In 1979, I was a young hot shot real estate agent who was going to set the world on fire. I was so sure of my impending success that I began living way beyond my means. I bought whatever luxury or convenience caught my eye, confident that I would soon make enough money to pay off the credit I took on to finance my purchases.
I soon became overextended and was making so many payments on so may things that I couldn’t keep up with my monthly living expenses. I wasn’t overly concerned, though, because I knew that very soon, things would turn around. At least that’s what I told myself.
Unfortunately, things didn’t turn around. I fell behind on my bills. My home insurance lapsed.
I had to hide my car in the backyard to keep it away from the repo man. Despite the harsh Michigan winter, the snow that had drifted into the corner of my bedroom, and the fact that you could see your breath inside my house, I still refused to ask anyone for help or even tell anyone about the trouble I was having.
Not surprisingly, I finally lost the house, but I still refused to tell anyone about what I was going
through. In fact, I didn’t even tell my family about my predicament until 5 p.m. on the day I had to be out of the house. My parents were actually moving that same day. After they were moved and we sat down to eat, I finally told them what was going on. My brothers pitched in and helped me move with mom and dad’s rental truck. As we were loading the van, my dad took me aside and said, “Ralph, why didn’t you tell us about this sooner? We could have helped you.”
Like most people who face foreclosure, I was embarrassed, scared, upset, angry, frustrated, and in denial. Many times, I considered asking for help, but my pride got the better of me. I sab- otaged my own best interest by repeatedly telling myself that I could make things better on my own — that I could get out of this mess with- out having to tell anyone about my financial problems. Boy, was I wrong!
You don’t have to learn a costly lesson from your mistakes. Learn from my mistakes: Acknow- ledge the problem and share it with people who can help.
Shielding the children . . . or not
You have two options when it comes to breaking the news of the foreclosure to your kids — tell them or keep it a secret (see Chapter 3). We can’t tell you which option is right for your family or the situation you’re in — only you can decide that. We cantell you, however, what notto do: Do nothave bitter argu- ments within earshot of the kids, and remember, they have keen hearing.
Feel free to disclose the foreclosure to your children, but always shield them from any negative emotions or hateful words that situations like this often stir up. Kids can deal with almost anything, as long as their mom and dad aren’t at each other’s throats or yelling at them. Demonstrating to them how two adults in an intimate relationship resolve their issues in a mature manner can often be a valuable life lesson.
If you decide to disclose the foreclosure situation to your children, let them know how the situation is likely to affect them:
Discuss sacrifices that your children may be able to make to help the family.Kids often take pride in contributing when the family needs it.
Asking your children to pay for their own cellphones or give up summer camp is not too harsh.
Don’t increase your child’s anxiety any more than necessary by dis- cussing the worst possible scenarios.Until you’ve had time to assess the situation and explore your options, you don’t really know what the outcome is going to be.
As soon as you know what you’re going to do and have a schedule in mind, let your children know.Like most people, if you leave a vacuum, most kids are going to fill it with their worst thoughts.
Be honest and reassuring. Let your children know, both through your words and the way you handle the situation, that this is not the end of the world.
Sticking together as a family is what’s most important.
Bringing your extended family into the loop
We always ask homeowners facing foreclosure whether they have any close family members who are in a position to assist them financially. Most of them think the question is absurd. “Tell my mom? My dad?! My in-laws?!! Are you nuts?!!!” This is a perfectly normal reaction, of course. Nobody enjoys admit- ting defeat or failure to loved ones, especially if they’ve spent their entire lives proving to these loved ones that they can stand on their own two feet.
The reality, however, is that the reason we have families is never more evi- dent than in times of crisis. Family members are supposed to support one another through thick and thin, and when foreclosure strikes, it’s time to round up the troops.
Family members are often willing to assist you as long as they know exactly what you need. Write down the type of assistance you need from each family member — money, a car, someone to watch the kids, a drive to and from work, whatever it may be.
When it comes to breaking the bad news to your extended family, the first step is the toughest. Just making the call or asking the person to come over and discuss a problem you’re having can be a major hurdle. When working with clients, we often sit with them while they call their loved ones and answer any questions the loved ones may have.
Taking a direct approach is usually best. Come right out and say what the prob- lem is. Your family members are going to want to know how this happened — unless it’s obvious, such as a job loss or extended illness. If you made some bad financial decisions, let them know about it. Say something like:
_____ and I have made some mistakes with our money. We did _____, when we should have been doing _____. We’re working to establish a budget and a plan to correct the situation and we’d like your help in two ways: 1) We need $_____ to pull the house out of foreclosure and rein- state, and 2) We’d like you to help us develop a budget, because you’ve always seemed to have the ability to do that well.
It can also help to let your family members know that you’re terribly embar- rassed that you even had to come to them, but you didn’t know who else could help or who would be so understanding and yet able to keep this quiet.
