Can I Save My Home from Foreclosure?

CONTENTS

Are you having a hard time making your house payments?
I thought I would be able to afford my loan payments, but they turned out to be more than what I thought I had agreed to.
What if I can’t find a lawyer or HUD Approved Housing Counselor to help me?
How do I know who to call?
What should I do before I call?

Click here to get a printer-friendly .pdf pamphlet version.  If you need help, click here.

What can I do to help my lawyer or Housing Counselor help me?
What are my options when negotiating a deal?
What if I can’t seem to negotiate a plan?
What if my only option is to give up my home?
What are the tax consequences of the lender forgiving part of my debt?
Does it matter who currently owns my mortgage?
What if the owner or insurer of my mortgage is not one of these agencies?
What if I have already received a Notice of Default or have been sued in a court foreclosure action?
Will declaring bankruptcy help me?
If I am having difficulty with my payments, can I refinance into a more affordable loan?
What if someone offers to help me improve my credit and then refinance my home?
Shouldn’t I try to keep my home at all costs?

Are you having a hard time making your house payments?

Get help right away!

You may be tempted to wait and see. Maybe the problem will go away. Or you just can’t face it right now. So you do nothing. This is a mistake!

The sooner you get help with the problem, the better your chances of solving it. Contact one of these help agencies before you miss your first payment, or as early as possible:

Pine Tree Legal Assistance (contact your nearest office in Portland, Lewiston, Augusta, Bangor, Machias, or Presque Isle)

Volunteer Lawyer’s Project 1-800-442-4293

Legal Services for the Elderly 1-800-750-5353

Maine Network of Qualified Foreclosure Counseling Agencies

Or contact a lawyer who does Chapter 13 bankruptcy work. If you don’t know anyone, you can ask for a referral from the Maine Bar Association: 1-800-860-1460. This could work for you if you expect to have enough regular income to finish buying your home but need to adjust your payment plan.

I thought I would be able to afford my loan payments, but they turned out to be more than what I thought I had agreed to.

Predatory lenders are everywhere - including Maine. If you believe that you are in trouble with your mortgage because the lender, or your broker, took unfair advantage of you, get legal help right away. Contact one of the legal services programs listed above. This area of the law is complex, and you will need legal help.

To learn more about predatory lending - and how to avoid it - go to: Don't Borrow Trouble!

What if I can’t find a lawyer or Qualified Housing Counselor to help me?

Even if you cannot get immediate help from a lawyer or Qualified Foreclosure Counselor , you need to take action! The first thing to do is to contact your lender or loan servicer. Ideally, call them before you miss your first payment. Or call as early as you can.

If you do nothing, the lender will declare that you have defaulted on your loan. After this happens, it may be much harder to negotiate a deal or “workout” plan.

How do I know who to call?

It is hard to keep track of all the players. Almost all mortgages these days are sold to the “secondary market” or “investors.” The largest buyers on the secondary market are Fannie May and Freddie Mac (see below). Another company or bank may become your “loan servicer.” These are the people who collect your payments and “service” your loan. In some cases, your original lender may continue to service your loan, even though they no longer own your mortgage paper.

Contact your loan servicer first. Usually your call will be forwarded to the “collection department.” Insist on talking to the “loss mitigation” or “loan retention” department. Work your way to a manager. The challenge is finding someone with authority to help you.

Be strong! This is a complicated cast of characters. Even experienced advocates and lawyers often have trouble finding someone with authority to negotiate an affordable "workout plan." One seasoned housing counselor has said that sending homeowners off to negotiate on their own is like grabbing someone off the street and putting him in a ring with a professional boxer! So you will need to be persistent, well prepared, and strong.

What should I do before I call?

There are some important things to do before you call your loan servicer! Here is a To Do List. This list will help you get organized and will be very helpful, even if you are able to get a lawyer or housing counselor to work with you later on. It will also prepare you to send a packet to the loan servicer. A loan servicer will almost always ask you to provide them with your budget, monthly bills, proof of income, bank statements, and your "workout" proposal.

To Do List

Collect all of these documents and put them in a file where you can find them.

