How to Fight Foreclosure

May 29, 2009

Finance

So, you are facing foreclosure, and are worried and scared and don?t know what to do? Well, you are not alone. Millions of people nationwide have been foreclosed on or will be soon. There?s been all kinds of blame and finger-pointing (see my Who?s to Blame post for further info on that), but that’s not what this article is about. Something happened, and you got behind on your mortgage (and surely a lot of other things), and now you?re in a pickle.

What is foreclosure?

You Can Push Back on Foreclosures...Despite What You're Told

You Can Push Back on Foreclosures...Despite What You're Told

Foreclosure, or FC for short, is when a bank or lender takes steps to take your house away because you have not made the payments. You took out a loan, and for whatever reason fell behind on your payments, and the bank is trying to cut their losses by taking the house and selling it. It?s perfectly legal, and although it may appear that they are your nemesis, they aren?t necessarily the bad guys. I?m not taking the banks? side or defending them, I?m just telling you that they are in business to make money, like any business. Some time ago, you signed a promissory note saying you would send them a check every month, and for whatever reason, you couldn?t hold up your end of the bargain. I?m not here to judge; it happens to a lot of people, but if you don?t make your payments, they get to take your house. Maybe it?s not really your fault, and there were circumstances out of your control, but that?s just the way it is.

What is the Foreclosure Process?

I want to start off by saying don?t panic too soon. Some people think that if they are 15 or 30 days late on a payment, the hammer is going to get dropped on them, but this just isn?t so. Banks don?t want to foreclose on a house. Almost all of the time, they are going to lose money on a foreclosure. They would much rather get your monthly check and go about their business. Banks don?t want to take your house; they have to take it because they aren?t getting the money that was promised to them.

Typically, the foreclosure process doesn?t get started until the homeowner is 120 or 150 days past due. So, if you become 30 days past due, but keep sending in one payment every month, that is called a ?rolling 30?, and you honestly aren?t in any risk of foreclosure at that point, despite what the schmuck from the collections department is telling you. I have heard of times when a homeowner is 60 days down, and they offer up one month payment, but the lender refuses it. If you are 30 days down, they may take only one payment, but once you become 60 days delinquent, the answer is ?No, you cannot give us one payment, you now owe us two, and it?s two or nothing.? This one has always mystified me; it just doesn?t make sense. So, the moral is, if you can prevent becoming 60 days late by hook or crook, do it. I don?t want to throw out bank names for fear of getting sued for libel or slander, but some of the big names are guilty of this.

Try to See Trouble Coming Before It’s Too Late

If you had some unexpected expenses, and it looks like you might not be able to make a payment, but you are still working, and you aren?t late yet, and your credit is still OK, you can possibly refinance. There are programs out there for people who have current loans with Fannie Mae, Freddie Mac, or FHA that allow people to refinance with little or no equity. You do need to have a job, though. If it?s the end of May, and you don?t think you are going to be able to make you June payment, call to do a refinance NOW. Even if you can only lower your rate and payment just a little bit, you can likely skip one or two mortgage payments, maybe get an escrow refund, and have a new, lower payment. It may be just enough of a shot in the arm to keep out of trouble.

How Can I Fight Foreclosure?

So, 120 days passes. You get a knock on the door from the sheriff, or maybe a bonded messenger because there are too many being served for the sheriff?s department to handle. This can be a scary moment and very intimidating. ?Are you Joe Homeowner?? he asks. ?Umm, yes I am,? you reply. He hands you the envelope with court papers and your heart sinks. Maybe you want to cry. This would be one of the times that it is OK for a grown man to cry. After you are done sulking, inevitably you will say, ?What now?? That?s what I want to help with.

Sometimes the papers will have a court date already assigned. Most of the time, it will give you 30 days to file a response with the court. And then if a response hasn?t been filed (it will cost over $100 to file, by the way), the plaintiff (bank and their attorneys) will file for a default judgment of foreclosure because of a failure to respond, which you will get a copy of, along with the date and time of the court hearing. GO TO YOUR COURT HEARING. On your first time through, the judge will almost always grant another 28 or 30 days continuance to respond, but usually only once.

So what kind of ?responses? can you file? Well, I want to start off by saying that I am not an attorney, but I know what I know because I talk to a lot of people, and kind of know the ropes. Two of the most common, and most effective, are alleging RESPA violations, and requesting that the servicer, ?produce the note,? which I will get into shortly. There are many things that can count as RESPA (Real Estate Settlement Procedure Act) violations, many of them small technicalities, but enough to help your case. I can tell you from experience that most loan officers aren?t terribly detail orientated. This means there can be small mistakes on your paperwork you can use to your advantage. The documents you?d likely want to focus on are the Truth-in-Lending disclosure, the Good Faith Estimate, the Servicing Disclosure, and the HUD-1 Settlement Statement. If you are going to try this route, it may be wise to get an attorney, as they will know what mistakes are ?fatal blows? and which ones aren?t. These mistakes are more common than you might expect.

