Facing Foreclosure: What Are My Options?
You don't have to go it alone when you're fighting to keep your home.
A foreclosure sign in front of a house that's on the market.(Getty Images)
The frequency of foreclosure in the U.S. has gone down significantly since the recession, dropping from almost 16 million homeowners facing foreclosure at the start of 2012 to 6 million at the close of 2015, according to online real estate database company Zillow.
Despite this broad decrease in foreclosure filings and increasing home values across the country, negative equity continues to cause problems for many housing markets in the U.S. Chicago and Las Vegas, for example, still have more than 20 percent of area homes underwater, according to Zillow.
“This is not just some sort of superficial wound – this is a wound that hasn’t healed,” says R. David Marquez, an attorney specializing in foreclosure prevention at the Law Firm of R. David Marquez PC in Mineola, New York.
Even in an economy that has in many ways recovered from the Great Recession, a jump in low interest rates or a company layoff could change the financial horizon for a household in a moment’s notice. And for a homeowner facing foreclosure, it can feel overwhelming to try to navigate the options and come out in the end with a solution that will work.
But you don’t have to go through it alone – from the U.S. Department of Housing and Urban Development to private attorneys and homeowner advocacy groups – there are resources to help you determine the right course of action as you work through the foreclosure process. Here are some of the common queries homeowners have when facing foreclosure, plus some of the options available to you.
Who can you call? A good first step when you have questions about owning your home – even if it has nothing to do with missing payments or foreclosure – is to reach out to the nearest homeownership counselors.
HUD lists agencies, organized by state, that have been approved to advise homeowners on a variety of aspects of homeownership, including mortgage delinquency and default resolution, at no cost to the homeowner.
Agencies on HUD’s list that specialize in mortgage delinquency often have foreclosure prevention counselors who are able to examine your current financial situation in detail, identify if you qualify for any programs that may help lighten the load and even communicate with your lender at times to discuss modification or refinancing options.
At Joseph Corporation, a HUD-approved agency that provides foreclosure prevention counseling in Aurora, Illinois, homeowners seeking mortgage assistance first attend a foreclosure workshop to help them understand what's ahead. "We let them know exactly what is the process, what we expect from them and what they can expect from us also," says Leticia Lara-Reyes, director of homeownership education at Joseph Corporation.
The federal government established the Making Home Affordable program in 2009 to help the hardest hit homeowners during the housing crisis. HUD-sponsored counseling agencies will often refer eligible homeowners to the program for assistance with refinancing, loan modification and for the unemployed to avoid delinquency and foreclosure. The program is geared toward homeowners who signed their loan prior to Jan. 2, 2009, owe less than $729,750 or less and are currently unable to afford payments, among other specifics. Because the program's focus is on homeowners hit hard by the recession, economic improvements in recent years will signal its end at the close of 2016 – one year later than originally planned.
If you’ve been issued a court summons over a foreclosure or have an interest in fighting the foreclosure, it’s best to speak with an attorney who has experience in foreclosure prevention litigation.
But whether it’s someone helping you modify your loan or an attorney, be sure to research the person or organization to avoid scams aiming to take advantage of those that are already financially vulnerable, says Henry McLaughlin, an attorney specializing in foreclosure prevention in Richmond, Virginia. Checking online for previous complaints through Ripoff Report or the Better Business Bureau can be a good indicator of how the do business, and if it's something you should steer clear of.
McLaughlin warns against advertised organizations that often have 1-800 numbers and are located outside your state, as they won’t be able to comment on its foreclosure process anyway. A red flag alerting you to a potential scam is if they recommend that you stop making your mortgage payments and give them a fee upfront, he says.
When should you act? State or local laws may vary on the length or steps in the foreclosure process, so it’s best to inquire early on to make sure you don’t miss your chance to formally contest the lender’s claims in court.
In New York, Marquez says homeowners facing foreclosure will receive a summons that gives them either 20 or 30 days to provide an answer to the lender's claims of default on the loan and plans for foreclosure. It’s that point when Marquez recommends acquiring an attorney, whose job it is to formally contest on behalf of the homeowner and allow for litigation to move forward.
