March 2007 Topic "Refinancing and other ways to Avoid Foreclosure"

01.  Foreclosure 101
02.  Options to Avoid Foreclosure
03.  Bankruptcy
04.  Home Equity Line of Credit, refinancing your home, and other options

Foreclosure 101

There are two different types of foreclosure that occur. The first type is strict foreclosure. Strict foreclosure is when a judge sets a "law day" for each person listed as a defendant in the foreclosure. Once this "law day" expires you will lose all rights to the property. Before that "law day" you have the right to try to avoid foreclosure. In this newsletter I will discuss in detail ways to try to avoid this process. If you can do that then the foreclosure will be dismissed.

The second type of foreclosure is Foreclosure by Sale. This type of foreclosure is when a judge sets a sale date. The home will be auctioned that day to the highest bidder. The money from that auction is divided between the fees incurred while setting up for the auction and liens against the property. If there is any money left over it will go to the homeowner. To avoid this you must pay any fees and debts that you owe. The alternatives discussed throughout this newsletter are in no way legal advice. If you are going through a foreclosure please contact an attorney to discuss your specific situation.

All foreclosures start the same way. The plaintiff, who is the bank, mortgage company or creditor, will serve the defendant, which is the homeowner who is being sued, a Summons and Complaint. It is imperative that the defendant pay attention to all dates because if a deadline is missed it can mean trouble for the defendant.

On the Summons and Complaint there is a date in the right hand corner, which is referred to as the return date. The return date is a very important date. This date is a reference point to when papers are due. The complaint which is attached to the Summons will state who is suing the defendant and why.

Assuming that the defendant wants to stop the foreclosure process, an appearance form will need to be filed. This form can be obtained at the Superior Court clerk's office or online at the state's judicial web site. An Appearance form is basically a form stating that the defendant is aware of what is going on and then would like to be informed of everything that is going on in the case in the future.

It is not mandatory that this is filed, however if it is not filed the proceedings cannot be stopped. This paper needs to be filed with in 2 days after receiving the Summons and Complaint. In any case if the deadline is missed always contact the court clerk right away.

Once the foreclosure is contested the defendant is given 15 days to respond with an answer. There are exceptions to this 15 day rule if you are unemployed or underemployed, which means that you are employed, but are not clearing enough monthly to make bills. It is required at this point to file an answer. This answer is a response to what is being charged. This is a chance to argue anything that is not a fact.

For instance, the plaintiff may be claiming that mortgage was not paid in full for 5 months when in fact it wasn't paid for 2 months. It is recommended that anything that is not agreed with fully be disputed. If there are parts that are not understood it is best that the respondent explain that it is not fully understood and not agree or disagree with the allegation. With in the answer any defenses can be used and explained.

Finally, the defendant must be sure to sign the answer. It is the defendant's sole responsibility to be sure it is filed at the Court Clerk's Office and that everyone involved in the case is given one. After this step is where all cases take different turns. The court will then look at your specific decision and decide what is best. Contacting legal help is very much recommended in these cases. Each case is different and judges consider all facts when deciding on foreclosure. I will now discuss ways to avoid foreclosure.

Options to Avoid Foreclosure

If you are behind on mortgage payments, but have not being served yet with foreclosure papers below are some steps to take.


• Review your financial situation. Try to find out how much you will be able to pay toward your bills if any.
  
  
• Contact the lender and speak with a customer service representative. Be sure to be honest and discuss your financial problems and obligations. Be polite and disclose all information possible.
  
  
• Find out if there are any programs that they offer to reduce your payments until you can get back on your feet. If there are not ask if they can set up a payment plan that is suitable for both of you.
  
  
• Keep in mind anything that they agree to be not a permanent fix. They will expect you to get the loan out of default as soon as possible or sell the home.
  
  
• Look into resolving the situation on your own. This can be doing by increasing your income, or selling the home yourself.
  
  
• Most importantly keep the lender informed at all times. They do not want to have to chase you for a payment. Even if they are not willing to work with you or if you have not kept up with their compromise let them know. Things happen and the lenders are aware of that but they will be less likely to start proceedings if you are letting them know each month your situation.
  
  
• Do not ignore lender's phone calls and letters. Contact them by phone but also by writing so you have proof.
  
  
• Find out about reinstatement if possible for you. Reinstatement is when you are behind on payments, but can promise a lump sum payment to make all bills current. A date this will happen is usually required.
  
  
• Forbearance is also an option that is used. It is when you delay payments for a short period of time considering that you can prove that another option will be used to pay. This is usually used with reinstatement.
  
  
• Repayment plan is an option if you have fallen behind but are now able to continue making payments. The lender will add the past due amount to your mortgage payments each month until you are current.
  
  If you have missed a lot of mortgage payments, and the lender has served you or is threatening to serve a Summons and Complaint below are some options.
• Mortgage Modification: This is when you can pay your payments now but cannot afford to catch up on past due payments. This may include refinancing your mortgage and lowering monthly payments. By extending the duration of your loan it will lower your payments, which may make it possible to catch up on missed payments.
  
