How to Handle Foreclosure
Frieda and Joe Saunders were sure everything was going to turn out all right.
They had come so far--buying their first home in Baldwin Hills, having their first child.
But after the baby came and Frieda quit her job, it seemed like the mail was always full of bills. They were using their credit card to pay for essentials.
When it looked like they were going to have trouble making their mortgage payment, they applied to a loan company for a second mortgage.
Certain they would get the loan, they didn’t worry about not making their house payment, thinking that the money would come through for them soon.
But when the loan was denied, they were thrown into confusion. Soon they received a notice of default, the first legal step in the process of foreclosure on their home.
The Saunderses, like many others in their situation, didn’t know where to turn for help.
This is a story about what you can do if you are facing foreclosure.
According to the Los Angeles County recorder’s office, the number of people in danger of default and foreclosure has been declining, but it still is substantial.
The downward trend in foreclosures has several causes, according to a number of lenders, lawyers and real estate agents.
Homes in California have appreciated tremendously and interest rates have dropped, so alternative financing is more readily available, and there are plenty of speculators eager to buy distressed properties. But with an uncertain economy and the soft housing market, this trend could change.
Many homeowners who get in trouble with their mortgages have a common reaction to their situation--shame and denial, experts say. (The names of those facing foreclosure who were interviewed for this article have been changed by request.)
Sometimes they get notifications in the mail that they don’t even open. They may get scared and panic and wait until the last minute to look for help, losing a lot of advantages they had when time was not against them.
Frieda and Joe Saunders were lucky. The loan company that denied their application suggested that they contact the nonprofit Consumer Credit Counselors at (213) 386-7601, which provides free financial counseling.
“Consumer Credit looked at all of our bills,” Frieda Saunders explained. “We had so many different accounts and everything was way behind. They looked at our income and helped us decide what we needed to live on and what we could afford to pay.
“Then we made one payment to them each month and they divided it up among our creditors, along with a letter explaining our situation. It took us six months’ working to catch up, but we made it. And we learned a lot. . . .”
Consumer Credit is affiliated with the National Foundation for Consumer Credit in Silver Springs, Md., which was founded in 1951. The Los Angeles chapter, with nine offices in the area, was opened in 1966. About 800 people come for counseling each month.
The nonprofit organization receives finances from local businesses, HUD-certified grants and foundations. Executive Director Gary Stroth explained how the agency works:
“We sit down with the clients and figure out their monthly living expenses, mortgage, food, laundry, etc.,” Stroth said.
“We look at their bills and try to see what they can afford to live on and still pay off their debts. Since we have a good relationship with the credit community, we can often work out a package both parties will benefit by.
“The standard fee for us to act as a trustee is 6% of the amount disbursed, or up to $20 a month. This service is free to people with FHA mortgages and Section 8 renters.”
There are other services offering help to those facing foreclosure. In the San Fernando Valley, you can call Better Valley Services at (818) 988-5059; in South-Central Los Angeles, Community Care and Development Services at (213) 234-1937, and Westminster Neighborhood Assn. Inc. at (213) 564-6781.
Consumer credit counselors often are recommended by lenders concerned about mortgages in default. Banks do not like to foreclose on homes, said Matthew E. Graham, vice president of loan services for California Federal.
“We much prefer the customer to work with us,” Graham said. “The typical customer reaction is embarrassment, but we encourage our customers to contact us as soon as possible.
“Our business committee will review individual cases based on documentation substantiating tenuating circumstances. There can be moratoriums on late charges, modifications of original terms of the loan. Late payments and delinquent property taxes can be added to the principal and amortized.
“For example, when some of our customers in Whittier experienced problems after the earthquake, we worked with them so they could keep their records clean by placing moratoriums on their late charges.”
Through counseling or independent research, people in financial difficulties can find various ways of avoiding foreclosure--by refinancing, getting an additional mortgage, selling the property or declaring bankruptcy.
When applying for an additional mortgage, acting quickly is critical because of the fees that start accruing once the foreclosure process begins. Getting good terms on an additional mortgage is a lot easier if you apply for it before mortgage payments are late or have been skipped.
Many investment firms are able to get as much 19% interest for second mortgages because homeowners have waited until just before their foreclosure sale to apply for a loan.
And remember, taking on another loan doesn’t work magic. It still means a redirecting of budget.
Sometimes homeowners don’t realize how serious their financial problems are and have to take very severe measure, such as declaring bankruptcy, to remedy their situation.
Once bankruptcy has been declared, all foreclosure proceedings are halted by the bankruptcy judge. An appeal may be made to the court to allow the property to be refinanced or sold, even listed with a real estate agent calling for full market value, if grounds can be shown that the lenders will not be hurt by waiting.
Bankruptcy does stay on your credit rating for nine years, so it is a last-resort solution. Again, if financial problems arise, it pays to see a counselor before the problem is unmanageable.
Some homeowners may decide that selling their house is the best way to resolve their money problems. This is especially true when there is very little equity in the property.
If contacted in time, a real estate agent can help assure the homeowner of getting as close to full market value, based on comparative houses in the area, taking the liens on the house into consideration.
There are also individuals who approach homeowners in default by mail or telephone, offering to help.
“As soon as I got my notice of default, I got four or five letters a week and phone calls from people who said they’d let me get out from under my problems,” said Bill, a construction worker who lived in Huntington Beach. He had bad credit, was heavily in debt and had little equity in his house.
“Finally, I got so desperate that I picked a guy that looked sincere and sat down with him and worked it out. He paid off my mortgages, the state income tax, brought the payments up to date and gave me $2,500 to walk away with.
“He fixed up the house, and three or four months later, turned around and sold it. I know he made a profit, but I didn’t see any way else I could have handled the situation.
“The good thing was that I didn’t end up with a judgment on my record from a foreclosure sale.”
Bill made his decision under great pressure and on instinct rather than information. He may not have had any other choice, given his situation. But it’s crucial to get ahead of such problems. The sooner a homeowner recognizes that he or she is facing foreclosure and seeks help, the better.
RESOURCES Consumer Credit Counselors (213) 386-7601) regionwide; in the San Fernando Valley, Better Valley Services at (818) 988-5059; in South-Central Los Angeles, Community Care and Development Services at (213) 234-1937, and Westminster Neighborhood Assn. Inc. at (213) 564-6781.
