|By Moe Bedard
The foreclosure process moves fast and in order to make it through this unforgiving time frame, you need to have a plan. The best mindset for anyone in this situation is to hope for the best and plan for the worst because there are no guarantees of success when attempting to negotiate with your lender or servicer.
You are not alone and in fact there are millions in your same position!
|What follows is a brief outline of the foreclosure process;
Day 1–The Borrower misses their first payment by a day. No penalties are assessed at this time
Day 16-30 – A late charge is assessed to the borrower’s mortgage payment.
The lender or mortgage servicer will attempt to make contact with the borrower for an explanation. Mortgage notes usually have late charge clauses that assess a late fee on or after the 15th day of the month. However, some mortgage notes maintain a 10 day late fee payment deadline.
On the 16th day a late fee is assessed. At this point there are no ramifications beyond the late fee. Perhaps the borrower will get a friendly reminder call from the lender’s customer service department.
If you have not made your payment and you are now past the 31st day of the month you are technically 30 days late and your lender or servicer can, and often will, report this to the credit bureaus. Remember, on the first day of the next month you have a total of 2 mortgage payments due plus the late fee charge. Past day 30, some lenders will allow a borrower to make a partial payment of the past due amount; others will insist that everything be brought current; lenders may even return a check if it does not cover both the current and the past due payments and maybe the late charges as well.
At this point of the process it is important to make some very difficult decisions. The first thing you need to do is decide if you should stay in your home or if you should go. The following are some helpful things to consider when making this difficult decision.
Can you truly afford your home? Please take in to consideration the mortgage (principle and interest payment), taxes, insurance, upkeep and utilities it takes to operate your property.
|The factors the lender or servicer will look at to see if you are eligible for a loan modification, short sale, or deed in lieu of foreclosure are:
Nature of Hardship Causing Your Mortgage Problems
|Finally, the lender will consider what is better for them. They will determine whether to cooperate in a short sale, foreclose, or pursue a loan workout with you and/or modify your loan.
Again, help from the lender during the foreclosure process can take the form of a loan workout, short sale or loan modification. If it will be best for you and the lender to modify the loan, the hope is that the new loan will enable to the borrower to meet their obligations.
Make the Plan and Work the Plan
When applying for loan modification help, a short sale or deed in lieu of foreclosure, make a game plan on how exactly you are going to approach your lender or servicer. You need to plan for the worst and hope for the best. So, that means you are going to make two plans. The first plan is to approach the lender with a loan modification plan. The second plan is a backup plan in case your attempt to get a loan modification does not work. This second plan entails what you will do if a loan modification will not work.
Understanding your Lenders or Servicers Employees
These employees are trained in minimizing loss for their company and they get paid by getting the most amount of money out of you as possible or declare that your case is unworkable and then make the call to foreclose on your home. This is how they mitigate loss. If you understand this, then you’ll know that you have to approach them and all conversations very carefully. They are people just like you and they are just doing a job.
Many do not care much about anything but lunch and their upcoming weekend. Therefore, you have to befriend them and “win” their compassion and an open ear. My advice is to be as nice as you can to these people who answer the phone no matter how angry you are with your lender. They have a tough job with hundreds of angry homeowners calling every day. Stand out and be the nice, calm and collective homeowner. You’ll be surprised that this simple tip will get you FAR!
Important Tips on How to Use the Law to Fight Uncooperative Lenders or Servicers
One of the first things that a homeowner should do is identify that the mortgage on their current property is a lawful one. This means identifying whether there are Truth in Lending Act or RESPA violations and if there was fraud involved on behalf of the lender by the broker that originated your loan. If there are legal issues, then you can use these violations to your advantage and put the lender on the defense.
Red Flags and Things to Look Out for in Your Loan
If your lender or mortgage broker violated the law you may have found the most powerful tool to help you get out of your toxic or fraudulent mortgage.
Start by comparing the loan you got with the one you thought you were getting. Are the terms the same? That is, is your Annual Percentage Rate (”APR”) the same as the one you were quoted? Are your total monthly payments the same as you were told they would be? Is there a prepayment penalty, and if so, were you told about this prepayment penalty?
