MSU Extension Foreclosure Education & Counseling

(relaxing music) - [Narrator] Welcome to the "Options To Keep Your House" video presented by Michigan State University Extension. There are three foreclosure alternatives which are to keep the house, sell the house, or allow the foreclosure to proceed. Your decision on which option is best in your situation should be based on good information. If you decide to keep the house, this video will explain the steps to take. Additional videos in this series discuss determining your financial situation, the options to sell or allow the foreclosure to happen, and the foreclosure timeline in Michigan. It's important to gather information about your current status. What phone calls and letters have you received from the mortgage company? What are they saying? How many months are you behind in payments? And how much do you owe? Do you know if foreclosure has started? Have you received a letter from a Michigan-based attorney office stating that they have been hired by your mortgage company to begin the foreclosure process? For details, listen to the video in this series called, "The Foreclosure Process in Michigan." Or if you are in another state, find out how foreclosure happens where you live. Also ask yourself what is your hardship and have you recovered or not? Foreclosure can cost your lender up to $50,000. Can you save your lender this expense? Legal fees are added to what you owe once foreclosure has started. If a sheriff sale is scheduled, you can try to get it postponed to allow time for a workout package to be reviewed by your lender. This means sending your lender a set of documents about your situation, what you want to do. In the video in this series called, "Determining Your Financial Situation," we go through the details of what is included in a workout package. A few definitions may be helpful since some folks may be confused about what happened to your loan after you signed the papers that you're closing resettlement. The lender is the entity that loaned you the money for the loan. This could've been a bank, credit union, mortgage company, et cetera. Most lenders do not keep the mortgage they originate. They bundle them with other similar mortgages, which are sold to a mortgage holder or investor. The investor actually owns the mortgage and is owed the debt. The mortgage servicer is a business hired by the investor to collect payments and disburse funds, like for taxes and insurance and to keep records for the mortgage holder or investor. To get started, there are many details to know to find out about your mortgage. If you do not know some of the answers, we recommend you start writing a list to ask your lender when you place the call. Their phone number is on your monthly mortgage statement. The first is if you have a fixed interest rate where the payment always stays the same for the principal and interest. Or do you have an adjustable rate mortgage or ARM, where the interest rate changes periodically? Secondly, how long is the term or the number of years to pay back the loan? Third, what is the interest rate? This is on your monthly mortgage statement. The fourth question is who is the investor of your mortgage? That is who owns or holds the loan? For more information, go to Fannie Mae, www.knowyouroptions.com to see if it's a Fannie Mae loan or a Freddie Mac, www.freddiemac.com loan lookup to see if it is owned by Freddie Mac. Another important question is are you upside down? In other words, you have no equity in your home and owe more than the house value? Find out how much is owed on the mortgage. Is there a second mortgage or home equity loan? Sometimes these amounts are on your monthly mortgage statements. Also check on what the house is worth based on what it could sell for today's value market, not what you owe or paid for it. Ask yourself if the reason for your delinquency is temporary or permanent? If you're unemployed, what are your chances you will be employed soon? If it is a medical reason, do you have a temporary condition? Will you be able to resume work? If not, are you expecting a lump sum, such as for back disability payments or a settlement claim? Based on your information gathering, what decisions can you make? What did you learn from the budget process? Is the home affordable for you to keep and sustain the payments? Remember, to do the debt to income ratio calculations based on the guidelines of 34% of gross income for housing, including the mortgage, property taxes, home owner insurance, plus 11% of gross income for other debt, watch the video in this series, "Determine Your Financial Situation," for more information on preparing, ask yourself what is realistic. Watch the video in this series on "Determine Your Financial Situation" for more information on preparing your budget and workout package. Ask yourself, what is realistic? Next, we will discuss the options the mortgage company might offer you to keep your house. A reverse mortgage is an option for people 62 years of age and older. This is a way to use the equity in the home to live on with payments not due until you move or pass away. Reverse mortgages are a very expensive choice, and you must know your finances