How To Avoid Foreclosure: Keep Your House In Troubled Times

by Silicon Valley Blogger on May 21, 2009

With housing at the epicenter of the financial earthquake that has rocked our nation, more and more beleaguered homeowners are growing progressively concerned about their homes. There are long-time homeowners who are now facing foreclosure and who now believe that declaring bankruptcy will save them from losing their homes. If I were in their shoes, I wouldn’t be going down without a fight.

When bankruptcy laws were reviewed in 2005 at the prodding of credit cards companies, it was determined that people who opt for Chapter 13 (in most cases) would be able to restructure all of their debts — except for the house that they live in. As things stand now, judges do not have the power to modify existing mortgage terms. However, there is hope that President Obama will convince Congress (dominated by Democrats) to enact laws to change what many consider an injustice.

How Can I Avoid Foreclosure? Where To Get Help

If you’re having problems keeping up with your home payments, you may be asking the painful question: should I consider foreclosure? Some thoughts I had on this matter:

“RealtyTrac, an online marketplace for foreclosure properties, found that a total of 3.2 million foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2.3 million American properties during 2008,” according to a piece in the NY Times. That of course doesn’t include the millions of homeowners who are struggling to make their mortgage payment and who just might default this year. Why some banks and financial institutions refuse to negotiate with mortgage holders is beyond me, considering that a lower payment will always be better than having to sell a property at a huge loss.


Given the possibility of help from the Feds (thanks to Obama’s foreclosure bailout plan) it’s imperative for families who have trouble making mortgage payments to try to delay foreclosure as much as possible. Hang on as long as you can and you might eventually squeak by with eventual government assistance. So how can you stave off the threat of foreclosure? One important place to start is by managing one’s debt. It’s best to work out your own debt reduction plan, but if you need any kind of help in this area, here are a few resources to consider (some services here are free and some are not):

Always make a careful assessment before joining any community or subscribing to any service.

prevent foreclosure

How To Keep Your House In Troubled Times

Also, the Department of Housing and Urban Development (HUD) advises the following:

  • Weigh your options and don’t ignore the problem. Some owners believe that abandoning the house is the best solution because they have no equity. Depending on your situation, “walking away” may or may not be the way to go.

    If you bought a $300,000 house with $1,000 monthly payments and you are now paying $3,000 per month because you signed an ARM (Adjustable Rate Mortgage) contract, and your property is now worth less than $200,000, there is a strong temptation to cut your losses. Unfortunately, going into foreclosure may make sense in this case, since this kind of situation isn’t something the banks are typically sympathetic to. No way the bank will let you go back to paying the original amount.

    However, if you signed a fixed interest contract and are facing the possibility of foreclosure due to other factors, then hang on as long as possible. Congress has approved the release of the other $350 billion of the mortgage bailout package, of which $100 billion will be used to help millions of homeowners avoid foreclosure. Cut your costs to the bone, get a second job, get a loan from friends and relatives, do whatever you can and more to continue paying your mortgage. Relief from the federal government should be available before summer so hang in there!

  • Contact your lender. There are some banks which will lend a favorable ear to your distress. After all, they’re not exactly in the real estate business; I’d therefore expect the smarter financial institutions to prefer to make deals with responsible homeowners. Keep the communication lines open and make sure you know who your primary lender is, as mortgages have been sold, resold and repackaged to whoever was willing to buy them.

  • Evaluate your resources on foreclosure prevention. You may be able to find information about foreclosure prevention (also called loss mitigation) online at the Federal Housing Administration web site. For instance, it shows the program called Hope Now, an alliance among mortgage market participants that offers solutions to struggling homeowners.

  • Contact a HUD-approved housing counselor. They will help you organize your finances (free or very low cost), and help you talk to your lender. If your mortgage contract seems written in a foreign language, he or she will help you decipher the conditions so you may negotiate with a better understanding of your rights.

  • Set expectations. Not all homeowners may find solace in a housing assistance program. Unfortunately, there may be some situations that may not qualify for assistance, so this is something you’d need to investigate if you’ve decided to go down this path. While I would do whatever it takes to try to escape foreclosure, I’d look at possible solutions with a healthy dose of realism: hope for the best but prepare for the worst!

  • Avoid bankruptcy if you can. It may be a tough hill to climb, but people have escaped the clutches of bankruptcy and foreclosure through strategy and sheer will. Check out this piece we published on how to avoid bankruptcy and stay solvent.

Above all, do not despair, no matter how bad the situation looks. Remember that you are living in one of the most prosperous countries in the world, with a government that does its best to help its citizens (some of you may disagree, but it’s really all relative). It could be a lot worse; imagine living in a third world nation where millions of citizens receive no help whatsoever, or in some other areas of the world where millions continue to regret the Communist era. If you live in this country, what you do have is hope — that there will be better times ahead and that things will turn up eventually.

 
Thanks to Jacques Sprenger for his contributions to this post.

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Categorized under: Economy, Real Estate

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{ 14 comments… read them below or add one }

1 The Weakonomist May 22, 2009 at 5:07 am

I think a foreclosure is appropriate in some circumstances but bankruptcy is not. It was originally set up as a way to encourage businesses to take risks, now it’s merely an escpae for people that lived beyond their means. Something like 97% of all bankruptcies are personal, with 3% being business.

Thanks for the resources here, I’m glad I don’t need them.

