Ten Foreclosure Questions

(Please note that the information herein is for informational purposes only. If you have a specific question about your case, please make an appointment and we will discuss it.)

1. I have fallen behind on my payments or I suspect that I will fall behind on them soon because my payments have adjusted and I can’t keep up.  What should I do?

Answer: The most important thing to do is to get in touch with your lender immediately and explain the problem.  A forbearance agreement will give you a few months during which you don’t have to pay your mortgage. You can also ask the lender for either a payment plan, which would allow you to pay your arrearages over time, or a loan modification which would allow you to change one of the essential terms of your loan – term, interest, or even principal – so that you will have lower payments.

2. A process server just came to my door and delivered foreclosure papers.  What do I do now?

Answer: Seek legal advice.  You have 20 calendar days from the time that you are served to present to the court any legal justification for why the court should not order the sheriff to auction your property and evict you from it.  If you do not answer within 20 days, the law assumes that you have admitted all the claims made against you. At that point, the bank’s lawyers will file a default against you, and defaults are very difficult to set aside in a foreclosure suit.

3. How can I afford a lawyer if I can’t afford to make my mortgage payments?

Answer: You cannot afford not to have a lawyer.  A foreclosure is an equitable action. It must be done perfectly.  If you do not engage a legal professional, you will not be able to tell as a layman whether or not you have been a victim of predatory lending.  You may have affirmative defenses or counter claims against the bank foreclosing against you.  In the best case scenario, you can get a judgment against the bank that you can use to offset your arrearages; in the worst case scenario, by litigating your foreclosure case you can gain time to set aside first and last month’s rent and a security deposit.

4. I got something in the mail after the lien was filed on my house from someone saying that he could “stop” my foreclosure and save my home. Should I call them?

Answer: No one can stop a foreclosure except for the banks that filed it against you or the courts. Beware of people who are attempting to prey on your desperation and fear to scam you.  That said, there are many people our there who are providing a valuable service by interfacing with the banks in an attempt to modify your loan.  Check references and always ask around before you give anyone a check.

5. My house is worth less than I agreed to pay for it.  Can I go to the bank and have them reduce the amount I owe to the current market value?

Answer: It has been my experience thus far that banks are highly reluctant to mark to market mortgage debt.  They have shown much more flexibility in terms of reducing interest rates, adding the arrearages to the end of the notes, and allowing  clients to pay interest only, or even to remain in the house long enough to sell it in a short sale.  But they have shown a marked reluctance to mark the note the market.  That said, though, the financial world has changed dramatically in the last month. It is worth asking, but I am recommending to my clients that they not count on this option.

6. How will the Hope for Homeowner’s Plan be able to help me?

Answer: The Hope for Homeowner’s Plan would reward lenders who reduce the value of the mortgages on houses which are upside down to 90% of their current market value with an FHA guarantee of that amount.  This would – in effect – reverse the bank’s reluctance to mark to market. The carrot for them would be the FHA guarantee which would allow them to sell the note or value it properly on their balance sheets. This plan is projected to help between 300,000 and 400,000 people. The problem with it is that it is completely voluntary. The banks do not have to accept anyone into the plan. It is at their discretion, and they aren’t too enthusiastic about using it.

7. If I sell my house in a short sale, do I have to pay taxes on it?

Answer: Normal IRS rules are that reduction of debt is equal to income and is taxed accordingly. That said, though, if you sell your primary house, the government will overlook the reduction of debt and you will not be taxed on it.  You should consult with your tax advisor or a tax lawyer.

8. Do I have to pay my HOA or Condo association fees when I am going into foreclosure?

Answer: I always recommend to my clients that they pay their condo association or HOA fees because these are monies that go into maintaining the community in which they live. At they time they bought into the property, they knew about these fees, and their decision to purchase anyway represents a commitment to their neighbors that they will share in the common expenses of maintaining the neighborhood. When you default on your payments, your neighbors have to pick up the slack, and that is simply not fair.

Beyond that, though, is the fact that condo associations can and do foreclose on properties. Their foreclosures tend to be faster than the mortgage company foreclosures and their lawyers fees can rapidly swell up to as much as 40% of the amount owed.  You end up paying the association lawyer to sue you. Even a simple demand letter could cost you as much as $250!

9. The bank is calling me all the time. Should I talk to them?

Answer: Talking never hurts. Maybe they are calling to tell you that you qualify for a new plan. Maybe you can work out a payment plan with them or some type of forbearance agreement that will give you time to get back on your feet.  If they have nothing for you, it’s a pretty short conversation to say “I can’t pay now. Goodbye.”

10. Am I stupid for getting myself into this mess?

Answer: Foreclosure is expected to affect between 3 million American households over the next two years.  You are not alone.  The banks lowered their underwriting standards in order to be able to make more loans. The big investment banks on Wall Street purchased those loans and then sold them to investors who did not understand what they were purchasing.  Investment banks like Bear Stearns and Lehman Brothers and the insurance conglomerate AIG all went broke and their managers were sophisticated financiers with MBAs from the best universities.  You – Joe and Mary Consumer – were simply trying to participate in the American dream. You didn’t have the knowledge to protect yourself and the federal government was asleep at the wheel in terms of providing regulation. You should not – repeat not – beat up on yourself.  Instead, try to find a way to save your home and make sure you talk to your children so that they will understand that even though they may lose their house, they are not about to lose their family.