Avoiding Foreclosure
Many markets are seeing a rise in delinquencies and
foreclosures. If you've missed payments on your mortgage or
are worried about future payments, it's easy to feel like
you're all on your own. With your house on the line, you may
be tempted to hide and merely hope for the best. However, if
you face problems quickly and directly you're much more likely
to avoid foreclosure.
It's important to remember that foreclosure is also an
undesirable endgame for lenders. Many mortgage companies would
rather attempt to work with a delinquent borrower before
resorting to the expense and hassle of foreclosure.
Generally speaking, mortgage service companies provide one
set of solutions for borrowers who have short term troubles
and another set for those whose problems are more long term.
Before you begin negotiating with the mortgage company, you
should know which category your situation falls into.
 For example, if you've been recently confronted
by a costly auto repair, you may be in a crunch trying to meet
a mortgage payment or two. Because the repair bill is a
one-time expense, the mortgage issue is short term.
On the other hand, a change in employment or earning
ability can be a longer-term problem, especially if your
financial outlook is unknown.
Ignoring a problem rarely makes it go away. Unfortunately,
in far too many cases borrowers fail to respond to their
mortgage service company (the firm that collects payments and
sends notices when payments have not been received). The first
step in showing good faith is responding to the calls or
letters regarding your delinquency. Many service companies
have a foreclosure prevention department that is trained to
empathize with troubled borrowers. So make initial contact,
but be careful not to agree to any new terms hastily.
The mortgage company may offer up several different
solutions initially, but the last thing you want to do is to
agree to something new that may put you into even more of a
bind down the road. Before agreeing to any new terms, you
should describe your situation to an outside expert. Seek
outside help in the form of a real estate attorney, credit
counselor or a housing counseling agency.
 The most caring mortgage lender in the world
still sees things largely in black and white, so it's
important to gather as much information as possible. Begin by
collecting all correspondence from the mortgage service
company. Keep envelopes when possible, as sometimes the
postmark of critical notices can affect a borrower's
eligibility for relief.
Document Income - Collect as much documentation
displaying your income as possible. Lenders typically want to
see at least one month of income, but get together as many
consecutive recent pay stubs as possible. Find your last two
to three tax returns and W2 forms. Also include three to six
months of bank statements.
Document Expenses - Assemble all bills, paid or
unpaid, from the time you began to fall behind in payments
until now. Include utilities, credit card bills and auto
payments. It's particularly important to show any of the
reasons that you may have fallen behind in the first place
(such as unexpected repair or medical bills).
The documents will likely help tell the story of why you
fell behind on your mortgage payments. Now it's up to you to
fill in the blanks with the human element. Write down all of
the circumstances that lead to your current situation, and
you'll be better prepared to explain yourself to the powers
that be.
Depending on the number of payments missed, the size of the
loan and the financial out look of the borrower, the mortgage
company has a variety of potential solutions that it may
offer.
Repayment Plans - If you haven't missed many
payments, the mortgage provider may work with you to form a
repayment plan that allows you to pay off the past due amount
bit by bit (in addition to your regular mortgage
payments).
Reinstatement - Should you be experiencing a
temporary shortfall of cash, your lender may provide an
extended period of time to pay of the past due amount. In most
cases you will still be responsible for any late fees or
penalties you've already incurred.
Forbearance - If you need temporary relief, the
lender may offer a forbearance plan. A forbearance plan
suspends or reduces your payments for a set period of time,
with the unpaid to be paid later in either pieces or one lump
sum.
Loan Modification - Longer term financial problems
that affect overall income are sometimes solved by loan
modification. Any term of a mortgage may be modified by a
lender: the rate, the payoff date, and even the total amount
owed. A lender may modify the terms of the mortgage if you
cannot payments under the current agreement, but the lender is
reasonably sure that you will be able to consistently make
future payments under new terms. Modifications are extreme
measures and are used sparingly, but are an option for lenders
who conclude that foreclosure would be more costly.
Most mortgage service companies are essentially broken into
two branches. The first tier is the collections department,
whose job is to track down delinquent borrowers and recover
back payments. The second division is the foreclosure
prevention department (sometimes called loss mitigation,
delinquency customer service or loan resolution). This second
tier is responsible for making the tough decisions.
Getting past the collections agents and to the loss
mitigation department is critical. The help of an attorney can
be crucial in gaining you such access. When you do get through
to a loss mitigation agent, tell your story and answer all
questions about your income and expenses, and request an
application for forbearance or modification.
While the hope is that the lender will offer mitigation,
you should be prepared for the worst case scenario that you
will have to move out. However, if an the lender does over
loan resolution, they likely will push you to make a quick
decision. Instead take if they offer take time to consider it
with an advisor before agreeing to anything.
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