• Do a budget. A budget will help you figure out how much you can actually afford each month. It is important to be realistic. We have attached a monthly budget form.
• Collect all your monthly bills for the last three months.
• Collect your proof of income for the last 3 months, such a pay stubs, or an award letter from Social Security or the Veterans Administration. If you do not keep those things, try to get copies. Call your employer or the agency that sends you money each month.
• Get copies of your bank statements for the last 3 months.
• Write down the reasons you fell behind or can not afford the mortgage. Be prepared to explain the events that led up to your financial problems. Write down in advance what you can afford and what changes you need in the mortgage to make it affordable. Usually the loan servicer will want you to send them a “hardship letter” telling them 1) what you want, and 2) why you fell behind. View a Sample Hardship Letter. You may want to get help to prepare the hardship letter.

It is extremely important that any agreement you make with the loan servicer or bank is realistic and affordable. Do not fudge your numbers. If you cannot negotiate an affordable plan, you have other options to consider. We will review those options below.

What can I do to help my lawyer or Housing Counselor help me?

In addition to the steps in the "To Do List" above, you (or your legal advisor, if you can get one) will need to get a complete copy of your loan documents and loan history.

To Do List # 2

1. Get loan documents from the closing agent, the broker and the loan servicer.

Here are some ways to go about getting the documents you and your legal advisor will need. Keep copies of all your letters.

• Even if you have the documents you got when you signed for the loan, send a letter to the “closing agent” and ask for a complete copy of the loan documents. If you cannot remember who the closing agent was, try to remember where you signed your documents. That was probably the closing agent’s office. If you signed documents at your home, try to remember who came to your house. That person may be able to tell you the name of the “closing agent.” Keep these documents safely in their own file.
• If a mortgage broker was involved in your loan, send a letter to the mortgage broker and ask for a copy of their loan file including the appraisal.
  

  Attached is a Sample Letter you can use, asking the closing agent and mortgage broker for your files. Keep these documents safely in their own file.

Send a “Qualified Written Request” to the loan servicer and ask for a complete copy of your loan history. This can also include the request for all of your loan documents (see above). Get a Sample Qualified Written Request. If you dispute any charges to your loan account, or disagree with something the loan servicer did, this is a good time to ask them to fix it or to explain to you why they won’t.

You will need to send the Qualified Written Request to a different office than where you send your payments. Call the company you send your payments to and ask them where to send your Qualified Written Request.

The loan servicer has 20 days to acknowledge your Qualified Written Request and 60 days to take action or explain why they won’t. Keep a copy of your written request and any documents you receive safely in their own file. The place you send the qualified written request is different than where you send your payments. Call the company you send your payments to and ask them where to send your qualified written request.

2. Get your credit report.

Get a free copy of your credit report online, by phone or by mail.

This company cannot charge for your credit report, but they can charge for your credit score. The credit score usually costs about $15.00. Ask for your credit score if you can afford it.

3. Get a broker's opinion of your home's value.

Knowing the value of your home is helpful for several reasons. It may be important in trying to obtain a “workout.” Mortgage companies want to know whether your property will still be worth the value of the loan if they negotiate an agreement. It will also help you and your advocate discuss all your options.

To find a real estate broker, call a reputable company in your area. It may be best to call one of the large companies you have heard about. Do not make a commitment to sell your home through them. Simply tell them that you are interested in a market analysis or similar report of the value of your home so you can consider whether selling is something you might want to do. This is truthful because selling your home is an option to consider and one you may choose. In most cases, a broker will provide you with an estimated value of your property for free.

Gathering all of this information is a lot of work, but it will allow your lawyer or housing counselor to help you more quickly and give you better advice, or give you the tools you need to try to negotiate a workout on your own – which we recommend only as a last resort.

If you have little hope of getting enough income to finish buying your home, you may not be able to keep it.

Important Exception: If you think that you are a victim of predatory lending, get legal help right away.

On the other hand, if you are just having temporary money problems (such as a temporary lay-off, a natural disaster, a sudden illness or disability), or if certain changes to the loan terms might help save your home, here are some possible “workout” solutions.

Temporary Relief Situations

The loan manager may be able to offer these solutions.

• Temporary indulgence
  30-day grace period to allow you to repay all past-due payments at once (such as when you are expecting a lump sum)
• Repayment Plan
  You must make current payments and cure past-due payments over a certain period of time
• Forbearance
  You make a reduced payment, or none, for a specified period. Or you could skip a certain number of payments, or pay a reduced amount, then resume regular payments and make up the past-due payments over a period of time, such as 18 months (or sometimes longer with special approval). But you might have to make larger payments later on. Make sure you can afford a forbearance agreement before you agree to it.
• Waiver of late charges
  Loan servicer can waive or defer late charges in certain hardship cases.

