Fight Foreclosure!: How to Cope with a Mortgage You Can't Pay, Negotiate with Your Bank, and Save Your Home
Author: David Petrovich
ISBN: 9780470267646
Publisher: Wiley, John & Sons, Incorporated

Sample Chapter

Chapter One

Don't Ignore the Warning Signs: How to Get past Denial, Deal with the Stress and Embarrassment, and Take Action to Save Your Home and Family

In most households, one person handles the finances, which includes paying bills and balancing the checkbook. If you handle the budget, for example, you know if your household's take-home pay simply isn't keeping up with the bills. A quick review of monthly statements will indicate an increase in credit card purchases for ordinary expenses. Are you charging groceries, doctor visits, or utility bills? Have you made a property tax or car insurance payment by credit card? That anxious feeling you have, that knot in your stomach, that dull pain just slightly above and behind your left ear, are warning signs. That's when you need to examine your spending habits and work toward getting a handle on your finances by preparing or revising your budget. Then, live within the budget.

Unfortunately, early warning signs of financial trouble are easy to overlook if you want to. Denial is a typical human response. However, here's a message you need to hear (and it's the most important idea in this chapter): How your creditors respond to your financial problems depends largely on how quickly you acknowledge your problem, and then accept responsibility by taking appropriate action.

Once your lender or lenders suspect or recognize the problem, you'll begin corresponding with them until the problem is resolved. If you try to deny or hide, the communication will be one way-from them to you. You'll begin to receive late or missed payment notices, followed by collection calls ... and then certified or hand-delivered notices, termination of service orders, preliminary foreclosure warnings, formal mortgage foreclosure, foreclosure sale, and, ultimately, if the foreclosure problem isn't resolved, an eviction order.

The tone of the communication from your lender will often be ugly. They may make it extremely difficult to get in touch with them. They may return payments you send in. Most mortgage companies don't even pretend to be interested in your problems. They don't care that you're out of work, they don't care that your job interview next Tuesday has been canceled, and they don't care that there is a serious illness in your family. All they care about is getting their money. They employ professional collectors trained in the art of wheedling blood from stones, and making you feel rotten in the process.

But if you want to save your home or avoid foreclosure, the communication must be two way. You will need to contact your lender-even when they make it hard to reach them-fill out lots of paperwork documenting your financial situation, and work with them to find the best resolution to your problems. If you start working with your lenders soon after you get behind in payments, you have a much better chance at saving your home or at least avoiding foreclosure and saving your credit. If you wait to see a resolution with your lender until you're far behind in payments, you will probably lose your home.

Two detailed case studies of homeowners in trouble follow. One lost his home, the other saved it. As you read the stories, ask yourself what lessons are applicable to your situation.

CASE STUDY: HOW DENIAL COST DAN AND BETH THEIR HOME

One of my early cases involved a man who, not unlike Phil from the case in the Introduction, kept his wife in the dark about their severe financial trouble. When Dan graduated from college with a degree in education, he was hired as an English teacher and an assistant baseball coach. He had never known unemployment and had always paid his bills on time. As his earnings increased, so did his responsibilities-and his bills. Dan met his future bride, Beth, who worked in the athletic office as an administrative assistant.

They lived comfortably with their two school-aged children in their recently renovated home. Ten years earlier, before they became parents, they had purchased the perfect starter home. Eventually they hired a contractor to increase the footprint of their home by enlarging the kitchen and adding two second-story bedrooms and a bathroom onto their charming Cape Cod style home at a cost of $35,000, which was financed with a home equity loan. The renovations resulted in an extra 800 square feet of taxable, air-conditioned living space. They needed to furnish the two new bedrooms, so they financed the purchase of two bedroom sets and two new computers.

In addition to the new monthly loan payment, the insurance premium went up, and the home was reassessed for tax purposes. I don't know where you live, but whenever I hear "reassessment," I see higher taxes, and that's what happened to Dan and Beth.

Dan's job as a public school teacher is interrupted each June by a three-month summer vacation, forcing Dan and others like him to seek temporary, seasonal employment. When school let out in June for the summer, Dan took a temporary job with a financial services company as a commissioned salesman, while Beth continued working for the school. As expected, Dan earned no commissions in June or July, but by mid-August, he had closed a couple of sales.

