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Facing Foreclosure?
What to do if you are faced with a possible Foreclosure
If you are facing foreclosure
you need to consult with two people, your Attorney and your Realtor
to see what if any options that you have. At Eagle, Realtors
because of our involvement in selling Foreclosure homes for many
different lenders and government agencies, we are very knowledgeable
in this subject. As Real Estate professionals we can not give
you Real Estate advice, but we can not give you legal advice.
You may need the help of a good, competent, real estate or bankruptcy
attorney.
Information for Consumers
The following
information on this page is based on information provided as a service
of the National Consumer Law Center and the Federal Trade Commission.
Homeowners fall behind
on their mortgages for many reasons: sudden decreases in income
due to the loss of a spouse; poor financial management which contributes
to nonpayment of utility bills, service shutoffs and liens against
the property; failure to perform necessary repairs and maintenance
which make the property uninhabitable; second mortgage scams which
make impossible demands on the homeowner's limited resources.
All of these contributing factors can
be addressed by skilled advocates -- if homeowners turn to them
in time.
How Foreclosures Work
Foreclosure procedures vary
from state to state. The procedures are established by state statutes,
by case law, and by local practice. In about half of the states,
foreclosures are court proceedings. First the creditor files
a suit in a court located near the property.
Texas provides for non-judicial foreclosure
except for home equity loans which require a court proceeding.
Unless the homeowner files an answer
successfully contesting the foreclosure, a judgment is entered for
the creditor. The home is then sold under court supervision.
Other states have "non-judicial foreclosures."
Creditors foreclose by simply advertising the home for sale, using
a legal notice in a newspaper.
If homeowners want to contest this type of foreclosure, they must
file a lawsuit and ask the court to stop the sale. Sometimes
if the homeowner wants the court to stop the foreclosure,
the homeowner must file a bond to protect the creditor. Unless
the homeowner initiates a court proceeding, there is no judicial
involvement in such a foreclosure.
Some states allow both types of foreclosure,
judicial and non-judicial. Practicality and local custom usually
dictate a creditor's choice of one type over the other.
Texas Specific:
In Texas a creditor can only conduct a foreclosure sale on the first
Tuesday of each month between the hours of 10:00 a.m. and 4:00 p.m.
The Creditor must give the property owner a 21 day notice
prior to the day of foreclosure by mail at the property owner's
last known address. The Notice must be posted at the
Courthouse door in the County where the property is located at least
21 days prior to sale and the property must be sold at the courthouse
in the designated location. Additionally, the notice must state
the earliest time that the sale will begin and the sale with be
completed within three hours after that time.
If the property owner resides in the property then the creditor
must give the property owner a 20 day notice of intent to accelerate
prior to accelerating the debt and prior to posting the property
for foreclosure.
Consumer Strategies When Foreclosure is threatened
When a homeowner first becomes
worried about meeting mortgage payments, advocates can recommend
that a series of steps be taken to reduce the risk of foreclosure:
Get Legal Advice
Because foreclosure is a harsh
legal process, homeowners threatened with foreclosure should immediately
obtain legal help. A competent attorney can determine whether
there are legal defenses to a foreclosure. Too often, homeowners
either postpone consulting a lawyer until after the time to assert
their legal rights has passed, or walk away from their homes
in frustration, leaving themselves without any equity and vulnerable
to deficiency claims. For each foreclosure situation, a counselor
or lawyer must carefully evaluate the homeowners' objectives and
interests. Homeowners should, however, avoid �Quick Fix" attorneys
who may advertise or solicit through the mail from published
foreclosure lists. Many times these practitioners will push the
homeowner to file a bankruptcy prematurely. A bankruptcy may be
necessary at some point. But, as with many things, proper timing
may be critical. Additionally, be ware of firm's lender that advertises
that they can get you a new loan for a fee. Many of these
companies are scams that do not obtain a loan, but rather at the
last minute prior to foreclosure they have an attorney file a bankruptcy
for the property owner.
Keep Current on Home Payments
The consumer should not pay
credit card debts, doctor bills or other low priority debts ahead
of home mortgage payments. Skipping payments on low priority debts
for several months will have little or no bad consequences, but
skip one or two home mortgage payments, and the consumer risks
losing the home. Sometimes the default can usually be cured by simply
paying the amount in arrears.
Apply for Income Maintenance, Tax Abatement and Public Assistance
Programs
Benefits provided by government
and non-profit agencies are a key source of assistance for individuals
in financial distress. These resources can help older homeowners
free their income for home payments. Benefit programs to apply for
can include fuel assistance and weatherization assistance, food
stamps and emergency home repair programs. Most municipalities and
counties also offer property tax abatements for reasons of age or
hardship. For very low income homeowners, particularly those who
are recently widowed, advocates should also determine the homeowner's
eligibility for Supplemental Security Income. The process of obtaining
these benefits is often slow and difficult.