Long Term, Serious Hardship Cases

• Loan modification
  You get a permanent change in the terms of the loan, such as a reduced interest rate, a fixed rate, a longer loan term, or adding in past-due payments to the loan amount. The servicer may charge a fee for this.
• Mortgage assumption
  You sell your home to a buyer who assumes your mortgage. The buyer must be able to qualify for the loan, and the home cannot be worth significantly less than the mortgage amount. Again, there may be a fee to the servicer.

If you are able to work out a deal, here are some additional tips:

• Get the agreement in writing.
• Make sure you understand the terms of the agreement.
• Notify the “escrow department,” to make sure that they know about the agreement.

Make sure you can afford the plan. If you negotiate a plan that is not affordable, it could be almost impossible to negotiate another workout plan.

Bankruptcy might be an option. If you have not been able to speak with a lawyer or housing counselor about your loan, you may want to consult with a bankruptcy lawyer. Most bankruptcy lawyers will give a free consult. Also, if you have been the victim of illegal predatory lending, the bankruptcy court can consider these issues in determining a fair resolution between you and the lender. Bankruptcy could be a good option, but it is not for everyone. Learn more about bankruptcy from our pamphlet: Bankruptcy: Is It the Right Choice for Me?

If you have decided that you cannot save your home and it is not too late, here are some other possible options:

• Put your home up for sale
  This may be a good choice if you have owned your home long enough to build up some financial equity. That is, you own a significant share of the current value. This may also be a good solution for the mortgage owner, if he believes that you will be able to sell for a good price in a reasonable amount of time.
• Do a “short sale” or Pre-Foreclosure Sale
  This may be a more realistic approach if you have little equity or the real estate market is depressed (as it is now). The lender agrees to accept the proceeds from the sale as a total settlement, even if the sale price does not cover the total amount you owe.
• Deed in lieu of foreclosure
  As with a “short sale” your lender is agreeing to take the deed to your home and cancel your debt.

In the past, if the lender forgave your debt, the IRS taxed you on the amount of money the lender "wrote off" in the deal. However, a recent federal law reverses this for some people. Now if your lender "writes off" some debt on your home (effective during 2007-2012), you may quality for special tax relief. This means that you will not have to pay federal tax on the forgiven debt.

But not everyone will benefit from this tax law. According to the IRS, the law applies only to "forgiven or cancelled debt used to buy, build, or substantially improve your principal residence...Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing."

In other words, if you took out a home equity loan and used the money to buy a car or pay bills and the home equity loan is forgiven, you will probably still owe tax on it. Or if you refinanced your home for more than the original balance and did not use the new money to improve your home, the extra amount would not qualify for the tax break.

However, if you were insolvent (your debts are more than your assets) at the time the debt was forgiven, you may get a similar tax benefit under another part of the tax code.

Tax rules can be complicated. If you have questions, contact our Low Income Taxpayer Clinic (942-8241) for more information.

Yes. Most mortgages are held by Fannie Mae or Freddie Mac. These two agencies have set “workout standards.” Their loan servicing agents should be following their guidelines and must work with you to try to avoid foreclosure. All the options listed above should be considered. Keep in mind that the loan servicer and the loan owner do not have to agree to any particular “workout" plan. However, they may want to strike a deal that will work well for everyone.

It can be difficult to figure out whether your loan is owned by Fannie Mae or Freddie Mac. But if you think that you should qualify for one of the options explained above to avoid a foreclosure, and the loan servicer will not agree, try contacting Fannie Mae or Freddie Mac directly.

Get list of Fannie Mae Regional Offices

Get more details about the Fannie Mae loan servicing guidelines

You can contact Freddie Mac directly at: 1-800-FREDDIE

Get more details about the Freddie Mac loan servicing guidelines (Click on "AllRegs" link.)

Whether talking to Fannie Mae or Freddie Mac, ask for someone in the loss mitigation department who can review your workout proposal and talk to you about your loan. If they own your loan, they may be able to help.

Warning: Negotiating with the servicer or loan manager does not always postpone a foreclosure. The owner of the loan can begin taking steps toward foreclosure even while you are still negotiating a workout plan.

Workouts for FHA-Insured Loans

If you are a low-income or first-time home owner, find out if your loan is insured by HUD’s Federal Housing Administration (FHA). Your loan documents will reference FHA insurance. If you don’t have your documents, ask your lender. As a last resort, try contacting the Maine HUD office: (207) 945-0467.

