Foreclosures are suddenly a hot news topic. A permanently stalled recession has combined with higher mortgage payments and lower job opportunities to create the perfect foreclosure storm.
So how does the average homeowner avoid becoming another statistic?
Everyone interviewed for this article agreed on two indisputable facts: Financial institutions don’t really want to take back a house, and the earlier a homeowner seeks help, the better off they will be.
The type of help, however, will vary, based on each individual’s situation. “It’s not quite cut and dried,” explains Mary Burks, a certified Credit Counselor with Consumer Credit Counseling Service of the East Bay. “It depends on why the homeowner is falling behind.” Burks tries to help clarify why the financial trouble exists, and if feasible, help them cut back.
“People aren’t always willing to cut back on cell phones, on cable, eating out. I have to explain to them that this isn’t for the rest of your life, but for now. I also ask them, Ã?Â¯Ã?Â¿Ã?Â½Are you really willing to give up your house for your cable television?’ That usually wakes them up.”
Other situations, such as a job loss or health issue, are a bit more complex. Whatever the situation, however, Burks says contacting the lender is crucial. “The first thing they should do is contact the mortgage company and let them know what has happened. Early communication is the key. The lender has to overcome their shame and embarrassment.” Burks says, often, “They’ll wait until it’s almost too late — when they’re getting a Notice of Default — rather than asking for help as soon as they first fall behind in their mortgage payments.”
That exhortation is echoed by Christine Richey, Vice President of Lending at UNCLE Credit Union, which has branches throughout the Tri-Valley area and beyond. “We encourage them to meet with us. We like to sit down with them and go over what’s coming and what is going out. We find out why they are struggling. Maybe somebody lost their job. Maybe they ran up credit card debt.”
Richey says that often, homeowners have not been taught how to manage their money well. “I have a sign in my office that reads, Ã?Â¯Ã?Â¿Ã?Â½Credit is a habit. Make it a good one.’ The reality is, you form your credit and spending habits early, often without a whole lot of guidance. People don’t try to get into trouble. It just happens because, often, they don’t know how to handle it.”
Richey notes that, while the earlier a homeowner faces their situation the better, she urges those falling behind to come in and discuss their situation. “There are things that can be done. And, people are ashamed or embarrassed. Particularly going to a financial institution, it can be a little intimidating. But they should not be intimidated. If they are, they should come to us,” she says, adding that UNCLE strives for a personal yet professional approach that can really make a difference, particularly in this type of situation.
Getting to the problem early is something Wells Fargo stresses, too, says Tom Johnson, the Director of Default Services for Wells Fargo Home Mortgage. “The key is that, the earlier in the process, the easier it is, because there are fewer legal fees and they owe less money. Our philosophy is to try and keep them in the home.” Johnson notes that, “As time goes on, the options become limited. The earlier a homeowner comes to us, the easier it is to sculpt a plan around their particular situation.”
So what do you do if your institution is not as friendly? Real estate attorney Bob Gates of Erskine & Tulley advises that it, “Depends on the lender and the servicer of the loan. For the most part, though, financial institutions don’t want to take back the house. It’s bad PR, and it’s expensive.”
Gates sits down with clients in this situation and, “goes over the loan documents. At the same time, the client has to be very realistic about their financial situation. If we can develop a plan where the client keeps the house, we’ll do it — whatever it takes. If the client cannot keep the house — for example, if they have lost their income and just can’t keep up with the payments — then we will work to sell the property so they preserve the equity in their home.”
Even so, Gates urges clients to “try a direct approach with the lender first, before involving an attorney or a CPA. That way, you get two bites at the apple, so to speak — two chances to work things out.”