If you have refinanced your primary residence, that is, the home you’re currently living in, then the first thing you should look at is the “Notice of Right to Cancel” which is also called the Three Day Right of Rescission. You usually have three days after signing loan documents to change your mind and cancel the loan. The borrower must be told of this right in writing.
If the creditor fails to properly provide notice of this right to cancel, the right of rescission may be extended for up to three years. When the right is extended for three years you can rescind the loan at any time before three years, meaning that the loan is treated as if it never existed. Essentially, you become entitled to all profits made by the creditor as a result of this loan. This means that the creditor must refund all interest paid, all closing fees, all broker fees, and even pay for your attorney fees. As you can imagine, this amount can be quite significant.
The extended right of rescission is a powerful tool to help borrowers who have been victims of predatory lending. Helping our clients exercise this right is often the first step in holding a creditor responsible for illegal behavior.
You Can Use these Laws to Negotiate a Very Favorable Loan Modification, Short Sale or Deed in Lieu in the Foreclosure Process.
|What’s Your Hardship?
The second thing you need to do during the first 30 days is to figure out what your hardship is that is causing you mortgage pain. Whether if you plan to stay or go, a hardship letter will need to be prepared in order for your servicer to grant a loan workout, loan modification, short sale, or deed in lieu of foreclosure.
This letter acts much like an outline or biography of your current “life” issues that are affecting your ability to meet your financial obligations.
Please keep in mind that you are composing the hardship letter for your lender or servicer and because of the foreclosure crisis, they are extremely busy and back logged. So, with that in mind, do not write a book because most likely it will not get the attention of an over worked, $12.00 an hour loss mitigation employee. Keep it short and to the point. Usually one or at maximum two pages is more than enough to get your point across.
Here is an example list of hardships that lenders consider during the foreclosure process:
o Adjustable Rate Mortgage Reset- Payment Shock (uncommon, but we will see more lenders accept this in the future)
o Loss of Job
o Reduced Income
o Failed Business
o Job Relocation
o Death of Spouse or Co-Borrower
o Marital Separation
o Military Duty
o Reduced Income
o Medical Bills
o Damage to Property (natural disaster or unnatural)
o Other (Please Specify)
Now that you understand what your lender or servicer is looking for, it’s time to sit down and write a hardship letter. I made it easy for you by giving you a couple templates below that you can use as a boiler plate for your own letter. [hyperlink to hardship letter] Make sure you make it unique to your situation.
|Income & Expenses
Next up on the list during the first 30 days is the income and expense sheet.
An income and expense sheet or a budget sheet can help you prioritize your expenses and separate your needs from your wants to help you find a balance that you can live with and will work for your lender/servicer.
If you have created budget after budget and find that they never seem to work out for you, it may not be a faulty budget. It may be that you just don’t have enough money to make your mortgage payment. This means that you need to prioritize your needs and wants so that you can fit the necessary things into your budget and the important expenses do not fall to the wayside. A budget sheet forces you to take a good look at what you are spending each month. It includes your fixed expenses such as rent and loan payments as well as variable expenses like utilities and fuel costs. Balance is the key to budgeting. Balance your needs and wants as well as your income.
This comprehensive budget sheet covers just about any expense that you can imagine. It is geared toward college students, so college expense information is included, but it can easily be adapted to fit a family budget. It helps you balance your income with all of your expenses. It can help you put your finances into perspective.
These downloadable sheets help households and small business owners track their expenses as well as their income and are used for budgeting efforts.
You fill in the Income Sheet and the Expense Sheet and then the spreadsheet calculates everything automatically. It gives you important expense reports and other valuable information. It will help you plan your budget and manage your money.
|Your First Phone Call
Prepare for your first phone call. Have all the following items ready to go on that first phone call.
EXPLANATION OF FINANCIAL HARDSHIP – This form allows you to explain in detail the reason(s) behind your financial situation. In addition to filling out this form, you will need to provide proof of your hardship claim such as medical bills, death certificate, unemployment stubs, divorce decree, etcetera. If there is more than one borrower, each person needs to complete a separate form.