2 Saja May 22, 2009 at 8:04 am

I agree with you Weakonmist..my mother filed for bankruptcy and I think it was unnessary. Bankruptcy only puts you into a deeper hole..her debt wasn’t even that bad. All they did was consildate her bills, but it still didn’t help the situation, it only puts you into debt even longer than neceesary. I agree, some people do live beyond their means, but in some cases their not. When you have loan sharks screwing with interest rates where you will never be able to pay off the loan…..come on now….its set up for you to fail.

3 Steve May 22, 2009 at 12:11 pm

Thank You for summarizing. Your example of the Option-Arm is key to my situation. It’s unfortunate I fell for this trap with a large down payment and struggled to keep up with payments for two and a half years. I have my mortgage auditor to thank for explaining and pointing I only intially quailified to borrow $85,000. Liar or irresponsible, whatever it’s almost over now, N.O.D. should be on it’s way. The loan mods are for the fixed who had a trusting lender to begin with and not some thief looking to profit from the High Spread Premium Yield.

This all reminds me of FORD. I had a 2001 F-150 that burned to the ground from an electrical fire after my cruise control was fixed in 2007. I researched and found so many others suffered the same type of fate at Consumeraffairs.com/ Ford Fires. Right down to small claims I lost with claims being lack of vehicle maintance or a piece of debri could had gotten in there. Regardless it will always be the consumers fault when files of mass fraud or deception becomes uncovered.

All I want now is to rent, own Toyota, and never trust anyone or convince myself we have laws that will protect us.

4 Mikael @ Retire Rich Roadmap May 22, 2009 at 2:54 pm

Since I don’t live in the US I’m not sure that I fully understand what is going on. I understand that a lot of people are struggling to make their payments but what I don’t get is WHY… Why are SO many people now in a situation where they can’t pay their bills? I can’t imagine that they have all lost their jobs??

All explanations would be appreciated. Thanks.

5 Miss M May 23, 2009 at 12:20 pm

My uncle is in foreclosure, actually he walked away because he lost his job. He was able to get another job, in another state. He tried to sell the house but he owed more than it is worth, eventually he decided it wasn’t worth worrying over and mailed in the keys.

6 Goran Web Design May 24, 2009 at 2:32 am

The harsh reality of all of this is still the fact that there are thousands of people out there facing the very real threat of losing their homes, with nobody there to step up and fill these homes again. This is a double whammy which can not be allowed to happen. The administration will have to start dispensing with red tape and start to be more pro-active is disaster is to be averted.

7 Rich Johnson May 27, 2009 at 2:15 pm

Many Sellers in our area are going through the short sale process whereby the lender writes down their mortgage. What many distressed home owners don’t understand is that the mortgage holder may write the mortgage down to consumate a sale thereby eliminating the deed of trust so the new owner can close without the encumbrance however what the former owner may not understand is that the promissory note which he / she signed is still in effect. The result is that the former Seller is still on the hook for the difference.

8 Anne T Meyers June 14, 2009 at 4:02 pm

This is really good advice As a college professor and journalist specializing in teaching teens and college student about money management, I tend to look at proactive problem solving with a lot of admiration. There are some solid steps here.

For whatever it’s worth, on my blog, AskAnne–giveme20.com/blog–I’ve posted a 4 part series on managing money in crisis, when someone at home loses a job and everything is suddenly at risk.

Curious what you’d think about it.
–Anne

9 Neal July 24, 2009 at 5:45 pm

My wife and I fell into this category. We had good jobs, paid our bills, enjoyed life. In 2007 we adopted to girls, sisters. We spent $25,000 on the adoption and getting them everything that they needed. Then comes 2008. Both of us lost our jobs. My wife is still unable to find work. I had a background in insurance so i went into business for myself as a health insurance broker. as time went on we found ourselves looking at forclosure. We were barely able to pay our expenses, and now we have 2 young children depending on us . When i finally called our mortgage co we were 2 1/2 months behind on our mtg. I spent an hour on the phone with a councilor from the mtg co and when we were finished I had my monthly payment lowered from 1207.00 a month to 341.00 a month for the next 5 years. The mortgage company does not want your home. They will work with you if you just call them. Let me know if you need help.

10 Ralis August 30, 2009 at 1:41 pm

I agree 100%

Homeowners should do what ever they can to stop foreclosure and avoid giving up their home and stay away from bankruptcy until it is absolutely forced upon you.

11 Indera October 14, 2009 at 6:27 pm

Foreclosure should never be an option when there are so many other viable solutions.

If you are already late on the payments, the banks will be more likely to talk to you.

1. Create list of your expenses in a spreadsheet (They want the work done for them)

2. Gather copies of bills, proof of income and bank statements.

3. Write your hardship letter (no more than 2 pages) need to hit keys points

4. Be prepared to be on the phone 1-2 hours (Best time to call is first thing in the morning or after 2)

It can be a long hard road to go down, but it’s much easier with a step-by-step plan. I’d suggest reading up on improving your chances for a short sale, loan modification or workout plan.

Because you can stop foreclosure and salvage your credit.

12 Andrew Hull October 26, 2009 at 3:10 pm

Avoid a foreclosure and save your credit. Use a qualified, experienced short sale specialist and be proactive. You’ll be happy you did.

13 Robert November 25, 2009 at 5:40 pm

Very well written and explained about avoiding foreclosure and other options! The other key element is to be very organized and to keep detailed records during the entire process.

14 jmb27 January 13, 2010 at 5:38 pm

Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.

Here is an example of what I am talking about:

Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)

Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
“Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”

The Center for Responsible Lending says YSP “steals equity from struggling families.”
1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees.
2. This is an average of $5,000 per loan.
3. The median value of the properties was $135,000.
4. Clearly, this type of lending represents a major ripoff for consumers.

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