Issue Date: June 17, 2007

The Bank Doesn't Want Your House

By Jody Zink
Licensed Realtor in Ohio & Michigan

Real estate foreclosures are at an all-time high. If you're in danger of falling behind on your mortgage, it's important to know what lies ahead. The faster you move, the more choices you'll likely have regarding your financial future.

The trouble starts when you miss the first payment. Lenders might not call until you've missed the second one, but you can figure that it will certainly affect your credit score. Not to mention the late fee penalties lenders usually tack on. Each late payment thereafter lowers your score even more, making it harder and more costly to get a loan or refinance to help your situation.

If payments aren't made, the lender files a “notice of default,” and you'll get a letter saying make good on the payments or else the foreclosure process starts. Once that happens, your options dwindle. From the notice of default, borrowers typically have 90 days to make up the deficit before receiving a “notice of sale” which sets a auction sale date for the house, usually within the next 30 days.

So how do you get out of this mess? First off, know you're not alone. Tough financial times are most often associated with losing a job, a spouse, getting sick or divorced. Pull yourself up by the bootstraps. Start budgeting. Don't buy stuff you don't need.

Contact your lender and ask for help. People avoid doing this and mistakenly believe that if lenders know the borrower's in trouble, the loan will immediately be put into foreclosure. Generally, banks don't want to mess with court proceedings, auctions and local laws. They just want their money paid in full with interest.

Sometimes finding the right people to talk to can be challenging. And it's easy to get lost in the lender's bureaucracy. Initially, you're likely dealing with the collections department, which may offer one option: Pay up now.

You may eventually need to talk with the folks in the “loss mitigation” department. Lenders usually don't route borrowers there until after they've missed several payments, but it may be the best way to help you arrange for repayment. It could mean they help get you refinanced or waive late fees. They may even give you more time to catch up on other debts.

Another option is calling a Realtor to help you sell quickly. They could help you negotiate a short sale, where you essentially sell the house for whatever you can get. The lender agrees to accept the proceeds and forgives the rest of the debt. Note, however, that you may be taxed for the amount forgiven as income. This will also affect your credit score, but not as harshly as a foreclosure would.

Beware of scam artists out there. If they promise to wipe out your debt or pay off your home, many flustered homeowners bite. Just remember the free lunch rule: There isn't one.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.