FINANCIAL WORKSHEET – Information for both the borrower and co-borrower must be included and filled out completely.
COPIES OF MOST RECENT PAYROLL STUBS – Please provide copies of paystubs for the month most recently worked. Payroll stubs are required for both the borrower and the co-borrower.
COPIES OF MOST RECENT FEDERAL INCOME TAX RETURN – Provide copies of signed and dated tax returns, including all schedules for the most recent tax year for both borrowers.
COPIES OF YOUR MOST RECENT BANK STATEMENTS – Please provide copies of the bank statements for all accounts; please provide ALL pages. If you need help obtaining your statements either on-line or by phone, please contact your banking representative for help.
COPIES OF HOUSEHOLD BILLS – Please provide copies of any and all household bills, utility bills (electric, gas, water, etcetera), insurance bills (car, home, health, etcetera), and any other outstanding liabilities which you pay.
• Gather all the contact numbers you’ll need
• Place your emotions to the side because this is all about “business”
• Put a smile on your face and get ready for the fight of your life!
One of the “main tricks” in negotiating during the foreclosure process is learning to navigate their phone system so as to increase your chances of getting a live person. Over the years I’ve learned some tricks that help. Sometimes you hear options that you know will lead to a person like when it says “to speak to a representative press ___” but sometimes they don’t give you these options.
So, you have to think, what options WOULD get a live person. For example often anything that involves new clients signing up will get a live representative because lenders always want new business. You have to be a little savvy though; you can’t just tell the sales guy you called them so you could get a warm body to answer the phone!
Once you get a live person, you want to be working your way up to a decision maker. This is sometimes harder to do for a homeowner than a third party. Often with the homeowner they get stonewalled at the first level, and sadly the first tier in Loss Mitigation is really a glorified collections department. They are hourly employees who have very little if not zero motivation to go the extra mile and help you get some needed comfort and relief when trying to resolve your problem. Often they just compound the problem by being rude and demanding, telling people things like “just pay your bills.” So it’s essential that you get beyond these people and to a specialist.
Now that you have prepared to negotiate the loan modification, let’s look a little forward in to the foreclosure timeline.
Day 45-60 – The servicer sends a “demand” or “breach” letter to the borrower stating what the mortgage terms are that have been breached. The borrower is given only 30 days to resolve the delinquent amount.
By day 45 the phone calls from the mortgage collectors will be coming pretty regularly. Most states have rules regarding collection activities and telephone calls including their frequency during this phase of the foreclosure process, content (no threats are permitted), and timing (early morning and late night calls are generally off limits) but the calls, within legal boundaries, will be unremitting and the tone can vary from being pleasant to being aggressively demanding.
During these few months of the foreclosure process, the servicer will offer the borrower two primary options to cure the mortgage — a repayment plan and a loan modification. With a repayment plan, the company agrees to tack, say, half the amount of the first missed payment onto each of the next subsequent two payments. These plans provide some breathing room for borrowers with short term financial problems, such as expensive car repairs that make it too difficult to pay the mortgage for one month.
Day 90-105 -The servicer refers the loan to its loss mitigation department/foreclosure department and retains an attorney or other firm to handle the foreclosure proceedings. Depending on the state where the home is located, the servicer’s representative may record a notice of default at the local courthouse and it will be published in the local newspaper.
About 60 to 90 days after the initial missed payment the lender will send a notice of default, usually by certified mail, giving the borrower a finite period in which to cure the situation by paying all past due amounts. By now collection costs are probably being added to the late fees. Once this remedial period passes, the collection department will refer the loan to the lender’s legal department which will, after another period of time, send the documents to a local attorney to begin foreclosure proceedings. By this time serious legal fees are accruing.
Document Your Efforts
Make a separate folder for this and attach a “conversation log” or a “call log” to the form you compose.
Document every call, conversation, fax, letter and email on your call log
This is very important in case you receive abuse and neglect from your lender or servicer. This will be your “evidence” in case you have to file a complaint with the Department of Housing and Urban Development (HUD) or if your decide to bring a lawsuit against your predatory lender or servicer.
