Money and tips to avoid foreclosure

Feb 18, 2011

Nationwide and in Michigan the rate of foreclosures has slowed a bit in recent months.  But Realty Trac experts say that’s less a sign of a robust housing recovery and more a sign that lenders have become bogged down.  They’re reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing, the so-called robo-signing scandal.

Daren Bloomquist is with Realty Trac.  He says because of how the state law handles foreclosures, Michigan will be one of the first states to see foreclosure numbers increase.

“There’s a non-judicial foreclosure process where the foreclosure doesn’t go through the courts and doesn’t go before a judge and Michigan is a state that uses non-judicial.  We see those numbers rebounding quicker in those states.  In fact, some of the states we’ve seen--  we are seeing pretty big increases.”

Right now there are more than 109-thousand foreclosures in Michigan… and 79-thousand bank-owned properties still sitting around, not selling.  They’re pulling down surrounding property values and the entire real estate market.

Before the economy recovers, a lot more people are expected to run into problems with making their house payments.  

So what do you do?

Dennis Koons is the President and CEO of the Michigan Bankers Association.  He says there’s one classic mistake people in financial trouble make:  they wait too long before contacting their bank.

“What I would urge across the board to every homeowner, to every borrower is first of all talk to their lender.  When?  Immediately upon the first sign of stress.  Do not wait until you’ve missed a payment.  Do not wait until you’re woefully behind on payments.  The first time that there’s a financial strain in your family unit, give your bank a call.  Go in, sit down and talk to them.  Tell them what is troubling on the horizon and begin the conversations early.”

That’s easy to say when you’re not the one facing financial troubles.  People get scared.  They go into denial, thinking the problem will solve itself somehow.  They’re embarrassed.  They’re angry that they once paid extra on their loan and now they’re not sure how they’ll make the next payment.   Koons says he understands the frustrations, the fear, the anger.

“Please, push them aside.  Pick up the phone.  Call your bank.  Have the conversation.”

Koons says if you get in early, your bank can work with you.  And he says in most cases the bank will because the bank gets the least amount of money out of the deal if it has to foreclose, take possession and try to sell the house.

“The best situation is to keep the homeowner in their home, absolutely, hands-down the best solution, keep people in their homes.  That’s best for them.  That’s best for neighborhood.  That’s best for the community.  And that’s best for the bank.”

The next thing you can do  --again, as soon as you see financial problems heading your way--  is go to a housing counselor, one approved by the Michigan State Housing Development Authority.  The services of the housing counselor are free to a homeowner in trouble.  They can help you figure out your options.  And they can tell you about a new program that’s available.  It’s called the “Hardest Hit” program.  The federal government gave Michigan and some other states hit particularly hard by the economy money to help people avoid foreclosure.

Mary Townley is with the State Housing Development Authority.  She says if you’re unemployed, or on temporary layoff or have a medical emergency keeping you out of work or if you can no longer afford your mortgage payments because of reduced income, there’s a chance you can get some help on your mortgage.

“If that lender is one of our lenders that participates in the ‘Hardest Hit’ (program), we will provide a subsidy to your servicer every month to help you make your monthly house payment and we will do that for up to twelve months.”

If you’ve got a loan from a Michigan-based bank there’s a pretty good chance your bank is participating.  And if you got a loan from a big national bank based out of state, they could start participating as soon as mid-March.  That’s when a new online portal will be available to them.

Mary Townley says this temporary mortgage subsidy is not unlimited, but it is substantial.

 “There’s a cap, it’s a max of $750 a month or 50% of your monthly payment, the lesser of those two.  And the max term is twelve months.  Now, if you go back to work three months later, you call us, tell us.  We stop the subsidy.  We carry you for two more months so you can get back on your feet and then we’ll stop the program.”

Now, if you waited.  If you didn’t contact your bank or a housing counselor right away, there still might be some help for you.  First, go ahead and get ahold of one of those Michigan State Housing Development Authority approved housing counselors.  You can find listings on the agency’s website.  If you’re well into the foreclosure process, they might refer you to a free legal services attorney.

Lorray Brown is an attorney with the Michigan Poverty Law Program.  She’s one of those lawyers helping people avoid foreclosure.

She says a recent Michigan law gives homeowners a chance to save their home.

“…before the lender, any lender can advertise a sheriff’s sale and begin the foreclosure process they would need to provide the homeowner an opportunity to participate in a pre-foreclosure negotiation process which includes sending the homeowner a letter, saying ‘You’re in default. You have 14 days to contact us and a housing counselor to begin this negotiation process so we can sit down to see what other loss mitigation options are provided, loan modification and work something out to avoid foreclosure.’”

Brown says there’s one problem with the law.  It requires the bank to send an agent to sit down with the homeowner.  You might think, logically, that agent would be a loan officer to work out a loan modification.  Nope.  Banks often send the attorney who does foreclosure sales for the bank.

“And in most cases they don’t have the authority to modify the loans.  So those meetings are very frustrating.  They come to the meeting and they take information back and they say, ‘Well, we have to talk to our clients about it.’”

So the homeowner walks away, still not knowing for several weeks whether he/she will be able to work out an arrangement with the bank.

Brown says aside from that frustrating part of the law, it’s been a good law to help keep people in their homes.  But, if the Michigan legislature does not renew it, it ends July of this year.

There’s one final piece of advice nearly everyone mentioned when I talked to them about avoiding foreclosures.  Don’t get scammed.

John Sellek is with the Michigan Attorney General’s office.  He says they get thousands of calls about foreclosures and the office tries to refer them to the proper people.  But…

“One area where we focus a lot of attention on in this process are people who see a TV ad or they get a phone call or they see something in a newspaper where a company promises to rescue your house if you’re in foreclosure.  And the bottom line advice is something your grandma may have already told you, you know, if it sounds too good to be true, it probably is.  And in Michigan it is illegal for a company to ask you to pay an upfront fee and then say I’ll promise you the service later.  And that’s what we find is happening when these companies are scamming.  And we’ve actually charged over 30 companies in Michigan for doing just that.”

Sellek says contact those housing conselors approved by the Michigan State Housing Development Authority.  They can provide the same service for free.