FORECLOSURE HAVOC - Tips on Surviving the Storm if Your Lender Won’t Work With You

Leon Bayer
December 9, 2008 — 1,462 views  
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Tsunomi warning: For every ten houses on your block, one of them may soon be empty. More than 9% of all homeowners are now in foreclosure or late on their house payments.

If you are behind on payments, you may be able to save your home if you are back to a position where you can resume regular payments, even if you don't have all the money needed to catch up. If you simply can't afford your payments, be prepared to lose your house. There are no programs to help you stay in a home you can't afford. Stop waiting for Santa Claus and make plans to move on.

Foreclosure counselors may offer you suggestions. They usually tell you to take stock of your finances, make a budget, and then approach your lender for a loan modification.

Modification of a loan relies on the voluntary willingness of your lender, but good will has been in short supply. These programs don't work if lenders won't play along, which must be why foreclosure rates are still soaring. By all means contact your lender, but be prepared for frustration and rejection.

Repossession of a home requires a foreclosure. Foreclosure is a legal process and is regulated under the law. Most lenders don't start the process until a borrower is behind by at least 2 payments, often more.  Once the process starts, your lender will use aggressive legal methods to sweep you away as fast as legally permissible. In California the time period is usually just shy of 4 months, from start to bitter finish.

Foreclosure takes several steps. Most of the foreclosures in California are commenced by recording a legal document called a Notice of Default. It is sent to the owner by registered mail, and it warns of a foreclosure sale if the default is not completely cured within 3 months of the notice date. After that 3 month period has lapsed, the next stage brings publication of a Notice of Trustee's Sale. This notice is mailed to the owner, recorded, and a copy is usually attached to your front door. It tells you when the actual foreclosure auction of your home will take place. How do you stand up to the legal juggernaut of foreclosure if you don't have all the money to catch up?

The Notice of Default actually provides you with a vital clue. Unfortunately, the advice often gets lost in all the other verbiage on the form. Some people who could have saved their homes never even knew it was there.

California law requires every Notice of Default to state, "If you have any questions you should contact a lawyer..."  You may actually have the best chance of saving your home if you follow that advice and see a lawyer immediately.

If you have overcome a temporary loss of income, the chances will be good that a type of bankruptcy called Chapter 13 can actually help save your home. Under Chapter 13, the Federal Bankruptcy Court makes a restraining order to stay the foreclosure. Your lender is automatically bound to obey it. You must resume paying your normal monthly payments, and pay a little extra every month to cure the default in payments that you can spread out for as long as 5 years.

In some cases Chapter 13 might even allow a person to remove a 2nd mortgage where the value of the property has dropped so low that the house is now worth less than what is owed on the 1st mortgage. Other debts, like credit cards, may be reduced and sometimes even eliminated. An experienced bankruptcy attorney can explain all the details and tell you what to expect. Most bankruptcy lawyers won't charge you anything for an initial consultation.

If you can't afford your home, beware of scam artists with lease back deals and promises to take over your payments. They come knocking on your door at all hours, armed with knowledge gained from those silly Get Rich Now infomercials and dreams of buying property using no credit and no money down.

If you do move out and rent a house, be careful who you rent from. Many landlords may soon lose a house they just got rented, because they are in foreclosure too. Finally, if you must walk away from a home, first talk to a good CPA for some tax advice. In some cases you might owe an income taxes resulting from your lender's loss following a foreclosure sale. Also, talk to a lawyer for advice to see if you can just walk away from the house without owing any money on the loans; if not, ask the lawyer if filing Chapter 7 bankruptcy makes sense for you to eliminate the remaining debt.

Leon Bayer


A practicing attorney since 1979, Mr. Bayer is a founding partner in the law firm of Bayer, Wishman & Leotta (1989) and is a Certified Specialist, Consumer & Small Business Bankruptcy Law, by the State Bar of California Board of Legal Specialization. He has served as President, 1995-1996 of the Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988; Law Advisory Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000.