December 17, 2017

Help Homeowners Facing Foreclosure: Part Two of Three

Home Forclosure SignIn my first post of this series we covered the foreclosure process and defined some basic real estate terms related to distressed sales.

In this article I’ll cover questions and answers on preventing foreclosure, negotiating with a mortgage company, and what to do about an adjustable rate mortgage that will soon reset.

Q: Can I legally prevent a foreclosure?

First, there is very rarely any defense to a foreclosure, hence there is not a lot in the way of foreclosure or short sale education for attorneys. That said, a homeowner who is about to lose their home may benefit from a private bankruptcy consultation (also called “bankruptcy counseling”), where an attorney can evaluate the entire financial picture, including the home, and advise the homeowner of his or her options and legal rights.

I generally refer people who want foreclosure defense to these resources for mortgage(s) on owner-occupied primary residences

1. State Home Foreclosure Prevention Project (“SHFPP”) 888-995-HOPE – For help with North Carolina foreclosures on subprime loans made between 1/1/05 and 12/31/07

2. President Obama’s Making Home Affordable Program

a. Home Affordable Refinance – For those who are current on their mortgages but cannot refinance to a lower interest rate due to a decrease in the home’s value; mortgages must be owned or securitized by Freddie Mac or Fannie Mac

b. Home Affordable Modifications – For those whose who are behind on their mortgages or are in imminent danger of falling behind because their mortgage payment is more than 31% of their gross monthly income; mortgages need not be owned or securitized by Freddie Mac or Fannie Mac

Q: Is there a reason to consult with a bankruptcy attorney if I do not intend to file for bankruptcy but I can’t pay the mortgage?

Yes! A bankruptcy attorney has the training and experience to evaluate your situation holistically. Take, for example, a married couple filing for bankruptcy protection who had voluntarily moved out of their marital residence, knowing that they were behind in payments and would probably face a foreclosure at some point. If they had consulted with me before doing so they would have learned about the North Carolina homestead exemption, which is up to $ 35,000.00 per person (your name must be on the deed, this must be your primary residence (not an investment property), and you must actually live there in order to claim it).

If you move out, then you cannot claim the North Carolina homestead exemption. Imagine how someone in this situation would feel when learning that an important door had been closed behind them.

Now, if there is absolutely no equity in the home, then this is irrelevant. Exemptions cover equity. For example, if you owe $150,000.00 on a house that is actually worth $140,000.00, then there is no equity and thus nothing to exempt. But if you owe $100,000.00 on a $150,000.00 house, then there is $50,000.00 in equity there; the homestead exemption means that the bankruptcy debtor (that’s YOU) gets paid first, before creditors.

You are probably thinking, “who would be in foreclosure if they have significant equity in their house?” I see it more and more these days. For example, consider a family with over $100,000.00 in equity in their home; the breadwinners have been unemployed for a lengthy period of time, stopped making mortgage payments, put their house on the market, and weren’t able to sell. The foreclosure sale has been scheduled but not held.

Q: My interest rate will reset soon and I can’t refinance, sell or make the higher payment. Now what?

The Better Business Bureau has a valuable article on this subject and includes this checklist for developing a plan of action. If this does information does not help, call a qualified attorney  when you are in default:

  1. Carefully review the terms of your mortgage.
  2. Can you rework your budget?
  3. If you don’t hear from your lender, contact them.
  4. If your lender hasn’t contacted you, and you have already missed a mortgage payment or anticipate not being able to make the next payment, you need to contact your lender.
  5. Speak to the right person.
  6. Discuss your situation honestly.
  7. Don’t try to fudge on the true details of your situation.
  8. Consider your options.

Q: Can I hire an attorney to just tell the bank they can have the property and avoid the public disgrace of a foreclosure?

Many people who are averse to foreclosure and favor a short sale seem to personally know their lending officer or want to give business to a particular realtor. I advise these people to take a breath and consider that at this point in the real estate wind-down, nothing should surprise a banker or mortgage company.

The problem is, in order to close their file and convey title to the property, the lender must involve some legal process.

In Part 3 of 3: Questions and Answers on short sales and sifting through the confusing offers from those who want to help distressed homeowners.