  
• Selling your home by owner: Often times a lender will hold off on foreclosure if you agree to sell the home yourself. This will benefit you because you will not have a foreclosure on your credit. It will also mean more money in your pocket at the end. You will be entitled to all equity in the home after the debt is paid off to the lender.
  
  
• Deed in lieu of foreclosure: This is when the lender agrees to give back your property and forgives the debt. Doing this affects your credit in a negative way but is not as bad as foreclosure.
  
  
• The bank may make it possible for you to qualify for different kinds of loans like a FHA loan or a VA loan. An FHA loan is a onetime payment from an insurance fund. There are many guidelines required to qualify for this type of loan. For instance you must be between 4 to 12 months past due and prove that you will now be able to pay mortgage payments. The other 2 guidelines are as follows:
  
  
• 1. You must sign a promissory note to put a lien on your property
• 2. The interest free loan must be paid back after you sell your home.


To find out if you qualify for a VA loan you must contact 8008271000.


• Look at all your whole financial picture. Odds are that if your mortgage payments are falling behind so are other debts. Think about taking control of your financial situation through a credit counseling organization like United Financial.

Bankruptcy

Bankruptcy is definitely an option that many people use to stop foreclosure on their homes. You must consider your specific situation to see if it is the best option for you. Consult a lawyer and be sure to explore all possible outlets before turning to bankruptcy. The effects of filing bankruptcy are long lasting.

There are different types of Bankruptcy that can be filed. The first type is Chapter 7, which is also referred to as liquidation. Liquidation means that you liquidate or sell all assets with the exception of exempt property like a home and car. This type can be filed once every 6 years. The second type of bankruptcy is Chapter 13, which is also known as reorganization. This type allows you to keep a mortgaged home and other property that you may otherwise lose.

You set up a payment plan in the courts to repay your debt with in a specified amount of time. Benefits of bankruptcy include resolving or eliminating your debt, halting foreclosures of homes or a repossession of a car, and finally ending the phone calls and letter from debt collectors and wage garnishment. On the flip side bankruptcy cannot stop all debt.

It usually cannot stop secured debt. In other words it will not stop a mortgage company from collecting money but it will make it so that they must work out a suitable payment plan. It will not stop any debt that has been incurred in the past 180 days, child support, alimony, court fees and other fees that the lawyer will inform you of.

You will be able to keep all exempt property after bankruptcy. The downfall to bankruptcy is that it will destroy your credit for at least 7 years. It may make it difficult to obtain credit at good interest rates. It will also be public record, which means that anyone, including an employer, can see that you filed for bankruptcy.

Home Equity Line of Credit, refinancing your home, and other options

This is an option to only a small portion of people who are faced with foreclosure. The first step to refinancing is to decide if it is worth it. As a homeowner your mortgage should be no more than 40% of your gross income. It is pointless to refinance if you will not be able to afford the mortgage payments again down the road.

Refinancing in simple terms is when you change the way you have been paying for your property. For example if you had a 15year fixed payment previously and you want to change to a 40 year fixed payment you must refinance. Refinancing can be costly. You will usually have to pay closing costs and any other fees that the bank or lender charges. The upside to refinancing is that it can lower your monthly payments by a lot. Just remember to look at it from all angles and see if the fees and closing costs are worth the lower payment.

Another option is taking out a second mortgage or HELOC (home equity line of credit). To find out if this is possible you will need to figure out the equity of the home. Equity is basically how much the home is worth verse how much you bought it for. For instance if you purchased the home for $300,000 and it will sell now for $350,000 you have $50,000 equity. Depending on how much debt you have and how much equity is the only way to see if this will work for you. If the equity is higher than your debt this may be a good option assuming that you will be able to pay both mortgages. HELOC interest rates are generally low therefore it is more cost effective to obtain a HELOC verse a loan from a bank. Remember though if you default on both loans again you will be looking at foreclosure.

To sum it up, there are many other investments that can be tapped into to avoid foreclosure. Some people have an IRA or 401K that can be borrowed against. The benefit to doing this is that even though it must be paid back the interest is to you. Other times people borrows against stocks, bonds and other investments. Please be cautious when doing this because these are investments that are being made in your future and that is very important. Always weigh your options. Decide what is best for your situation and analyze all aspects.

I will conclude this month's newsletter on a personal note. Dorothy Parker once was quoted saying "the two most beautiful words in the English language are check enclosed". Although this is quite humorous it is also very true to today's society. We live in a world where the majority of Americans are in debt. As most of us know our country has an $8 trillion deficit. My point is sometimes things are unavoidable. Bad things happen to good people. Everyone has his or her own reasons and situations. Although it is stressful keep in mind it does not define who you are as a person. Although our economy often fluctuates capitalism allows us to become successful once again. Having a plan, vision and good attitude is 90% there.

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Got a question? Then contact our Education Team on 5618832398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us. To reserve your seat contact our Education Team on 5618832398 Ex.310

Newsletter 03
Rev.1
March, 2007