Foreclosure/Forbearance/For Sale!/For Keeps
Last year, when Frank J. was shopping for a condominium apartment, he was worried that he wouldn’t qualify for a mortgage. His real estate broker assured him that “a ham sandwich” could get a mortgage!
Frank was lucky to have gotten his mortgage when he did. The pendulum has swung the other way. Loan officers are complaining that they have money to lend but no qualified borrowers to lend to. Mortgages based upon “stated income” (so-called “no-doc” loans because applicants don’t have to show proof of income) have all but disappeared. The amount of the loan relative to the appraised value (“loan-to-value” or “LTV”) has been reduced, forcing buyers to use more of their own cash and reducing their liquidity. Credit lines secured by personal residences (Home Equity Lines of Credit or “HELOCs”) offer advantageous rates, but only to untroubled homeowners.
Credit card issuers are stricter too. Penalties for late payments are higher, credit limits are being lowered, charge accounts are even being cancelled despite long and mostly positive histories.
All of which means that if a borrower has a problem, the consequences are very serious.
Non-payment of a mortgage can lead to foreclosure. If you don’t make your car payments, you risk having the car repossessed. If you don’t make your mortgage payments, your property can also be “repossessed”, that is, the loan can be “foreclosed” and the lender can cause the sale of the property at any price, just to cover the outstanding loan. If you are looking at large, and largely unanticipated, increases in your mortgage payments because of an adjusted interest rate, or if you have already fallen behind in your payments, don’t wait for the lender to start foreclosure proceedings. Don’t ignore their mail or phone calls.
This is what you should do:
1. If you are in danger of falling behind, contact the lender. There should be a customer service telephone number on your monthly statement. Or call the loan representative you have dealt with in the past. Explain your particular problem and how you expect to resolve it. You will be referred to a department handling work-outs.
2. Many mortgages have been “bundled” (split up among multiple investors) and sold as collateral. Billing and collection of monthly payments are not handled by the lenders but by servicing agencies which are not consumer-oriented and definitely do not look after troubled borrowers. Borrowers facing increases in their adjustable-rate mortgages, however, may be able to seek relief from government-backed lending programs. Look for ads offering refinancing plans for eligible borrowers. Call and ask what is being offered; if you don’t qualify for one program, chances are that another will be available to you.
3. Borrowers who are already in default and threatened with foreclosure should retain an attorney to negotiate a “forbearance” agreement which would delay foreclosure or avoid it entirely. Lenders do not want to be owners: they will work with troubled borrowers to renegotiate their loans or to cooperate with the borrower’s efforts to sell the property.
4. Some borrowers may even be able to defend a foreclosure action by challenging the lender’s legal status if the mortgage has been bundled and sold. Consult a specialist on this one!
Watch out for so-called debt-consolidation offers that promise to settle your debts for less than the full amount. They often work out a monthly payment plan, and then apply your initial payments toward their own fee! You should know also that settlement of a debt for less is reported to the credit agencies and will be reflected in your credit score.
Late payments, partial payments, skipped payments…all add up to borrowers in trouble. To keep your property, or to sell on the best possible terms, consult your lawyer at the first sign of distress.