Seeking Relief If You’re in the Military
When you serve your country in the military, you’re eligible for a few well- deserved perks, including mortgage payment relief and foreclosure protec- tion. The Servicemembers Civil Relief Act (SCRA) of 2003 (formerly the Soldiers’ and Sailors’ Civil Relief Act of 1940) provides this protection for eli- gible service members.
According to the Federal Housing Authority (FHA), under the SCRA, upon your written request, the interest rate that your mortgage lender charges you cannot exceed 6 percent per year during the period of your active military service. Your lender must then recalculate your monthly payments to reflect
the lower rate. The provision applies to both conventional and government- insured mortgages. However, this is not automatic; you must submit a written request to your lender no more than 180 days after the date of your release from active military duty. When contacting your lender, provide the following:
A letter indicating that you have been called to active duty
A copy of the military orders you received, calling you to active duty Your FHA case number
Evidence that you took on the mortgage debt before being called up to active duty
The SCRA also protects service members from foreclosure. Your mortgage lender is prohibited from foreclosing on your mortgage while you’re on active duty or within 90 days after your service without court approval. In order to foreclose, the lender needs to prove, in court, that your ability to make pay- ments has not been compromised by your military service.
What makes you eligible? First, you have to be on active duty and have had your mortgage prior to enlistment or before being ordered to active duty.
Next, you have to be one of the following:
A member of the Army, Navy, Marine Corps, Air Force, or Coast Guard A commissioned officer in the Public Health Service Commissioned
Corps or the National Oceanic and Atmospheric Administration Corps, engaged in active service
A reservist ordered to report for military service
A citizen ordered to report for induction (training) under the Military Service Act
A guardsperson called to active service for more than 30 consecutive days
Contacting Your Bank Instead of Screening Calls
Caller ID really pays off when the bill collectors start calling, but when you’re facing foreclosure, screening your calls may not be the most prudent move.
The longer you put off dealing with the problem, the less time and the fewer options you have, so stop screening calls and start making them.
The problem is yours, so take the initiative to solve it. The best defense is a great offense. The more responsibility you take, the more control you have over the outcome.
In the following sections, we introduce you to the people you need to talk to who are affiliated with your bank. Get in touch with them as early as possible.
When you call, jot down the following information for your records:
The current date and time The person’s name and job title
Notes describing what you discussed, particularly what you or the other person promised to do — what actions need to by taken, by whom, and by what deadline
Dealing with your loan servicer
In most cases, you don’t have the bank’s phone number, because you don’t actually make payments to the bank. Another company servicesthe loan. In other words, you make your payments to the servicer, and the servicer processes your payments and keeps your payment records.
If you received a letter or other type of notice from your bank, you can safely skip to the next section and talk directly to your bank. If, however, you don’t even know which bank yours is, track down the phone number for your loan servicer — it should be on your payment book or on any statements you received from the servicer. You usually talk to your servicer first; the servicer may or may not be able to offer assistance. If your loan servicer can’t provide the information you need, ask for the bank’s phone number.
A loan servicer or a collection agency may be able to work out a solution involving one or two missed or late payments, but these folks do not gener- ally have the authority to negotiate a long-term solution or payment plan.
You need to get in touch with the bank directly.
Contacting your bank
As soon as you track down the contact information for your bank, call the bank and ask for someone in the loss mitigation department. Your bank either has its own loss mitigation department or outsources this job to an attorney. In any event, this person is in charge of coming up with a solution that’s in the best interest of the bank, whether that consists of moving for- ward with the foreclosure or working out a deal with you.
If your mortgage loan is through a local bank, request a personal meeting with the loss mitigator. This serves two purposes:
It shows that you’re responsible and committed to taking ownership of the problem.
It places a human face on the foreclosure, giving the loss mitigator an added incentive to work out a solution that’s in the best interest of all parties.
In your first meeting, you’re simply gathering information and letting the bank know why you’ve been missing payments. In subsequent meetings, you can explore various options and pitch your plans (see Chapter 11).
Coming clean with your bank’s attorney
When discussing your situation with the loss mitigator at your bank, ask the person whether an attorney is involved with the case. If an attorney is involved, find out the person’s name and contact information, and give the person a quick call to introduce yourself. Let the attorney know the following:
Your name
Your contact information An overview of what’s going on
Actions you’re taking to resolve the matter
Let the attorney know that you’re available to answer any questions or address any concerns. By proving yourself to be proactive, rational, and organized, you may be able to win over the attorney or at least convince the person to cooperate with you more closely.
Working Out a Deal with Another Lender
The best-laid plans of mice and men often go awry, especially in foreclosure, so always have a backup plan (or two or three) in place. Put your home up for sale, look into refinancing, talk with a private investor, seek assistance from family members, and do everything else we tell you to do in this book.
That way, if one solution falls through, you have a couple other options to pursue.
This advice applies to banks and other lenders, as well. The bank that holds your mortgage is not the only bank in town. Plenty of other banks and indi- viduals loan money and may be more inclined than your current bank to float you a loan:
A separate loan or second mortgage, in addition to your current mort- gage, to reinstate the loan
A new refinance mortgage that pays off your current mortgage, taking your current bank completely out of the picture
In the following sections, we suggest various lending institutions and individ- uals to contact for loans. In Chapter 12, we go into more detail about how to borrow your way out of foreclosure.