"You're doing well, Dan," his manager told him after he had closed another sale, "So well, in fact, I see a future for you here. I'd like you to go through our company's management-in-training program and, eventually, manage this office. It might be lean for a while during your training, but then the company gives you a manager's base pay, plus commissions and an override. Inside a year you should be clearing a hundred thousand. How does that sound to you?"

Dan was excited about the prospect of a six-figure income. He told his boss he would have to think it over and discuss it with his wife. He knew Beth would object, but he reasoned his family would have to get by on her salary for about two months. At first, Beth was surprised, and then worried.

"I thought you loved teaching," Beth gasped, and then became lost in thought. "I hope you know what you are doing, Dan. Do you have to quit your job? Can't you just do this part-time? Tell them you can't just quit your job and take a six-week training course. Tell them you can, but not until next summer."

But Dan was adamant things would work out and assured Beth he was right. He took the new job based more on hopes and dreams than on fact.

By the next afternoon, Dan had resigned his tenured position as a teacher. His new career as a financial consultant began when he bought himself a new business wardrobe and leased a new car. Since he was no longer employed as a teacher, he lost benefits not provided by his new employer. Dan's pretax training salary barely covered Beth's enrollment in a health plan offered to school employees and their family.

When Dan completed the six-week management training program, he reported for work expecting to be an assistant manager with a base salary that would have been fixed at about half of his previous salary as a teacher. Unfortunately, he wasn't named assistant manager, and the promised salary was on hold during a probation period ... so Dan had to rely on commissions, and he found these slow to materialize.

But after several months on the new job, his income and routine interrupted, he found himself having to decide which of the bills to pay and which bills to set aside instead of paying them as they came in. He found himself making minimum, allowable monthly payments, or no payment at all.

To compensate for the reduction in income while expenses were rising, he first began making withdrawals from the college fund, promising to replenish the account when his earnings increased. "This is an emergency," he reasoned. Before long, he had depleted their savings to support a relatively modest lifestyle. Beth had no idea what was going on.

Beth's workday ended at 5:00 p.m., but Dan was able to care for his children when they came from school. Each day, before Beth came home from work, Dan read the daily mail that often included late notices, and once there was a service shut-off notice. The telephone answering machine messages often included collection calls urging Dan to take some action.

Dan had recognized, but then dismissed, the early warning signs we may all have received from our creditors at one time or another when something was wrong with an account. First came letters advising of late or missed payments, then the telephone calls. More often than not, however, the creditor is telling us what we already know.

One afternoon, Dan answered a call from the mortgage company.

"Hello, this is Ms. Roberts, and I'm looking over your account. Our records show we haven't received your scheduled payment for last month, this month's payment is way overdue, and on Friday your payment for next month will be due," the voice said.

"No kidding? Really? Thanks," he thought to himself. But the call took him by surprise. He knew he hadn't made the payments, but had hoped he would be able to from his last commission check that, as it turned out, was far less than he had hoped it would be, and certainly not enough to bring his loan current.

"Oh, yeah. I'll have a check out to you today," he said, thinking he would hold off paying the auto insurance premium and the huge electric bill for another week or two. He knew Beth would be getting paid on Friday, too.

Undaunted, Ms. Roberts helpfully suggested, "You can make your payment by telephone, right now. Would you like to pay by check over the phone? It will only take a few minutes."

Knowing full well he didn't have the funds to make this payment as promised, he declined her offer, saying instead, "I'll make sure it goes out today."

"I'll note on the account that you'll be sending out a check today. Can you tell me the check number you'll be sending? Will you be overnighting the payment? Do you need the address for overnight delivery?" she asked methodically, as if she had repeated these same questions hundreds of times in her job as a customer service (bill collector) representative.

"I'm not sure which checking account I'll use," he stated truthfully.

"If I don't get that payment by Friday, Dan, you'll have left me no choice but to send your account to our legal department. After Friday, your loan will be in default. You can avoid default and foreclosure by making your payment by Friday."

