(ARA) - Over the past year, we've been inundated with daily headlines about the growing foreclosure crisis. Hundreds of thousands of homeowners have lost their homes to foreclosure, with speculation among housing industry experts that an additional 1 million may lose their homes within the coming year.
Herculean efforts are being made on the part of federal and state governments, mortgage lenders and nonprofit organizations to prevent foreclosures, culminating in the bailout package recently passed by Congress.
What exactly is a foreclosure? According to the legal experts at FindLaw.com, the Web’s most popular source for legal information, foreclosure is the legal process that a lender, often a bank or a mortgage company, uses to recover a piece of real estate property.
“When a homeowner receives a notice of foreclosure, it means the homeowner has failed to comply with the terms of the mortgage,” says Stephanie Rahlfs, an attorney editor with FindLaw.com. “Essentially, the mortgage has gone into default, and the lender has decided to begin the legal process of repossessing the property.”
Even if a homeowner receives a notice of foreclosure, it’s not too late. Contrary to what many people may think, most mortgage companies would prefer that a homeowner continue to pay their mortgage, because that’s where lenders make their money -- on the interest and fees associated with the mortgage process.
Because of the large number of homeowners who are facing foreclosure, many mortgage companies are willing to work with a borrower to find a solution that will allow a homeowner to stay in his or her home. In fact, there are a number of alternatives to foreclosure. A homeowner may qualify for a special forbearance, in which the lender may be able to arrange a repayment plan based on a homeowner’s situation, or a lender may temporarily or permanently suspend or reduce the monthly payments (by reducing the interest rate on the home). Other foreclosure alternatives include mortgage modification and a “deed-in-lieu” of foreclosure.
Ignoring the problem will only make things worse. A foreclosure on a person’s credit history can have devastating effects -- dramatically reducing a person’s ability to obtain and use credit to purchase many items and services. Unfortunately, many homeowners facing foreclosure don’t believe their lender is willing to help. In a 2005 Freddie Mac/Roper study, one in five homeowners facing foreclosure didn’t contact their lender because they didn’t think their lender would help them. The Homeownership Preservation Foundation (www.995hope.org), says that the sooner a homeowner picks up the phone and calls their lender or a U.S. Department of Housing and Urban Development-certified counseling agency for assistance, the more options they have to avoid foreclosure.
Here are some additional tips offered by the legal experts at FindLaw.com for homeowners who are behind in paying their mortgage and are worried about foreclosure.
* Pull out your mortgage documents. Find and read through your mortgage contract. It spells out the terms by which a homeowner (borrower) must repay their lender. Many homeowners, especially those with adjustable rate mortgages, are often surprised when their mortgage payment adjusts. The mortgage contract, which the homeowner signed to obtain the loan, spells out all of the terms in black and white.
* Don’t ignore letters from your lenders. Or phone calls or e-mails, either. If a homeowner is having problems making their payments, they should call or write to their lender’s loss mitigation department as soon as possible and explain their situation. The sooner a homeowner contacts their lender, the more options a lender has in working with the homeowner to avoid a foreclosure. Be prepared with financial information, such as your monthly income, monthly expenses and debt. For example, if your monthly income suddenly drops, due to a job loss or to illness, the lender may be able to make a temporary adjustment to your mortgage until your monthly income increases again.
* Get counseling. If you believe you may have trouble paying your mortgage, contact a HUD-certified mortgage counseling service, such as the Homeownership Preservation Foundation’s Homeowner’s HOPE hotline at (888) 995-HOPE, which offers free counseling 24 hours a day.
* Seek legal assistance. Mortgage contracts can be difficult to understand. It’s always wise to involve an attorney, even if you don’t need an attorney present when signing a mortgage in the state you live. Likewise, if you’re behind in your mortgage payments and believe foreclosure may be imminent, seek an attorney to help represent your interests in dealing with a mortgage company.
* Take advantage of escrowing for property taxes. Some homeowners choose not to escrow for property taxes and property insurance. In other words, they choose to pay these expenses separately instead of incorporating them into their monthly mortgage payment. What many homeowners don’t realize is that in many states, the city, county and state governments take priority over lenders in repossessing a property if the property taxes are not paid. In this case, a homeowner may be current on their mortgage payment but still be in danger of losing their home if the property taxes are not paid.
* Be prepared to move. When a homeowner receives a notice, it does not mean the homeowner needs to move out immediately from their home. But, it does put a homeowner on notice that the lender intends to repossess the property by a certain date. The foreclosure process varies from state to state. Some states allow a lender to begin the foreclosure process if a homeowner is only one month behind in their mortgage payments. If there is no way to avoid foreclosure, you will need to seek a new residence.
* Beware of scams. Because a foreclosure filing is a public record, anyone can review that public document, and that’s often when many homeowners are contacted by scam artists who offer the hope of taking away a homeowner’s problem. However, solutions that seem too good to be true often are. Never sign a document you don’t understand.
To learn more about your legal rights in the event of a foreclosure, or to explore other legal questions, visit the FindLaw Foreclosure section, realestate.findlaw.com/foreclosure.
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