Asking a mortgage broker or loan officer for assistance
One of your best options is to work through a trustworthy and reliable mort- gage broker or loan officer. Your bank may be able to recommend someone, but ask your friends and relatives for recommendations, too. Real estate agents are also excellent sources for recommendations.
Select a mortgage broker or loan officer carefully. Some are nothing more than loan sharks — they sell you a loan that earns them a big fat commission, and have little concern for whether you can afford the payments or whether a particular loan is best for you. Find someone with a solid reputation. They may not feed you the answers you want to hear, but you really don’t want someone selling you a loan you can’t afford.
Borrowing from traditional lenders
Lenders compete for business, so other lenders may be a little more eager than your current lender to work with you, especially if you’re recovering from a temporary financial setback and you have some equity built up in your home.
A mortgage broker or loan officer can assist you in tracking down traditional lenders who offer loan packages that may be suitable for you. You can also try tracking down these lenders yourself, either online (at Web sites like LendingTree.com and eLoan.com) or by calling your local banks and credit unions.
Local banks may be more understanding, particularly if they’ve witnessed a rash of foreclosures in your area. They have a vested interest in the commu- nity and may be more willing to accommodate the right candidates. Keep in mind, however, that you can’t expect them to approve risky loans. Have a reasonable plan in place before you go shopping for a loan.
Exploring nontraditional loan options
Private lenders and real estate investors may be willing to work out a solution with you. A private lenderis usually an individual with money who is willing to loan it at an attractive interest rate. Your jurisdiction may set a cap on the interest rate that private lenders can charge. Private lenders may want to secure the loan by placing a second mortgage on the property, but in a tight spot, when the banks refuse to approve your loan, a private individual may come through for you.
Most private lenders, however, require that you put up some collateral — usually in the form of your home.
The best private lenders and investors work only with people they believe have the resources to repay the debt. If you’re only a couple months behind on your payments and you have sufficient income, they may be willing to loan you the money you need to reinstate the mortgage. To secure the loan, they place a lien on your property, which they remove as soon as you repay the loan in full. Before meeting with a private lender, gather the following materials and information to streamline the process:
Recent bank statements and other financial records Your credit report
Payment history
A recent appraisal, if you have one Title work
Any other information that pertains to your situation
Be very careful when dealing with private lenders and investors. Read the contracts carefully. Most of them contain a forfeiture clause (see Chapter 5), giving the private lender or investor the rights to the property if you fail to make your payments on schedule or fail to repay the debt by a given date. In some jurisdictions, however, even if the loan agreement contains a forfeiture clause, the lender may not be entitled to forfeiture and may be required to work through the foreclosure process. (We explain all this in Chapter 5, and show you how to steer clear of disreputable investors and other unsavory characters in Chapter 9.)
Taking the Legal Route
One of the first questions distressed homeowners have is whether they have any legal options. There ought to be a law against taking someone’s home away from them, right? Fortunately, several laws are in place to protect the
rights of homeowners. Of course, plenty of laws are in place to protect lenders, as well. The key is to know your rights, figure out when those rights are being trampled on, and then take action to protect your rights.
In the following sections, we highlight the most common legal options you have at your disposal and then explore the question of whether you need an attorney’s assistance in presenting your case.
Brushing up on your legal options
We’ve witnessed many cases in which attorneys have dropped the ball and left wide-open loopholes that our clients have taken advantage of. Although these legal strategies probably won’t spare you from having to catch up on your payments and ultimately repay the debt, they can buy you more time for pursuing other options. The following list describes the most commonly abused homeowners’ rights:
Public notification:Most states have strict rules governing notification of the foreclosure. If the bank is supposed to advertise the foreclosure for five weeks prior to the sale and it advertises for only three weeks prior to the sale, you have a case against the bank.
Redemption:Know the redemption rules in your state. Redemption peri- ods may vary depending on the size or value of your property and whether the home is abandoned. If the bank informs you that the redemption period is only three months, but the law gives you six months, you have a strong case that may force the bank to start over from scratch, giving you even more time.
Forfeiture:In some areas, investors and private lenders either knowingly or unknowingly abuse the forfeiture clause in contract for deed and lease-option agreements. Either they word these agreements in a way that makes it impossible for the homeowner to honor the agreement, or they try to enforce a forfeiture clause in a jurisdiction where foreclosure is required. By being aware of the rules and regulations in your area and consulting an attorney, preferably before signing such agreements, you can protect yourself.
Truth in lending technicalities:According to the Truth in Lending Act (TILA), you may have up to three years to cancel a contract with a credi- tor who did not follow the TILA guidelines. In order to file a claim against the lender, your loan must be secured by your principal dwelling and the credit must be for consumer purposes (but not for the acquisition of the property or dwelling). If you succeed in rescinding the loan agreement, the court may also force your lender to refund all closing costs and finance charges, and perhaps even award damages.