Owners of FHA-insured loans must consider these HUD-required options before foreclosing on your home. Some of these options are similar to the choices listed above.

• Special forbearance
  You are 3 or more months behind in payments but, with a temporary forbearance, you can catch up on the past-due payments through a future repayment plan.
• Streamline finance
  If you are no more than 2 months late with payments, this offers you a new loan with better terms; you must pay closing costs or an interest charge.
• Loan modification
  Similar to the above option; can include conversing an adjustable rate to a fixed rate loan; you may have to pay legal fees.
• Partial claim
  You are 4 to 12 months behind in payments and none of the above options work for you. HUD may grant you a “junior mortgage loan,” to cover the past-due amount which you can pay at a later time. You must have the long term ability to repay both loans.
• Pre-foreclosure sale
  An attempt to sell the house - along with an agreement that the proceeds will satisfy the mortgage debt - can delay foreclosure for up to 6 months. The home must be appraised for at least 63% of the amount owed and the sales proceeds going to HUD must be at least 82% of the appraisal. HUD must approve.
• Deed in lieu of foreclosure
  You transfer the title to HUD in exchange for a loan cancellation.

Loan servicers get incentive payments from HUD for successful workouts. But if you don’t think the servicer is dealing fairly, you can contact HUD at (888) 297-8685.

VA Guaranteed Loans 1-800-827-0336

As with FHA insured loans, where Veterans Affairs has guaranteed your loan, the VA provides servicing guidelines. (Proposed VA rules are pending and, if adopted, will cause some changes.)

To review these VA workout rules, go to VA Servicing Guide. (Follow link to "Servicing Guide"; also, "Servicer Loss Mitigation Program" covers "short sales" and "deeds in liew" procedures.)

USDA, Rural Housing Loans 1-800-414-1226

Your “workout” options vary, depending on whether you have a direct RHS loan or an RHS-guaranteed loan through a private lender. In both cases, the agency or lender must follow published guidelines. Depending on which type of loan you have, possible options include:

• Interest Credit and Payment Assistance
• Payment Moratorium
• Workout Agreement
• Protective Advance
• Special Forbearance
• Modification
• Pre-Foreclosure Sale
• Deed in Lieu of Foreclosure

Contact your lender, the RHS call center 1-800-414-1226, or your local RHS office.

Unless you know the owner of your mortgage, such as a local bank, you may be dealing with a sub-prime lender and servicer. Again, if you think that your lender or broker has taken unfair advantage of you, contact a legal service provider. Find out more about unfair and illegal lending practices: “Don’t Borrow Trouble!"

You or your lawyer may still be able to negotiate a workout plan. On one hand, your servicer may not have clear guidelines to follow; on the other hand, this may give him more flexibility. Be careful not to make an agreement that will put you further in debt but will not really help you to save your home in the long run.

It may be worthwhile to find out if your lender is under government investigation or is being sued for illegal practices. To find out, contact the Maine Office of Consumer Credit Regulation: 1-800-332-8529. Also, if you think that you have been a victim of an illegal predatory lending practice, you can file a complaint with this state office or with the Maine Attorney General’s office: 1-800-436-2131.

Even though you received foreclosure papers, you may still be able to save your home. Here is a final short to-do list:

1. Seek out legal assistance right away.
2. Read our information on Home Foreclosures in Maine.
3. Use our Documents Checklist to be sure you have what your lawyer will need.
4. Save your mortgage payments. It is very important that you save your mortgage payments if at all possible and put your payments in a separate bank account. If you can’t save the full amount, then save what you can afford. But save! Make sure you do not spend the money, and make the mortgage payment a priority. If you have income and have saved your mortgage payments, you will have a much better chance of saving your home, even when a foreclosure is already happening.

Maybe. Again, this depends on whether you may have enough income in the future to meet a revised payment agreement. This may be worked out through a Chapter 13 bankruptcy filing. Talk to a bankruptcy lawyer. If you don’t know of someone to contact, you can get a referral through the Maine Bar Association: 1-800-860-1460.

Maybe. Even if you are in foreclosure, it may be possible to refinance your mortgage. But don’t borrow more trouble! If you are considering refinancing, stop and think carefully about your options, including negotiating with your current mortgage servicer. Read our Don’t Borrow Trouble! page. Talk to a Qualified Foreclosure Counselor. Refinancing may not save your home; it may only put you in a worse financial position.

