Foreclosure can mean more than losing a home and the financial benefits that owning provides.
It also brings with it the emotional turmoil of a forced move, the financial wreckage from a stained credit record and loss of any equity a homeowner may have had in his or her dwelling.
Even in foreclosure, though, there is hope for borrowers to save their homes or at least to avoid financial and credit calamity. They can, for example, negotiate with the lender or seek financial counseling.
The misfortune foreclosure causes, however, is compounded when homeowners are preyed upon by unscrupulous operators who promise rescue but are intent on scraping up whatever assets the homeowner has left.
How do they find you?
It is public record when a lending company starts legal proceedings that could result in foreclosure. “There are lots of people who comb these court records. It is amazing how many different businesses get created when people are down on their luck,” observes Dan Lindsey, supervisory attorney of the Home Ownership Preservation Project at the Legal Assistance Foundation of Metropolitan Chicago.
Homeowners whose money woes land on the public record are typically inundated with pitches from people who promise they can save them from foreclosure, Lindsey says. Some of the offers may be for legitimate, even sensible, strategies for resolving the looming foreclosure, he says.
But often, desperate owners grasp at some of the pitches, and then follow an inappropriate strategy or, worse, are victimized by scams, he says.
Homeowners, under financial and emotional stress, face the added burden of discerning the right way to deal with an impending foreclosure.
In the Chicago area, an array of non-profit legal aid, housing and community groups may be able to provide the right help. And, a newly launched city program may help borrowers avoid foreclosure by connecting them with counseling.
The number of owners in Cook, DuPage, Kane, Lake and Will Counties who’ve had a foreclosure started on their homes has skyrocketed in recent years, says Geoff Smith, project director at the Woodstock Institute, a non-profit community development research organization in Chicago.
The institute found there was a 247 percent increase in foreclosures in those counties from 1994 to 2002, with about 25,000 foreclosures started in 2002, Smith says. The number of mortgages made during that period also increased dramatically, but Smith says more foreclosures are not simply the results of more loans being made.
He cited the high number of jobs lost in the economic downturn and substantial growth in “subprime” lending.
“Subprime loans have high fees and high interest rates and they are made to high-risk borrowers, so it follows that these borrowers are more likely to [go into foreclosure],” he says.
Foreclosures are more concentrated in low-income, urban areas, Smith says. “But there are also numbers running across many communities and in different economic and demographic groups.”
In the parlance of the lending business, borrowers are “delinquent” if they are at least 30 days overdue on their mortgage payments. Not surprisingly, lenders don’t like delinquencies, and they’ll often offer forbearance, that is, negotiate repayment plans, like allowing smaller payments for a period and then taking on any money in arrearage into a new, longer-term loan.
Lenders stress that borrowers’ best chance of striking a payment plan is if they call as soon as they know they can’t make payments.
In Illinois, foreclosure law allows homeowners a relatively long time between their first missed payment and when a sheriff is ordered to take possession of a property, explains Lindsey of the Legal Assistance Foundation.
For example, a borrower misses his or her first payment, due Jan. 1, and becomes delinquent. But, the first step in the legal process, a complaint, would not be filed at least until the end of April, but most likely in June. Other actions follow, but the homeowner has several months to find enough money to redeem his or her property, and an order of possession would not be sent to a sheriff until about March of the following year, Lindsey says.
In a perfect world, as soon as borrowers miss their first payment, they would assess their financial resources and strike a forbearance agreement with their lender. But it’s hardly a perfect world, notes Tracy Leary, community reinvestment organizer for the National Training and Information Center (NTIC), a Chicago non-profit serving community and neighborhood organizations.
“We hear all the time about people trying to contact their lender,” she says. “The loan servicer [the company that actually collects your monthly loan and escrow payments] might not be local. [Borrowers] have to call an 800 number and they may get the wrong person or a poor response.” Besides that, the fact some homeowners are not making their monthly mortgage payment means their lives aren’t running like clockwork, and delinquencies are usually instigated by a trauma such as an illness or job loss, Leary says.
It’s easy to get caught in phone tree hell or be too intimidated to tell a faceless voice on the other end of the line the intimate details about why you can’t pay your bill, says Bruce Paradis, president and CEO of GMAC-RFC, a Minneapolis-based firm that services mortgage loan payments.
If a delinquent borrower could talk openly with a third party, rather than become frustrated or intimidated by negotiating with a lender directly, more foreclosures could be avoided, Paradis says. GMAC-RFC has hired outside credit counselors to handle negotiations with its borrowers in delinquency.
