Things That You Might Want To Know

According to Realtytrac.com (July ’06), nationwide foreclosure rates were up 18% from one year ago.  Foreclosures are clearly on the rise.  There are no winners with foreclosure; everyone loses – the borrower, the lender, the community - all lose when foreclosure occurs.  The good news is that foreclosure can be avoided.  This article will outline some of the options that can be utilized to avoid foreclosure.

Freddie Mac (freddiemac.com) has provided financing for more than 46 million families in the past thirty-five years.  Their 2005 study titled “Foreclosure Avoidance Research” found that “a sense of having the situation under control is top reason delinquent homeowners give for not contacting lender”.  The following is a breakdown (page 7) of the reasons why a delinquent homeowner does not contact his lender:

Don’t need to/No reason to………………………………………….20%
Can take care of situation without involving them………17%
There’s nothing they can do…………………………………………..8%
Don’t have the money to pay it now………….……………..…..7%
Never had difficulty paying mortgage..………………………….6%
Embarrassed……………………………………………………………………6%
Didn’t know who to call…………………………………………….….…5%
Scared………………………………………………………………………………5%
Don’t know/Refuse……………………………………………..…….……12%

Interestingly, the study found that 92% of delinquent homeowners said they would probably contact their lender “if they knew alternative repayment options could be offered”.  The fact is that you do have options.  The following is a list of alternatives to foreclosure provided by the Federal Reserve Bank of Chicago (chicagofed.org) in a pamphlet titled “Foreclosure Alternatives: A Case For Preserving Homeowenrship”.

For Temporary Setbacks

Reinstatement: Accepting the total amount of back interest and principal owed by a specific date. This option is often combined with forbearance.

Forbearance: Reducing or suspending payments for a short period, after which another option is agreed upon to bring the loan current. A forbearance option is often combined with a reinstatement, when it is known that the borrower will have enough money to bring the account current at a specific time in the future. The money might come from a bonus, investment, insurance settlement, or a tax refund.

Repayment Plan: With a repayment plan, the bank agrees to add, for example, half the amount of the first missed payment onto each of the next subsequent two payments. These plans provide some relief for borrowers with short-term financial problems, such as expensive car repairs that make it too difficult to pay the mortgage in a given month.

For Long-term or Permanent Set Backs

Mortgage Modification: If the borrower can make the payments on the loan, but does not have enough money to bring the account current or cannot afford the total amount of the current payment, a change to one or more of the original loan terms may make the payments more affordable. The loan terms could be changed in one or more of the following ways:

• Adding the missed payments to the outstanding loan balance;
• Changing the interest rate, including making an adjustable rate into a fixed rate;
• Extending the repayment term.

Short Refinance: Forgive some of the debt and refinance the rest into a new loan, usually resulting in lower financial loss to lender than foreclosing.

Claim Advance: If the mortgage is insured, the borrower may qualify for an interest-free loan from the insurer to bring the account current. Full repayment of this loan may be delayed for several years.

For Older Homeowners

Reverse Mortgage: Reverse mortgages allow older homeowners (with little or no outstanding mortgage debt) to convert the equity in their homes to cash while retaining ownership. With a regular mortgage, the borrower makes monthly payments to the lender. But with a reverse mortgage, the borrower receives money from the lender and generally does not have to repay it for as long as they live in the home. In return, the lender holds some — or all — of the home’s equity. For more information on reverse mortgages, go to ftc.gov

If Keeping the Home is Not an Option

Sale: If the borrower can no longer afford to repay the mortgage, the lender agrees to give the borrower (or their agent) a specific amount of time to find a purchaser and pay off the total amount owed.

Pre-foreclosure Sale or Short Payoff: If a property’s net sales proceeds do not cover the loan in full, the lender may accept less than the full amount owed. Though the lender takes a loss on the sale, the additional cost of foreclosing on the property is avoided.

Assumption: Allow a qualified buyer to assume the mortgage, even if the original loan documents state that it is non-assumable.

Deed-in-lieu: Agree to allow the borrower to voluntarily surrender the property and forgive the debt. This option may not be available if other liens such as judgments of other creditors, second mortgages, and IRS or state tax liens exist.

Note: both a short sale and a deed-in-lieu damage the borrower’s credit rating less than a foreclosure as they reflect efforts by the borrower to come to terms with the lender. But the short sale is less damaging than a deed-in-lieu, because it indicates recognition by the lender that the event was caused by factors outside of the borrower’s control.

In addition to the above options, the Broken Credit Blog has written a previous article about the “Foreclosure Bailout”.  A “Foreclosure Bailout” enables a homeowner to pay off an existing mortgage (regardless of how delinquent) and begin again with a new mortgage with a new lender.

From the information offered above, you can realize that the burden of a foreclosure can be avoided or at least the blow can be softened.  Review these options and if the need ever arises where you find yourself in such a predicament, you will be prepared with the knowledge of knowing how to approach it, not with a sense of despair, but with a certain acquired confidence.

For more information go to
www.brokencredit.com

Are you dealing with a collection agency?  You should know your rights.  The following is a partial list of what a Collection Agency Can NOT do.

What types of debt collection practices are prohibited?

Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact.

For example, debt collectors may not:

· use threats of violence or harm;
· publish a list of consumers who refuse to pay their debts (except to a credit bureau);
· use obscene or profane language; or repeatedly use the telephone to annoy someone.

False statements. Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

· falsely imply that they are attorneys or government representatives;
· falsely imply that you have committed a crime;
· falsely represent that they operate or work for a credit bureau;
· misrepresent the amount of your debt;
· indicate that papers being sent to you are legal forms when they are not; or
· indicate that papers being sent to you are not legal forms when they are.

Debt collectors also may not state that:

· you will be arrested if you do not pay your debt;
· they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or
· actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action.
 
Debt collectors may not:

· give false credit information about you to anyone, including a credit bureau;
· send you anything that looks like an official document from a court or government agency when it is not; or
· use a false name.

Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:

· collect any amount greater than your debt, unless your state law permits such a charge;
· deposit a post-dated check prematurely;
· use deception to make you accept collect calls or pay for telegrams;
· take or threaten to take your property unless this can be done legally; or
· contact you by postcard.
 

The above information are some excerpts from an FTC pamphlet titled “Fair Debt Collection”
(ftc.gov/bcp/conline/pubs/credit/fdc.htm)

For more Credit Related Information go to
www.brokencredit.com