreclosure. It depends on your situation, and only your credit counselor or a bankruptcy attorney can help you decide which option is best.
Sell your home
If you are unable to make any type of alternative payment arrangements, it may be best to sell your home. A pre-foreclosure sale would allow you to pay off your loan and avoid foreclosure.
In the declining market we are in, property values are depreciating, making it tougher for many homeowners to recoup the amount of their loan. And if you’ve mortgaged the home for more than what it is worth, you’ll owe money, and possibly any taxes on that amount, to the lender even after the house is sold. This is what is known as a “short sale.”
In some cases, lenders have been known to release borrowers from the shortfall amount rather than go through the expense of foreclosing.
Deed in lieu of foreclosure
This is the last step before foreclosure and the least desirable. A deed in lieu of foreclosure means you are transferring the deed to the lender to avoid the foreclosure sale. You will undergo a financial review, and as lenders rarely accept a deed in lieu of foreclosure, it’s best not to rely on this option.
Ultimately, if you miss several months of mortgage payments, you will receive a notice of default, which indicates that the foreclosure process is likely to begin.
In Virginia, once a notice of default has been issued, borrowers have 30 days to repay the balance due before going into foreclosure. If this happens and you have not consulted an attorney, you should do so immediately.
Steve Rockefeller is vice president of SunTrust Mortgage’s Virginia Beach office. He is a past president of the Tidewater Mortgage Bankers Association and the Virginia Mortgage Bankers Association. He can be reached at 431-4855 or by e-mail at steve@mloans.com.