Let’s Return Again to the Foreclosure Timeline, This Time Jumping Ahead a Bit
Day 150-415 – A Notice of Trustee’s Sale is filed and the home is scheduled to be sold at foreclosure sale or auction. This time range varies due to individual state laws and requirements.
Nonjudicial foreclosure states can foreclose in as little as two months.
States with judicial foreclosures, where foreclosures are done via the court system, can sometimes extend this period to a year or more.
A foreclosure is a legal event and there are benchmarks that must be met before the house can be sold. Once the case is turned over to attorneys the impending foreclosure must be advertised, usually in both the local papers and in the largest and closest metropolitan newspaper. The entire process can take a very long time from initial default to the actual public auction of the property. If a member of the military is an owner of the property, there are additional safeguards required by federal and in some cases state laws from the beginning of the process, however, always remember the meter is running. The longer the foreclosure takes, the greater the debt that accrues and the larger the liability the homeowner has, something that will become critical down the road.
Do you Have Complaints Against Your Servicer?
Please do not take any abuse and understand your have rights that protect you from predatory servicing.
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. RESPA covers loans secured with a mortgage placed on one-to-four family residential properties. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD’s Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA.
Loan Servicing Complaints
Section 6 of RESPA provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint.
Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position to not make amends. Until the complaint is resolved, borrowers should continue to make the servicer’s required payment.
Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance.
Right of Redemption During the Foreclosure Process
The laws in most states gives the homeowner every opportunity to stop the process leading to foreclosure right up to the minute that the auctioneer’s gavel comes down and sometimes even beyond. In some states there is a period after the foreclosure during which the homeowner can redeem the property (right of redemption).
The rights of redemption, as specified in Internal Revenue Code Section 6337, are quoted as follows:
Sec. 6337. Redemption of Property (a) Before Sale. – Any person whose property has been levied upon shall have the right to pay the amount due, together with the expenses of the proceeding, if any, to the Secretary at any time prior to the sale thereof, and upon such payment the Secretary shall restore such property to him, and all further proceedings in connection with the levy on such property shall cease from the time of such payment.
Redemption of Real Estate After Sale (b). – The owners of any real property sold as provided in Section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof. Price. – Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchaser, his heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum.
Closing Thoughts on the Foreclosure Process:
The MOST crucial element of this whole process is that you start NOW! If you have written a strong hardship letter, a tight income and expense sheet detailing your budget and if you have done your due diligence, you’ll be ready. They will ask you for a detailed list of your monthly expenses. If the budget is too tight, you may not get approved. If you have too much extra income you are going to have an outrageous payment plan. Don’t agree to it!
The second MOST important thing you can do is DO NOT SPEND YOUR MORTGAGE PAYMENTS. Often people stop making their payment because they are falling behind on other bills or they can’t quite make the whole house payment. Over the years, more often than not, the people I met with still have an income coming in each month, they just can’t meet all their obligations, so while the house is falling behind they take advantage of the fact that they aren’t paying the house payment in order to catch up on other debts. Instead, save as much of that money each month as you can. Here’s why this is crucial: If you don’t pay your mortgage for 3-4 months and your lender decides to negotiate a repayment plan or a loan modification, then they will want what is called “good faith” money for you to come to the table with. Typically this is from 30-75% and sometimes 100% of what you owe in delinquent fees and attorney fees. Often I speak with homeowners who spend all their money and have nothing to work with. If that is the case, then don’t expect them to work with you or you better have a REALLY good explanation and proof as to why you have no money to bring to the table.
You can search for more homeowner tips under the category “Loan Modification” on the right bar of my blog.
|Other great mortgage help postings from Moe to help you in your quest.
Contact your lender as soon as possible or have a competent third party handle it for you. There are non-profit HUD certified Housing Counseling Agencies in every town in America and also reputable for profit organizations that can help you. You can also visit our free online forum at www.LoanSafe.org that has helped over 200 families save their homes for free