or get knowledgeable advice to determine if this is a good choice. For more information, go to hud.gov and search reverse mortgages. Another possibility is to refinance with another lender. Most lenders require that the property cannot have greater than 5% negative equity, meaning you owe less on your home than the current market value, that your payments be current and have no late payments for the past 12 months. You need a good credit score to refinance, and lenders have been tightening the requirements lately. It's important to comparison shop with several lenders to ask about interest rates, the length of the loan and closing costs. Apply with reputable lenders and do not assume that only high interest rates are available. You should not refinance if you will roll unsecured debt from other loans into your new mortgage. You're putting your house on the line. You have been solicited by a phone or mail. Do your homework and initiate a contact with a mortgage lenders you want to talk to. You must give up partial ownership of your property in exchange for a new mortgage on the rest of the property, this may be a scam. Next, we will discuss the various ways a mortgage company can help, if the borrower has the funds. The first way is with partial reinstatement or repayment plan. The borrower and mortgage company agree on a written repayment plan, including outstanding fees and expenses. The borrower makes the first payment of the written plan. The repayment plan allows the borrower a fixed time, usually 12 months to pay the normal monthly payment plus an additional amount. This method works best if you have had temporary financial difficulties, and are now able to maintain financial stability and have enough money to pay the extra amount owed each month. Do not agree to an unrealistic plan. Forbearance is another way a mortgage company can help. Forbearance is an agreement to reduce or stop house payments for a defined period. The mortgage must be made current at the end of the forbearance period. A short-term forbearance is three to six months, and a long-term forbearance is four to 12 months. This option is good for borrowers who are waiting for a lump sum payment, or will return to work. Do not agree to an unrealistic plan. If you default on a workout package agreement, your lender will not be as likely to work with you in the future. A third way a mortgage company can help is through a loan modification. this is a written agreement that permanently changes one or more terms of the original mortgage note. It may reduce the interest rate, extend the maturity date, or number of years over which you pay back the money borrowed. A third way a mortgage company can help is through a loan, a third way a mortgage company can help is through a loan modification. This is a written agreement that permanently changes one or more terms of the original mortgage note. It may reduce the interest rate, extend the maturity date, or number of years over which you pay back the money borrowed, change the mortgage type such as an from ARM to fixed. A loan modification loan is recapitalized, meaning the past due amounts and fees are rolled into the amount owed. The result is a reduced monthly payment. A fourth way a mortgage company can help is through a partial claim. The lender loans money to get the monthly payments up to date if they are behind four to 12 months. The lender receives reimbursement from HUD, which puts an interest-free lien on the property. The lien must be paid when the property is sold or you refinance. FHA also does this. In summary, working with a mortgage company means gather information on your budget, proof of income, recent bank statements, hardship letter, and other details pertinent to your situation. You can start gathering all this paperwork to be prepared. Assess what answers you need from the mortgage company and make a list of your questions. Prepare to call the mortgage company. The mortgage has several departments. The first person you speak to likely works in customer service. His/her job is to transform you to the appropriate department. Ask to speak to the loss mitigation department. Loss mitigation employees are paid to prevent foreclosure. Mortgage companies now assign one person to work on your file after it is opened, so you always speak to the same person. Do not talk to the collection department. These employees are paid only to collect the money. During the call with the loss mitigation representative, verify any information you do not know. Ask for a workout package for a loan modification. The workout package is necessary to begin the process that could prevent foreclosure. Following the process is important. When you receive the workout package, promptly complete all forms and keep a copy for yourself. Most servicers will not consider a hardship request, unless all of the documents are received in their office. Send the paperwork by certified mail or fax. Make partial payments if you're allowed to do so. Keep from following further behind, if possible. If you are not allowed to make partial payments, save the money for possible loan modification payments. Do not spend unpaid mortgage payments. Stay focused on your priority to