How can you avoid foreclosure? How can you protect your home from being foreclosed?
How can you keep your family's home out of foreclosure?
There are several legal options you have available. The first, is the most common recommendation you will receive from the mortgage company. When you fall behind and call the mortgage company, their first advice is for you to find a way to catch up.
Self-Cure is the term the mortgage companies themselves use when training their staff, collection agents, and customer service staff. Self-Curing means exactly what it reads as. The homeowner in foreclosure, fixing the problem themselves. Self Curing. Whether it is from borrowing money from friends or family. Or selling cars, clothing, furniture, jewelry, etc. or somehow taking out a loan or borrowing from a bank with a high interest rate. Or even in some instances cashing out 401k or retirement savings accounts, or children’s college funds. All to catch up on the past due amount in full. Remember what we mentioned above. If your home is in default, nothing but a payment to cover full or most of the past due amount will be accepted. Most homeowners cannot self-cure, or are wise enough not to touch their future retirement savings. There are better options.
Second option is to work on a Loss Mitigation option.
Loss mitigation is a legal term meaning when you the homeowner and the mortgage company discussing and working on a solution that does not include you catching up with one large payment. In loss mitigation discussions you will first need to explain and excuse why you fell behind on payments. Most mortgage companies and lenders will have a standard Hardship Application. You will need to explain exactly when and why you fell behind. What caused you to fall behind on payments. Also what caused you to not be able to get caught back up. This hardship excuse will need to be a valid sudden and unavoidable hardship.
Examples of valid hardship can be: Loss of employment, sudden reduction of income, natural disaster such has hurricane or flood, medical or health hardship causing loss of employment, auto accident causing loss of employment, and other select and valid hardships.
Hardships not considered valid are: paying for college tuition instead of your mortgage, gambling debt, excess credit card or personal debt payments, being scammed out of money, falling behind on purpose to request for a modification.
Remember, falling behind on purpose to ask for a modification when you do not have a valid hardship is illegal, and easy to discover by the mortgage company. This unethical action is called Strategic Defaulting. Mortgage companies have investigators that WILL investigate and discover if this was in fact the case. As long as you have valid hardship, you will be able to open loss mitigation review.
Our team at Homeowner Protection Alliance has a very respected hardship application that is accepted and honored by almost all of the major mortgage companies and their attorneys: Once the hardship is explained, then you will need to show your current income and monthly budget. You will need to prove that you actually can afford this mortgage. You will need to prove you are working with a consistent income, with consistent pay stubs that are valid. W2 employees need to show pay stubs.
Self-employed workers or business owners will need to show bank statements, as well as a profit and loss for their businesses and companies.
You will also need to prove that you are current on your tax payments. If you owe the IRS or your state any past due tax payments, your mortgage company will be able to use this to deny your loss mitigation case.
This is especially the case if you have an FHA (federal housing admin) loan, or VA loan, or USDA hud mortgage.
If you are retired, you need to show you are receiving monthly income from social security or retirement pension. Retirement income that is the same every month is called “Fixed Income”
You will also need to organize and provide a monthly budget. Showing every dollar coming in from income, every dollar going out for expenses.
The reason that the percentage of successful loss mitigation requests is so low is because most homeowners cannot organize and provide the necessary hardship and income documentation in time.
The approval rates for loss mitigation cases are also very low due to the fact that loss mitigation is majority of the time not in the best interest of the mortgage company. They would much rather wait and force the homeowner to self-cure. Why bother discussing a loss mitigation, when 9 out of 10 homeowners will find a way to fix the problem themselves. Think about this the way a mortgage company would. Their number one interest is financial profit.
Now let’s discuss the different types of Loss Mitigation:
Modifications are the first and most popular forms of loss mitigation.
Modification means to change or modify the terms of the mortgage contract. The contract you signed the day you accepted the mortgage.
The mortgage market is always changing. Interest rates going up and coming down, and going back up.
Property values doing the same, going up and down and up again.
If you own a mortgage that has an interest rate higher than today’s national average, and you are in foreclosure, You do have the legal right to request a loss mitigation review.
In this review period, if you can show your income is consistent, and your budget is responsible, and your interest rate could and should be reduced to reflect today’s average interest rate, the mortgage company may be legally forced to listen. Legally forced to listen if you legally enforce your rights to a fair loss mitigation review.
Now the key word is “legally force”. Calling them from your cell phone and begging for help, or sending hardship letters from your fax machine will not enforce much. The mortgage company will simply run you in processing circles for months and months until your home forecloses, or you get nervous with your home about to be foreclosed and again, Self Cure.
Think about it, why would a mortgage company, whose main focus is to make money, voluntarily agree to lower your interest rate and payments?
Now let's discuss the loss mitigation cases that are successful.
Most modifications for homeowners in foreclosure who contact their mortgage company for help will simply allow them to repay the past due amount over 12 months. In addition to making their mortgage payments again.
So for example, let’s say Steve and Sherry fell behind on a $1000 payment for 6 months. Thus they are behind $6000 and in foreclosure with their mortgage company, United Bank.
United Bank tells them to catch up or they will foreclose.
Steve and Sherry fill out United Bank’s hardship application. Explain what happened that they fell behind (Steve was laid off and for 2 months was out of work and by the time he went back to work they were 3 months behind and could not come up with $3000 to catch up as wll as make their normal $1000 payment).
They provide this hardship information, as well as new pay-stubs for Steve’s new job, and pay-stubs for Sherry’s part time job. They also provide the bank statements and monthly budget details.
United Bank will still delay and wait for them to self-cure. one month goes by.
Second month goes by. Every time they call United Bank, United asks for the same paperwork over again, or they claim they didn't receive the last set of documents. The same delay tactic. (most of you reading this right now are currently dealing with this headache of an ordeal, or about to deal with it).
Let’s say Steve and Sherry read this article, and they contact United Bank and have a long conversation about their legal rights for Loss Mitigation. And build themselves some leverage in the discussion. They threaten to sue for unethical business practices by United Bank.
2 weeks go by, and United Bank does not call them. Finally the family calls United Bank and asks for an update or else they will contact an Attorney.
United Bank now offers them a Forbearance. Fancy word for a repayment plan.
A repayment plan or forbearance is a standard basic modification option.
Steve and Sherry must begin making their normal $1000 payment, and account for the $9000 (remember they owed $6000 but two months have now gone by while they waited and spoke with United Bank as well as United Banking adding late fees, penalties, attorneys fees and loss mitigation costs). This $9000 will be divided by 12 months, equaling $750 a month.
So the forbearance plan will demand the family make payments of $1750 for 12 months. If they complete these 12 months of payments they will back to their normal payments. They cannot fall behind on this $1750, or pay less by a single dollar, or fall into default. A single missed payment and they will again be right back into Foreclosure. There will be no more delinquency or default time period.
This is an example of a repayment plan or forbearance. However such programs are not guaranteed, and the success rate of these programs is extremely low.
No actual modification or adjustment is done on the interest rate, or payment, or term of the mortgage.
The mortgage company is content because they will get their money back in a year, as well as an extra $1000 or more in late fees, penalties and attorney fees. No matter if such late fees are legal or even necessary.
Majority of homeowners who claim to have received help directly from their mortgage company, either self-cured or accepted these repayment plans, better known as forbearance plans.
Now what if you feel you have an interest rate higher than the national average, or feel your mortgage was given to you in less than honorable circumstances by the mortgage company. Or you are elderly and your fixed income cannot realistically afford the current interest rate or mortgage?