Negotiate a Temporary Delay in Payments
One of the most important
strategies today for homeowners in financial trouble is to work
out with the lender a temporary delay in payments or a period of
reduced payments. More and more creditors are realizing that foreclosure
is a losing proposition for the lender, and that they are better
off keeping the consumer in the home making whatever payments the
household can afford. Some forms of forbearance that lenders are
increasing likely to accept include:
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Skipping one payment (that is, letting
the consumer remain "30 days down");
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Extending the grace period for making
late payments;
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Skipping two to six payments for a
year or two; or
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Accepting reduced payments for anywhere
from one to eighteen months.
It is important to contact the lender
early, as soon as the homeowner begins experiencing financial difficulties.
Just calling the lender on the telephone is a good way to
start. Immediately follow up all phone calls with a letter to the
lender confirming what has been discussed. The homeowner should
keep a copy of the letter. The homeowner should continue to press
the lender for a response to the offer, and not simply sit
back awaiting a response.
Negotiate a Permanent Loan Restructuring
Although a temporary forbearance
is easier to negotiate, for some older homeowners the financial
problem is more long term. To keep the house they will have
to have lower mortgage payments not just for a period of months,
but perhaps as long as the mortgage has to run. And lenders are
beginning to realize that permanently receiving less interest may
be a better solution than foreclosing on the home.
Where a home's likely sale price at foreclosure
is less than the mortgage, the lender is usually better off keeping
the consumer in the home and receiving lower mortgage
payments. Moreover, more and more consumers are utilizing their
rights in bankruptcy, and lenders are discovering that they are
worse off if the consumer files bankruptcy than if they
negotiate a new repayment plan. Consequently, homeowners report
success in achieving the following types of negotiated mortgage
restructuring:
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Capitalizing delinquent payments on
top of the present principal balance, allowing the consumer
to repay these delinquent payments slowly over the whole
term of the loan;
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Giving the homeowner up to four years
to repay, in installments, delinquent amounts, with no interest
accruing on these back due amounts;
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Lowering the interest rate for a certain
number of years or even for the remaining term of the loan, thus
reducing monthly payments without lengthening the term of
the mortgage;
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Lengthening the term of the loan,
thus reducing monthly payments (but increasing the total
interest payments over the term of the loan);
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Substituting some other more valuable
property or asset for the home as collateral for the mortgage,
thus putting this substitute property at risk of foreclosure,
but protecting the home; or
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Some combination of the above forms
of loan restructuring, such as allowing back due payments
to be paid gradually, lengthening the term of the loan, and
lowering interest.
Refinance the Home Debt
If the home was financed at
one of the high interest rates that prevailed during the early 1980s,
refinancing at a lower interest rate and/or with a longer
payment period can greatly reduce monthly payments and bring
them within reach. Moreover, refinancing a low interest first
mortgage and high interest second mortgage into a low interest
first mortgage can also reduce payments. Advocates should keep in
mind, however, that many refinancing schemes are frauds. Even legitimate
refinancing options that look like an improvement on closer inspection
are far more costly than the existing mortgage. The major disadvantages
to refinancing residential debts are the increased finance charges
that result from extending the repayment period, the possibility
of having to pay points, the additional closing costs, and
prepayment penalties on the old mortgages. The feasibility of refinancing
depends on whether the homeowner can obtain a loan at a reasonable
rate, usually from a savings bank, a commercial bank, a credit union,
or a legitimate mortgage company. Most finance companies and certain
mortgage companies do not make residential loans at reasonable rates
and terms.
When foreclosure is threatened, a homeowner
may wish to contact a local realtor to obtain an appraisal of the
home or even list the home for sale. Doing so provides the
owner with information about the home's marketability and its likely
sale price, without necessarily obligating the owner to sell. Most
homeowners do not want to give up their home, and but sometimes
no other solution exists. Selling the house may be painful,
but it is always a better solution than letting a bank sell the
house. If they find a buyer, homeowners may sell their homes privately
before a foreclosure sale takes place.
Consider Filing Bankruptcy
Before considering a Bankruptcy
you should consult with an attorney of your choice to obtain legal
advice. Homeowners who are about to lose their homes should carefully
consider filing a petition in bankruptcy. This can stop
the foreclosure process and allow them time to regroup and try to
work out a plan to keep the home. Bankruptcy may also help
them cure past defaults and make future payments. However,
the bankruptcy option is complicated and it is a good idea to seek
professional assistance from an attorney board certified in
bankruptcy.
Deed in Lieu of Foreclosure
Homeowners often will be tempted
to turn over their deed to the creditor instead of fighting the
foreclosure. This is generally a good idea only if the borrower
will receive something from the creditor in return for saving it
the trouble of foreclosing. For example, if the home's value exceeds
the amount of the indebtedness, the homeowner may want to ask the
creditor to agree not to seek further collection remedies.
By turning over the deed to the mortgage holder, the consumer
may forfeit any right to equity in the home. Similarly, the consumer
may have valid claims or defenses against the creditor that
would be lost by turning over the deed. If the consumer does offer
the creditor a deed in lieu of foreclosure, make sure that there
is a written agreement giving them sufficient time to vacate the
premises in order to find alternative housing and move in an orderly
fashion
Surviving
Debt: Counseling Families in Financial Trouble, National Consumer
Law Center (Boston), 1992.
Additional Resources on Foreclosure Prevention
Contact your Eagle, Realtor's Agent or
Broker for free advice on your specific situation.
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