keep the house. Be proactive and keep making phone calls. Call the mortgage company two to four days after faxing or mailing the package to confirm they received the paperwork. Do not assume they have it. Call once a week to make sure a single point of contact is assigned to your file. This shows you're serious and desire to work with them. Then call once a week and ask two simple questions. First, do you have any updates on my loan modification review? And second, is any more paperwork needed? Do not assume that if you did not hear from them, that progress is made to review your file. In this situation, it is okay to be a squeaky wheel within reason. Keep good records of all phone calls with the mortgage company. Buy a notebook to organize your records. Write down the date, time, name, worker identification number, phone number you called, and a brief summary of the decision. Keep good records of all phone calls with your mortgage company. Buy a notebook to organize your records. Write down the date, time, name, worker identification number, phone number you called, and a brief summary of the discussion. While you are waiting for a reply to your workout plan request, the mortgage company will pull a current credit report. They look at information before you started missing payments. One missed payment can reduce your score by 120 points. The waiting time for a reply could be 60 to 90 days or longer. Continue to call and check regularly about the status of your request. The collection department may continue calls to collect the debt. These phone calls may not stop. Do not lose heart, keep calling loss mitigation for updates. Again, it is good to show interest in keeping your home. In summary, the mortgage company might offer a short-term solution, including your repayment plan, or reinstatement. Long-term solutions are forbearance, partial claim, and loan modification. You will receive a written agreement stating the payment amount, terms, and conditions to review, sign, and return to your lender. Don't drop the ball. When you respond to the mortgage company, think through your situation. Be realistic. You've prepared a budget, you know how much you can handle and pay. If you cannot pay the amount of the offer, do not agree. Make a counteroffer with a reasonable alternative. Once you agree, keep your end of the agreement. The mortgage company will probably not offer another workout plan if you cannot keep the agreement. Often people postpone getting legal help until it is too late. Others walk away from the homes in frustration, leaving themselves without equity and vulnerable to deficiency claims. Most lawyers will provide a free or low-cost 30-minute consultation. Go prepared with a copy of your mortgage document, your home budget, and a hardship letter. It is up to you and the attorney to negotiate a fee for the service. Legal aid assistance may also be available. A warning is not to use an attorney that contacts you through published foreclosure lists. Avoid foreclosure scams. You have several more legal options. If the foreclosure actions or notices are done incorrectly, the attorney may need to start the process over, gaining the homeowner more time. Find a copy of your loan documents or request a copy from your lender, review for errors. If you have substantial hardship or a large amount of equity in the property, you may request special judicial consideration. Bankruptcy has been known to stop collection activity and a foreclosure, allowing a homeowner to bring the mortgage current. In recent times, the bankruptcy court has been known to lift the automatic stay protection a bankruptcy allows to allow the foreclosure to proceed. Only a qualified bankruptcy attorney can provide you with a bankruptcy counseling. Seek the advice of an attorney. Quick action is necessary. Foreclosure can happen in four months and a sheriff's sale can happen in five months. For more information on the timeline, listen to the "Foreclosure Process in Michigan" video in this series. Do not wait. The sooner you act, usually the more options you have. Call the mortgage company as soon as the budget and hardship letter are complete. Open all your mail, be proactive. Your lender will mail you a workout package. Fill out the workout form promptly, keep a copy for your records, and send the form back by fax or certified mail. Include your hardship letter. When your lender asks for additional documents, send them promptly. Keep communicating with your lender for best results. If making a call to the servers creates anxiety for the homeowner. If making a call to the servicer creates anxiety for the homeowner, it is important to contact a U.S. Department of Housing and Urban Development certified counseling agency and ask for help or visit the HUD Counseling website to find a local housing counseling agency. A housing counseling session will create an action plan. An action plan is a strategy for resolving the crisis based on goals of the homeowner. For more information and additional resources, visit the Mi Money Health website, at mimoneyhealth.org. You can also find a certified local housing counselor to talk to about your situation at Possible Assistance. (relaxing music)