Through a special program sponsored by the non-profit Neighborhood Housing Services (NHS) of Chicago and the City of Chicago, that effort has expanded to include more than a dozen lending firms. Borrowers in trouble with one of the participating lenders can talk to a counselor for free or visit one of the NHS neighborhood offices around the city for a free consultation.
There are firms that offer to act as middlemen for borrowers facing the prospect of foreclosure. They contact the lender on the borrower’s behalf to work out a repayment plan and charge the borrower a fee.
Money is what homeowners in default have very little of, notes NTIC’s Leary. “But I think just as people choose to pay a fee for a debt-counseling agency to make repayment plans with credit card companies, they can think it’s worthwhile to pay a firm to negotiate with their lender,” she says. It can be convenient to pay for a negotiating service, she acknowledges, because getting an appointment with a legal aid or housing counselor offering free advice can be difficult when agencies are strained with overloads of requests.
But, the more desperate a homeowner gets, the more vulnerable he or she is to scams, says Tom James, assistant attorney general in the office of Illinois Atty. Gen. Lisa Madigan.
Homeowners can protect themselves with common sense due diligence, like checking with the Better Business Bureau to uncover disreputable operators, he says.
Once legal proceedings begin, James thinks homeowners should seek an attorney’s advice “because they are involved in a legal action, they are being sued.” Legal aid organizations can sometimes provide help for owners without any money. Moreover, any time consumers initiate or shop for themselves, rather than responding to a pitch, they are helping protect themselves from fraud, James says.
In some cases, when homeowners seek help, they may discover that their mortgage carries illegally high rates or contains illegal terms. Homeowners who believe they have such a loan can contest the features and amounts owed.
South Side homeowner Sheila Thomas-Battle was referred by a relative to the Legal Assistance Foundation. In 2000, Thomas-Battle refinanced the mortgage on her Chicago home to fund renovations. When her wages as a postal worker were garnished to pay for a car loan taken out by her former husband, she fell behind on her mortgage. “The garnishment was going to last about six months, but the mortgage company wouldn’t accept partial payments,” she says.
She went to the Legal Assistance Foundation for help and discovered her mortgage might be illegal. They are now defending her foreclosure case by countersuing the lender.
Bankruptcy attorneys, real estate agents and investors, as well as other mortgage lenders and brokers are among the groups likely to come calling on homeowners, especially when a foreclosure filing becomes public, Lindsey says.
Bankruptcy can sound like an attractive option, because a bankruptcy filing can delay foreclosure proceedings. It may be an appropriate solution under certain circumstances, Lindsey says.
Lindsey draws the example of someone who falls behind on his or her mortgage payment because of a temporary disability, but then recovers health and earnings ability. “A Chapter 13 bankruptcy, which typically gives you three to five years [to repay mortgage amounts owed], would be a good solution,” Lindsey says. Conversely, people with no hope of recovering their earnings ability will not be able to cure their problems, and the bankruptcy won’t help them keep their home.
In cases where homeowners’ mortgage woes are due to long-term affordability issues, rather than to a temporary setback, selling the house before losing it through foreclosure can be the smart route, Lindsey says. But again, he underscores, it’s borrower beware: Some of the agents or real estate investors who come calling may not be presenting a fair offer.
One area where Lindsey says he’s encountered multiple cases of fraud involves homeowners who are asked to deed their houses to an investor. That investor promises to pay the loan on the house and then rent the house back to the owner, with an option to repurchase the property in a certain time frame.
“I have cases where [the investors] don’t honor the repurchase agreement and even deed the house to another party,” Lindsey says.
A new city program
Chicago residents having trouble with mortgage payments can call 311 and be connected to a counselor who can help them determine their options for keeping their home. The city is especially emphasizing the program in six neighborhoods that have high foreclosure rates: Englewood, West Englewood, Chicago Lawn, Auburn Gresham, Roseland and West Pullman.
Other resources:
– The Legal Assistance Foundation of Metropolitan Chicago’s Home Ownership Preservation Project helps borrowers facing foreclosure. Call 312-347-8304.
– Neighborhood Housing Services (NHS) of Chicago allows homeowners who have fallen behind on their mortgage payments with any of 12 lending companies to come to one of their nine offices for a consultation with a counselor. Call NHS for more information at 773-329-4181.
