START WITH THE PEOPLE WHO REALLY CARE

Millions of homeowners have loans that are guaranteed by FHA or VA. FHA became part of the Department of Housing and Urban Development (HUD) in 1965. If you are not sure whether you have a guaranteed loan program, check the folder you received from your title company when you purchased your home or ask a realtor to look at the papers. Even if your mortgage is not guaranteed, HUD, FHA, and VA resources have housing counseling agencies, legitimate refinancing agencies who do not engage in unlawful predatory lending practices, debt relief scams, and information about consumer rights for lending. You may even be eligible for relief from natural disasters or if you are or your spouse is active duty military.

In addition to contacting your mortgage lender, please contact a HUD Counselor or the FHA or the VA as soon as you know you are in trouble. Don't wait until the bank contacts them with threats of foreclosure - you might save the $4000 we were charged in extra interest and penalties while waiting for our bank to help.

CRY ME A RIVER

Here is my experience with loss mitigation - in the end, I realized all the bank cared about was the extra money they could make off me while trying to settle. I hope the resources provided in this article will save you from paying thousands of dollars of extra interest and penalties while trying to catch up on payments. In our case, we had a business that got in trouble when a supplier went bankrupt. We tried for two years to save it - we borrowed money from relatives, we got small bank loans, and we wrote all our creditors to ask for temporary relief. My husband found a job to help cover our personal expenses and keep from going under while I continued to work at the business. It was the American Dream gone bad! We had no legal recourse against the supplier while the bankruptcy courts were sorting out their reorganization. What we did have was legal responsibility to maintain regulatory requirements and maintenance of THEIR equipment located on our property. After three years, their bankruptcy was still in the courts, our bank accounts were sucked dry, we borrowed all we could, and we were in trouble!

IF YOU WASTE YOUR TIME, THEY WILL WASTE YOUR MONEY

I began writing my home mortgage company 6 months prior to missing any payments. I explained the financial difficulties we were having and pleaded for reduced interest rates, interest-only payments, refinancing, an equity loan, or any option that would help us from losing our home until we could get back on our feet. After three months of no response, we decided to sell our house and rent to help get out from under all the expenses of home maintenance, insurance, and high utility bills. I wrote again explaining that we were selling our home and asked for help until we could sell.

Here are some obstacles we faced with the very large national bank that bought our mortgage note (they were not the original lender):

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Nobody responded to my phone calls, emails, or certified letters until we missed 3 mortgage payments - but they continued to add hundreds of dollars of interest and penalties each month.
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When they did call us - we asked where to send a partial payment that we had saved. We were told that it was against the bank policy to accept partial payments - but they continued to add penalties and extra interest on the unpaid balance.
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The loss mitigation representative wanted us to short sell our house - they would send an appraiser right over. She said this would stop foreclosure. Good for the bank - bad for us: if we short sold for less than we owed, we would owe the difference to the VA and I would lose any further VA home loan benefit for defaul

Others view it as a business transaction with this outcome being a risk the lender assumed volitionally and with great profit motive. A rational case can be made for either side of this argument, and in the end moral judgment devolves to the individual.

Ethics aside, many want to know the hard facts surrounding the benefits and ramifications of turning over the keys to your lender. The most obvious benefit is escape from an oppressive mortgage payment. If you were easily able to service the payment, then you wouldn't be considering this measure. Today, most likely a high payment arose from an adjustable rate. You could afford the initial payment, but now it is just too much. Unable to sell your house for anywhere near the current mortgage balance you feel stuck. Walking away it is often possible to rent a comparable property to the one you are leaving at a fraction of the cost.

The aversion to renting becomes much more palatable seeing your current ownership situation is not resulting in any equity either. If anything, it is the opposite if you are in a declining market. It can be very possible you are paying a mortgage each month while the amount of your equity plummets. Some markets may not see the valuations attained at the peak of the housing heyday again during our lifetimes. In this scenario, the equity which home ownership represents becomes illusory. Add to that the burden of rising local property taxes and the prospect of walking away can become even more alluring.

Even more appealing is the prospect of getting to keep your house and have the mortgage erased. This is a long shot, but it can happen. Many lenders are having difficulty satisfying the court's demand for full chain of title. This relates to the complex CMO arrangements in which many mortgages now reside. There is a story of a gentlemen in Florida with a very expensive house who has avoided foreclosure for over a year by just showing up in court and contesting chain of title. Again, morality aside, many of those in desperate straits today will employ
any option, if only to obtain months of free rent.

With the benefits being clear for getting a large monkey off your back, what are the ramifications? The first obvious one is credit. Mortgage defaults wreak havoc on your FICO score, and you must be prepared for the adverse credit consequences. One should assume a ten year horizon and sit down and calculate all credit needs during that timeframe.

How many cars will you own or lease? Buying another home could prove difficult, however coming out of your current situation it might be better to be a renter and fully recover before diving back into home ownership. Between vehicles, credit cards, and other potential sources of credit, how much additional will it cost you over the next ten years via higher interest rates? This mathematical calculation can be compared against your savings accrued by walking away to put in perspective the economic balance sheet.

One potential ramification to consider is what is termed a deficiency balance. Assume you have a mortgage balance of $300,000 and you walk away. Your lender forecloses on the property and only receives $200,000 net all the various costs. Theoretically, they could pursue you for the additional $100,000 they are out. Practically, this has not happened on a widespread basis. As indicated, many lenders are having trouble enough just obtaining judgment on the foreclosure itself. Obtaining a deficiency judgment is even more difficult. However, it is possible. Your exposure to a deficiency judgment varies by state.

If you are facing this decision, it might prove wise to get basic information about mortgage deficiency pursuit in your locality. Often, there are free legal resources through local law schools or community programs where

If you are one of those that earn cash on a daily basis, you should always set aside a portion of your cash to pay for your home amortization so that you can avoid foreclosure. For example, let's say your monthly amortization payment is around $500 dollars per month. Now divide that amount according to the numbers of days you work. If you work 20 days a month, this means you will need to put aside $25 per day. If you're married, you and your spouse can split up the daily saving quota, thus making it even easier.

In the event that you have an emergency, try not to use the money that you have set aside for the house amortization. Do your best to find other means of generating money to help you out of your emergency situation. This will take an extreme amount of discipline. But this is the only way that you can avoid foreclosure. The bottom line is, avoiding foreclosure requires a tremendous amount of discipline. The discipline to live below one's means it is a good starting point. Without discipline, one can find them on the street in very short order.