“If they fail to [provide an answer], they will relinquish – or otherwise waive – their right to fight the case,” Marquez says.
McLaughlin says his clients often contact him either just before foreclosure is finalized or just after, when the individual is now facing eviction from the home they’ve already lost ownership of.
Particularly if you’re hoping for a chance to maintain ownership, McLaughlin recommends reaching out to an attorney earlier. “It’s much easier to stop a foreclosure than to get the house back after foreclosure,” he says.
But even if you’re past that point, it doesn’t necessarily mean you can’t fight back. In the cases where foreclosure has already occurred, McLaughlin says he examines whether it’s possible for his clients to reclaim ownership, and often that's based on whether the lender followed the proper procedure in foreclosing on the home. If the state's required timeline for notifying a homeowner of nonpayment and pending foreclosure were not correctly followed, for example, it could potentially be grounds for rescinding the taking of the property.
“We look to see if there are grounds to file suit to seek to rescind the foreclosure and to defend against eviction,” McLaughlin says.
What are your loan options? It’s often possible to settle on an agreement with your lender to avoid foreclosure and establish the best course possible to pay back what you owe.
MHA offers a few programs to fit with various financial situations, from refinancing or loan modification to assistance while you’re unemployed. For members of an MHA program, making payments on time can lead to relief of up to $10,000 – removing a part of your loan balance each year. Program members who make their mortgage payments on time and in full get a reduction in their principal loan amount of $1,000 per year for the first five years and an additional $5,000 in the sixth year.
Here’s a breakdown of some common loan options available to homeowners:
- Refinancing is typically the most optimal situation, but it probably won’t be an option if you’ve already fallen behind on your current mortgage payments.
- Loan modification is an opportunity to sit down with the bank and agree on a plan for your existing mortgage that will be more affordable. Courts will often require mediation to attempt to reach an agreement on a loan modification before resorting to a court decision.
- Filing for bankruptcy under Chapter 13 will keep the lender from seizing your home, and will instead give you an opportunity to sit down with them and establish a payment plan to relieve your debt. But you have to qualify for bankruptcy for it to successfully protect your assets – and an individual who files for bankruptcy is often in much worse debt than just a home loan.
- Selling to avoid foreclosure. If you can’t afford a loan modification or other payment plan, you can avoid a foreclosure from blemishing your credit history – if the lender agrees to it. A deed in lieu of foreclosure would transfer the property back to your lender, releasing you from your debt. Another option is a short sale, which would allow you to sell the home for less than you owe the bank.
Be aware that not all these options may be available for your individual situation. And Marquez says they’re not always a better deal, as the loan modification process often lowers the interest rate, but might tack on the amount the borrower missed in payments. The end result could be an amount equal to or higher than the original monthly payments, he adds.
“If I can’t pay $3,500 when I defaulted, how can I pay $3,700 on a modification?” Marquez says.
Lara-Reyes adds that loan modification is often what homeowners seek when they come to Joseph Corporation for help, but individual circumstances, like lack of income, can remove that as an option. "Most of the people ... want to reduce the principal, and we let them know that might not be the case because it depends on the investors," she says.
Being open and honest can help. Particularly when you’re opposing the bank to keep possession of your home, it can be all too easy to feel like you have to constantly have your game face on. The bank already knows you're financially vulnerable, but being open about your current situation can give you some relief and even open doors with the sympathy of the person across the table.
McLaughlin recalls that when he worked as a legal aid he handled a foreclosure case for an elderly woman whose husband had just died. The bank was willing to set up a payment plan for the woman to satisfy the debt, but she knew she would not be able to afford it and instead had McLaughlin tell the bank she would be willing to hand the house over to them and move out.
“The bank wrote me back and said, ‘Please give your client our condolences, and tell her that we have marked the note satisfied,’” McLaughlin says.
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He adds that it’s not the only time he’s seen a lender change their action out of compassion for a client going through a tough time, and it reminds him of the human aspect on both sides of a foreclosure case: “We need banks, and we would do well not to puff ourselves up and to recognize that the people on the other side are by and large doing a job just like we are.”