But Dan did not make the payment that day as promised, and struggled to send his payment three weeks later. The late payment was declined by the lender, and Dan's check was returned, uncashed, with the first of several letters saying it could not accept a partial payment, and urged Dan and Beth to contact their lender to make payment arrangements to avoid foreclosure. The amount due was for the three missed payments, plus late fees, and some additional fees. Dan knew he didn't have the money to make the lump-sum payment. He called the lender, who advised him that his account was overdue, and he must send in the total amount due. Dan explained he could not, so the lender agreed to send him a workout application that he and Beth would have to complete and return.

Dan couldn't bring himself to admit his job wasn't going as well as he had hoped, and chose not to confide in his wife, nor to tell her that they were having serious financial problems.

Beth knew nothing about the workout application, the preliminary collection notices, or that formal foreclosure proceedings had begun. She was unaware a Sheriff 's Sale would soon take place. She was unaware her life was about to change, forever.

While shopping at a local department store, Beth's credit card was declined. Convinced it was an error, and at Beth's insistence, the clerk called the credit card servicer, who spoke to Beth while she was still in line at the register. Beth was dumbfounded. Then, to her continued embarrassment, the clerk returned her credit card, but not before he used scissors to slice the card into two unusable halves.

She confronted Dan that afternoon, and he confirmed problems with the credit card accounts. But she wouldn't learn the worst news of all until they were both seated in my office.

I vividly recall meeting with them. They were both seated, uncomfortably, in my office, under the harsh, perhaps inappropriate incandescent work lights, and declined to accept my offer of freshly brewed coffee. "No, thanks. The kids are home alone, and we've got to get back."

"Okay then, what did you bring for me?" I asked Dan, eyeing the bulky folder he held firmly in his grip. "Well," he began, placing the folder on the conference table, and looking nervously at Beth for her reactions, "We seem to have a little problem with our mortgage company. It stopped accepting our payments, and Beth thinks we need someone to explain what we can do."

"Okay, how about if you take a few moments to complete this application while I look over these documents?" I said as I handed them each an application form that asked for basic financial and employment information. Later, as I looked over their applications, I noted that Beth's response to the question, "What is the cause for your financial hardship?" was simply, I don't know.

She seemed startled and then perplexed by all the official-looking letters, bearing her name, that she had never seen. She wheeled around in her seat, and then glared at Dan, visibly growing upset.

"What does all this mean?" she asked me.

"Don't worry. We'll get this fixed," Dan assured the increasingly agitated Beth.

I didn't have to read all the letters to know what had happened. I methodically, but delicately, explained to them the procession of letters, notices, summons, and court orders resulting in the last letter, which was an eviction notice.

Mustering up all the compassion I could, wanting to diffuse a potentially violent reaction, I said, "It appears to me your home has been sold at Sheriff 's Sale, and the new owners want you to move."

"But we still have time to keep it, right? I mean, if they accepted our payments we wouldn't be in this mess."

Dan stated, "Honey, they wouldn't take the payments. What could I do?"

Beth looked dazed by the news, and then began to sob uncontrollably. I felt absolutely helpless.

CASE STUDY: HOW BOB FOUGHT FOR HIS HOME AND WON

After a year of heavy borrowing on plastic for necessary home improvements, Bob consolidated a handful of those high-balance credit cards by refinancing his mortgage loan. Because he had a few late pays, his credit hadn't been perfect, so the interest rate and monthly payments on the new, supreme mortgage loan were a bit higher than he had hoped. Still, at least temporarily, Bob was saving about $150 every month.

Three months later, Bob's regular hours at work were cut back, but he considered himself lucky because most of his department was laid off. His regular paycheck after that was less, and because the bills stayed the same, it was impossible to pay everything on time. He had to choose which bills to pay and which ones to delay or not pay at all. He was hoping that work would pick up and he would be able to get back to working more hours, but at quitting time one day, Bob was called into the personnel office and told that he needed to pack his things and leave for good. A painful, major setback!

Five months after being let go, Bob still wasn't able to find a new job commensurate with his experience or previous salary. The unemployment benefits barely covered food and utilities. He learned about COBRA. His wife took a part-time job outside the home so that the kids could keep up with their after-school activities. He was discouraged, but kept on looking for work every day.

(Continues...)