Although it is harder to refinance with private lenders now than it was in past months, you may qualify for a refinance through a federally backed program.

If you are a veteran, try contacting the Veterans Administration. Next, consider your local bank or credit union.

Here are two other federal agencies that may be able to help:

U.S. Housing and Urban Development (HUD): 1-800-CALL-FHA (1-800-225-5342)

You may have noticed that Congress has passed several new FHA-backed loan programs over the last two years. To date, all of these programs are voluntary; your lender or potential lender is not required to participate. The most recent law, effective October 2008, is the “Hope for Homeowners Act” (H4H). Very basically, here’s how it works:

• The new mortgage cannot be more than 90 percent of the new appraised value.
• The current first mortgage holder must accept the proceeds of the H4H loan as full settlement of all outstanding indebtedness. Existing subordinate lenders must release their outstanding mortgage liens.
• As of March 2008, your total monthly mortgage payments due were more than 31 percent of your gross monthly income.
• You must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.

We post the lastest news here.

U.S. Dept. of Agriculture, Rural Development Office
Offers refinances, from non-USDA loans, only in very limited circumstances: if you are in jeopardy of foreclosure due to circumstances beyond your control. Currently, this does not include adjustable rate increases. However, other circumstances – such as divorce or other unexpected events – could trigger eligibility.
Find your Maine regional office

NOTE: As with FHA, Rural Development may be relaxing its rules as the housing crisis continues. Check with them on current policies.

If you contact another loan company, just remember that if someone offers to refinance on terms that sound too good to be true, be careful! "Rescue scams" are everywhere; the worst ones will try to drain away your equity and leave you even worse off than you are now.

Again, beware of foreclosure rescue scams. If you are behind on your bills or your mortgage payments, or your home is in foreclosure, you are likely to get lots of phone calls, letters, or even people knocking on your door offering to save your home. Be careful! These people know you are vulnerable, and they are counting on your desire to save your home at all costs.

There are many foreclosure rescue scams out there. Before signing anything or accepting any offers, consult with a HUD Approved Housing Counselor (see attached list) or a qualified lawyer. These foreclosure rescue plans usually end with you losing your home to someone else.

Foreclosure rescue scams come in many variations. But here is one common pattern to look out for:

The foreclosure rescue will require you to sign over the home by giving a deed to your house with an agreement to lease the home back to you. Sometimes the agreement will be for six months, eight months or perhaps a year. You are usually allowed to buy it back, but for more than you owed on it before you signed over the home. Sometimes the monthly “rent” will be less than your mortgage but often it is more or will be increased soon after the deal is completed.

Sometimes the foreclosure rescue will involve paying off your mortgage; sometimes it does not. Often, you will have to buy back your house before the lease ends, sometimes in as little as six months. More often than not, you cannot afford buying back your home for more than you owed, and the home is lost. Often, despite promises to improve your credit, your credit will not improve in such a short time. Also, despite a promise to help you obtain refinancing, no such help is available. Typically, the rescue scammer then evicts you from your home and sells it. Any equity or value in the property is lost forever to the foreclosure rescue scammer. Get more information from our post: Foreclosure Rescue Scams: Just Say No!

No. As hard as that might be to hear, keeping your home may not be your best option.

Selling your home may be your best option. If you are not able to make a realistic workout plan, refinancing with a legitimate company is not possible, and you will not benefit from bankruptcy, the best remaining option is to sell the home at fair market value. Although selling may not feel like a solution at all, a sale at or near fair market value will allow you to pay off the mortgage and keep the equity in your home. Depending on how much you have paid in over time, that equity – the value of the home after you pay off the mortgage - could be in the thousands of dollars.

---

More information: Foreclosure Prevention Toolkit

Notice © Pine Tree Legal  Assistance October 2008 Sometimes the laws change. We cannot promise that this information is always up-to-date and correct.  If the date above is not this year, call us to see if there is an update. We provide this information as a public service.  It is not legal advice.  By sending you this information, we are not acting as your lawyer.  Always consult a lawyer, if you can, before taking legal action. Please review our full terms-of-use agreement

Help Us Help us make our site better. Fill out our questionnaire. It won't take long. Click here. Sorry, but we cannot respond to website requests for help. If you believe you have a legal problem we can help you with, call us.