Wednesday, October 8, 2008

Guide to Avoiding Foreclosure

No doubt about it, these are stressful times for Americans. Financial experts estimate that millions of homeowners could find themselves in danger of foreclosure during the next year.
The Comptroller of the Currency, in a consumer advisory, advises homeowners to “avoid companies who charge fees for their services. Foreclosures are increasing nationwide, and so are scams that promise to “rescue” homeowners from foreclosure. What these scams do is take your money, ruin your credit record, and wipe out any equity you have in your home.”

Foreclosure con artists take advantage of people who have fallen behind on their mortgages and face foreclosure. Con artists know that people in these situations are vulnerable and likely to be desperate. Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. After reading such notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They advertise their services on Web sites or publications. They often refer to themselves with titles that sound official, such as “foreclosure consultant” or “mortgage consultant,” and market themselves as a “foreclosure service” or “foreclosure rescue agency.” Avoid them!
Additional information can be found here:

If you need financial advice, seek the counsel of a reputable attorney who is knowledgeable about foreclosure and bankruptcy laws in your state. If you can’t afford an attorney, contact a HUD approved counseling agency at the HUD link listed below.

Second, borrowers who can not make their payments need to contact their lender right away. I have included a list of resources below to help you communicate effectively with your lender.

Third, there are a handful of reputable programs, (granted, not enough) to assist homeowners with the refinancing of their homes.

Here are links to resources that may be useful for citizens who are considering purchasing a home; or, find themselves in need of professional assistance to prevent foreclosure, due to unemployment or a family medical crisis.

Where to find help

For individuals and families who require assistance, the U.S. Department of Urban Development maintains a list of Housing Counselors for all 50 states. Counselors provide advice on buying a home, renting, defaults, foreclosures, credit issues, and reverse mortgages. The link can be found here:

The Federal Housing Administration (FHA) suggests that homeowners:

1. Contact your lender as soon as you have a problem
Many people avoid calling lenders about money troubles because we:
Feel embarrassed discussing money problems with others.
Believe that if lenders know we are in trouble, they will automatically rush to a collection agency or foreclosure (seize property for failure to pay a mortgage debt).

But lenders want to help borrowers keep their homes because:
Foreclosure is expensive for lenders, mortgage insurers and investors.
HUD and private mortgage insurance companies and investors like Freddie Mac and Fannie Mae require lenders to work aggressively to help borrowers facing money problems.
Lenders have workout options (choices) to help you and:
These options work best when your loan is only one or two payments behind.
The farther behind you are on your payments, the fewer options are available.

Don't assume that your problems will quickly correct themselves:
Don't lose valuable time being overly optimistic.
Contact your mortgage lender to discuss your circumstances as soon as you realize that you're unable to make your payments.

Look forward to your lender being willing to explore many possible solutions, without guaranteeing any one particular solution.

Refinancing Options:

The FHA offers a loan product called FHA Secure. Borrowers must meet certain lending criteria in order to qualify for the program. Here are some of the eligibility requirements.

Eligibility for FHA Secure (FAQ)

How far behind can you be on a mortgage to qualify? What about more than 90 days?

There isn't a limit on how far behind you can be on your mortgage or how many payments you've missed. Whether you're current, one month behind or multiple payments behind, the amount you can refinance will depend on the value of your property and how much you owe and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and your home's value.

Must I be delinquent, and for a certain period of time, in order to be eligible for FHA Secure?
No, and FHA encourages homeowners facing reset to refinance before they fall behind on their mortgage.

I have a fixed rate mortgage and have fallen on bad times. What about me?

Homeowners facing financial difficulties and unable to make their mortgage payments are strongly encouraged to contact their lender. Many lenders offer assistance to their borrowers to help them bring their mortgage current. Homeowners may also want to contact a HUD-approved housing counseling agency to find out about programs that may be able to assist them, especially if communication with the lender has broken down. To find a HUD-approved housing counseling agency, please call 1-800-569-4287 or search online.,1827972&_dad=portal&_schema=PORTAL

I have an interest-only mortgage. Am I eligible for FHA Secure?

So long as you are current on your mortgage, you are eligible for an FHA Secure refinance. If you are delinquent, the default must have been due to the payment shock of an interest rate reset or, in the case of an Option ARM, the "recasting" of the mortgage to fully amortizing.

Are there any programs for people already in foreclosure?

It is possible that FHA Secure may help homeowners already in foreclosure but each situation is unique and depends upon the value of your home and how much you owe, and if the lender is willing to offer a second mortgage. Homeowners facing foreclosure are strongly encouraged to talk with their lenders, possibly with the assistance of a HUD-approved housing counseling agency, to determine the best course of action. To find a HUD-approved housing counseling agency, please call 1-800-569-4287 or search online.

Other Available Federal Programs for Qualified borrowers:

The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD's Federal Housing Administration (FHA). The program begins October 1, 2008 and ends September 30, 2011.

Borrower Eligibility
Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:

The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.

Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.

They are not able to pay their existing mortgage without help.

As of March 2008, their total monthly mortgage payments due were more than 31 percent of their gross monthly income.

They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).

The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Additional information can be found at the link below.

Tax Consequences of Foreclosure:

The Internal Revenue Service has provided the following information for individuals and couples who lose a home through foreclosure:

WASHINGTON — The Internal Revenue Service unveiled a special new section today on for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes.

The new section of includes a variety of information, including a worksheet designed to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. For those taxpayers who find they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS. In some cases, eligible taxpayers may qualify to settle their tax debt for less than the full amount due using an offer-in-compromise.

The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure.

Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

The IRS cautions that under the law, relief may be limited or unavailable in some situations where, for example, part or all of a home was ever used for business or rented out.

For more information please visit the IRS website at:,,id=174022,00.html

Who to call if a lender will not work with you:

Information by State:

What to do if you are about to become homeless:

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