Monday, September 17, 2012

Do's and Don'ts in Mortgage Foreclosure

"Mortgage foreclosure defense" is a misleading term. It suggests the delinquent borrower (morgtgagor) can have it both ways, that is, get a court order that he does not have to pay back the money but he can keep the house. It is not so (with a possible exception in a so-called "lost note" case.)

Despite those limitations, foreclosure "defense" has a lot to offer. It can buy time and often avoid the "worst case" scenario, namely: loss of the house, entry of a "deficiency judgment" for the difference between the unpaid balance on the loan and the value of the house, and devastation of the credit rating of the borrower.

Most borrowers do not fight foreclosure at all. That is a mistake that can lead promptly to the "worst case" outcome just described. Any number of outcomes which are better than that may be available through the use of foreclosure defense, e.g., forbearance, loan modification, and a short sale.  

Basic do's and don'ts for the borrower in foreclosure or headed that way:

One, do not ignore the lender. Nothing is worse than doing nothing, to quote the U.S. Department of Housing and Urban Development. Read and keep everything sent by the lender. Respond promptly to the lender in person, by an accredited housing counselor, or both. Visit the HUD website. Consult an attorney.

Two, stay in the house. You are doing the lender a favor by protecting the collateral. Many of the concessions and allowances which the lender might be inclined to make will require continued occupancy. You've got to live somewhere. You might as well live at home. So stay put.

Three, call me.

Try telling those who are drizzling Worcestershire sauce on dog food for dinner that the recession has been over for years. This is the worst economy since Herbert Hoover was in the White House. That's a good thing, not a bad thing. If you're up against it financially, you've got lots of company. That means that law and politics are at work on the problem, which would not be the case if it were "Fat City" for your neighbors and only you had a problem.

"Mortgage foreclosure defense" will not let anyone keep the house yet avoid repaying the loan. But it can buy time and lead to a number of outcomes that are happier than loss of the house, loss of the credit rating, and a "deficiency judgment" for the difference between the amount due on the loan and the value of the house.