If you do nothing, a default judgment of foreclosure will be entered. With the judgment comes a 90 day ?redemption period?, meaning that you get 3 months to get caught up, should you win the lottery, get a big bonus, or maybe an inheritance. Assuming you haven?t gotten any windfall, after the 90 days is up, they can set a sale date for your house to be sold. They must give you a minimum of 60 days notice prior to the sale date. After the sale you have a minimum of 30 days after to get out, or risk being thrown out, which you really, really don?t want to happen. If the sheriff knocks on your door with an eviction order, you have about 15 minutes to get your bare essentials, and they change the locks, and put your stuff in storage, which you can pick up later. This is a very ugly scene you want to avoid. So, from the time you get papers, you should have a minimum of 7 or 8 months to get out (30 days to file a response, 30 days continuance, 90 days redemption, 60 days for sale, and 30 to eviction), and like I mentioned earlier, you don?t get papers until you are 4 or 5 months down, so you are probably looking at a year or more from the time you made your last payment until you have to get out. Another sad fact is that after foreclosure, many houses sit vacant for a year or more. There was even one non-profit agency advocating the evicted break back in and take back their house because it ?s better for the neighborhood to have an occupied house than a vacant house. Not that I?m recommending anybody do anything illegal, but if you resume residence, and can prove it (with utility bills and such), they have to go back through the whole eviction process again, even though the house isn?t yours anymore.

Produce the Note Defense

The other defense I like is the ?produce the note? strategy. As you probably know, your mortgage note can, and probably has, be sold one or more times. A common scenario is you close with mortgage company XYZ. Within the first month, they sell the servicing (who takes your checks) to mortgage company ABC. ABC might sell it again to mortgage company DEF. Now, theoretically, all the paperwork gets moved with the sale or transfer. But, in reality, many times it does not. And, even if it does get transferred, it may be lost, or may be stashed in a warehouse with tens of thousands of others, and very difficult to locate. There are a few steps to this process. First you have to mail a legal request to the lender and their attorney to ?produce the note,? and file this request with the county. After that you wait 30 days and file a ?motion to compel? asking the judge to order the bank to come up with the original promissory note. They then have 30 days to produce it. If this is done before the judgment of foreclosure, it may not make it to foreclosure. There was a story on TV about a lady who was basically living free for 2 years because the lender couldn?t come up with the note, and about a judge who threw out many foreclosures because of this. They have to prove you owe them the money. If you do this after the judgment has been entered, and the note is not produced, you may have to file an appeal, or a motion to vacate the judgment, or a motion for a stay on the sale and eviction. If the judge grants a stay until they can produce the note, you are still technically ?in foreclosure,? but your house won?t get sold, and you won?t be evicted. It?s sort of ?in limbo,? but it beats getting kicked out. And, if they do produce the note, you go back to the 60 days notice before sale, and another 30 to vacate, so it?s not like they can just come up and throw you out with no warning. There is a great site that details how to mount this defense, and has template forms you can fill in.  Again, you can probably do most of this on your own, but it?s not a bad idea to hire some legal help.

Loan Modification Can Help

One other option may be loan modification. This is where a lender agrees to modify the original loan terms to allow for you to stay in the home under new terms. These can be hard to get, and I have heard stories where a servicer has agreed to a modification over the phone, the homeowner has signed the papers and sent them in, but their house has gone into foreclosure or continues through the process in the meantime. The right hand may not know what the left hand is doing, so don?t put all of your proverbial eggs in the ?loan modification? basket, because the lender likely isn?t. You can try to make a loan mod go through, but don?t ignore the above advice either. It?s also noteworthy that above defensesw (produce the note and RESPA violations) can be used as leverage to force the bank into a modification.

Ownership Defense

Another option is called term ownership. It?s something between renting and owning, and relies on an obscure aspect of the law known as conditional ownership. A good description of the system can be found at www.termownership.com. Stephen Weeks is the attorney that developed this defense. I?ve corresponded with him a bit, and his a good guy, and very knowledgeable. He can be contacted at Weeks@WeeksLaird.com

Final Option: Bankruptcy

One last option is bankruptcy. There are two kinds of bankruptcy, or BK. One is a Chapter 13. This is where the court mandates a repayment plan over the course of 3 or 5 years, and all of your debt is included. You must prove the ability to repay for the court to approve a Chapter 13. And if you fail to make the required payments, the bankruptcy can be dismissed, and the foreclosure is back on. Most BK attorneys will give a free consultation to those interested in filing. Chapter 7 is where all of your ?unsecured? debt (credit cards, etc-not mortgages or car loans) is wiped out. You must be current on your mortgage if you plan on keeping your house, and there are very tight income requirements now (as opposed to a few years ago) for filing Chapter 7.

As you can see, there are several ways to help you fight foreclosure. I hope I?ve given you a better understanding of the process of foreclosure, and maybe some hope for those of you in trouble now. I also want to ask any of you who are behind on your mortgage or facing FC to take a hard, honest look at your situation. For many people, if you lost your job and have been out of work for several months, or had some sort of medical problem where you couldn?t work, but now are back on track, fighting to save your home may be a good idea. For some, if you are just in over your head, you have to ?know when to fold ?em?. Don?t let your emotional attachment to your house cloud your logic. Sure, you love your house. It?s your home. You have memories built there. But if you are making much less now than you were previously, or maybe just bit off more than you could chew, you might want to consider the steps here as a stall, so you can save up as much as possible so that when it comes time to move, you have money for a security deposit and all the other costs associated with moving, and be in a better position when it?s ?go time.? Yes, uprooting your life and you family to move to a new (and probably much smaller) place is no fun, but having to move with no money saved up and no plan in place is even worse.

I sincerely wish the best for anybody reading this. I know we are living in trying times right now.

We would like to thank redjar for sharing today’s photo via the Creative Commons License.

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About Brad Walbrun

Brad Walbrun grew up in northeastern Wisconsin, moving to Chicagoland over a decade ago, and never to return, although he remains an avid Packer fan. He is married, with 3 children, living in Schaumburg. Brad's passions are fitness, MMA, and mortgages. He has been in the mortgage industry since before the refi boom, for almost 10 years now. You can reach Brad at (847) 975-4440 or bradwalbrun@hotmail.com.

View all posts by Brad Walbrun

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