By Jayne McBurney, N.C. Family Resource Management Extension Agent
Changes during the economic recession, rising fuel process and job loss have all made money management difficult. For homeowners, protecting assets in the wake of economic uncertainty has been especially trying; unfortunately, some have had to face foreclosure. The Military Families Learning Network presented a web conference on Feb. 2 on Housing & Foreclosure, which you can view here.
When a prospective homeowner signs on for a mortgage, it is important to be sure that the household budget will support of paying the mortgage every month with each payment on time. Missing mortgage payments is not an option for a homeowner, and doing so could cost the homeowner more than just a place to live if the bank chooses to foreclose the loan. Foreclosure proceedings take place after a number of missed monthly payments have occurred. Missing just one payment will make you delinquent, but if you do not remedy the situation quickly, the bank can take back ownership on the home, that is, they can foreclose the loan.
Homeowners should let their lender, or loan servicer, know as soon as possible when they are unable to make a mortgage payment. Lenders are currently being strongly encouraged to try to work out loan delinquency with mortgagees and there are many incentives for lenders to modify and rework loans for homeowners. Government programs, such as www.makinghomeaffordable.gov can help homeowners who have been unsuccessful working directly with their bank. Military families can learn more about the Homeowners Assistance Program, with special benefits for military families here.
If a homeowner is unable to make mortgage payments at all, or resolve difficulties in paying their mortgage, the bank might try to encourage a “short sale,” which gets the house on the market and hopefully sold before a foreclosure takes place. It is possible for a homeowner to remain in the home while the house is on the market (or is listed for sale).
Once a foreclosure is initiated, the owner loses possession of the home as well as any equity they might have in the home. A foreclosure may seem like an immediate answer to money worries, but these former homeowners will end up with a long-lasting negative mark on their credit report, appearing for several years. Foreclosure will significantly lower the former homeowner’s FICO score also. It is very important that current and prospective homeowners make their mortgage payment an inflexible monthly obligation in their finances.
The North Carolina Housing Finance Agency offers good advice for homeowners having difficulty making a mortgage payment:
- Don’t ignore the problem.
The further behind on payments you become, the more difficult it will be to reinstate your loan and the likelihood of losing your home increases.
- Open and respond to all mail from your lender and the North Carolina Housing Finance Agency.
The first notices you receive will offer good information about foreclosure prevention options. Later mail may include notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
- If you have requested a modification or other workout plan with your servicer, please confirm that your servicer has received all of the documentation required. If you are already in a trial modification, please verify that your servicer has received the updated income, expenses, and financial hardship information that are required to convert the trial modification into a permanent modification.
If you are missing documents, submit them as soon as possible. Create a system to track the date documents were submitted and when calls were made to your loan servicer and other entities. Remember to write down the name of the person with whom you spoke. A calendar and lined notebook paper is all you need to create your record system. Homeowners who miss deadlines may lose their eligibility.
- Read your loan documents so you know what your lender may do if you can’t make your payments. If you meet with a housing counselor, bring these documents.
- Prioritize your spending.
After health care, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payments. Look for optional expenses: cable TV, memberships, entertainment, etc. that you can eliminate.
- Use your assets.
Do you have assets, such as a second car, jewelry, or a whole life insurance policy that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home. It is not recommended that you use retirement savings, however.
- Avoid foreclosure prevention companies and foreclosure recovery scams.
If any firm claims it can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD-approved housing counseling agency.
You also should not have to pay fees for foreclosure prevention help – use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee for services that are offered for free through HUD-approved housing counseling agencies.
Any program that requires you to pay upfront fees to help you avoid foreclosure is illegal. The Office of the N.C. Attorney General provides help identifying and combating foreclosure scams.
Foreclosures that took place between Jan. 1, 2009 and Dec. 31, 2010 may be eligible for review. The deadline to submit a request for review was April 30, 2012. For more information, click here.