Foreclosure is certainly a word most homeowners don’t want to hear, especially since the financial crisis of 2008; unemployment rose and home values plummeted. But what happens when you’re actually faced with it?

First, foreclosure is what happens when a borrower doesn’t keep up on their mortgage payments. Your lender (usually a bank) will contact you if you miss a payment. What happens after that varies by state, but in general, according to the U.S. Department of Housing and Urban Development, your lender will send a Notice of Acceleration, which says you have 30 days to pay the outstanding amount on your mortgage. After that, the bank will most likely begin foreclosure proceedings and you will also have to pay all attorney fees.

The next step is public sale of the property, and you will be notified of the sale date, which is the foreclosure date. Up until the date of sale, you can still pay the owed amount (including legal fees) or make some sort of arrangement with the bank. You still have one more chance after the sale, though—the redemption period. The time limit for this and procedures is different throughout the country, typically between ninety days and one year.

One option to avoid foreclosure is refinancing your mortgage with your lender. Many banks have refinance options and are willing to work with you so that you don’t default on your payments. That being said, make sure to respond to notices from your lender, because not opening your mail won’t hold up as an excuse in court. In many states, you can still pay the full amount or refinance up until the foreclosure and during the redemption period.

Another option is called “short sales,” which allow you to sell your devalued home for less than you owe. However, some lenders don’t allow this or have a complicated process for it to prevent fraud (like a homeowner appearing to be in financial straits when they aren’t, or selling it to a relative who then sells it back, which is illegal). A short sale will lower your credit rating, but not for as long as would a foreclosure.

There are legitimate companies out there who will help you, but the fees are often equal to two or three months’ worth of mortgage payments. The Department of Housing and Urban Development offers free housing counselors who can assist you. Watch out for foreclosure scams as well—never sign a document that allows them to act on your behalf, because you might be signing over the title to your home.

Finally, read carefully over any legal documents pertaining to your foreclosure. Several big-name banks (including Bank of America and JP Morgan Chase) have put a freeze on mortgage foreclosures this month because of administrative errors; so-called “robo-signers” have approved foreclosures without reading them or making sure all the information was correct or present. Always ask the bank for documentation for your loan, especially since loans are often sold and change hands several times.  If you can afford it, hire a lawyer to make sure everything is done right and to explore all of your options.

Posted by Nancy on October 29, 2010 at 5:34pm.

In September, 2009, Adrienne discussed the possibilities for the government’s help in addressing the ravages of a natural disaster.  At that time, we hoped to hear from our readers with their thoughts on the feasibility of a national natural disaster insurance program.  Then, we considered whether individuals felt comfortable remaining uninsured when faced with natural disasters such as Hurricane Katrine and the almost seasonal wildfires spurred by the Santa Ana winds.  What level of risk do you deem acceptable?  Then, we didn’t stop to envision the possibility that insurers would simply back out of  certain catastrophe coverage markets.  Yet, that is just what is happening in Florida, right now.

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Times files | 1998

In the months following our entry, we remained curious about the effect of natural disasters on insurance companies and its treatment of policy-holders.  The recent situation in Florida is a perfect example.  Following a lengthy battle with the State of Florida to deregulate the insurance market in which the insurance giant’s bid for marked premium increases was denied, State Farm insurance has decided to pull out Florida’s property insurance market over a period of 18 months.  As a result, some 1.2 million property insurance policies will be dropped – the majority of which are held by homeowners in the hurricane-prone state’s coastal regions – which will likely push many into the already bloated state-run insurer of last resort, Citizens Property Insurance Corp.

The insurer’s plans reflect a compromise between it and the Florida Office of Insurance Regulation.  After announcing that it is losing approximately $20 million per month that it continues to operate in the state, State Farm Insurance attempted to withdraw its operations from Florida.  Following 11 months of stalled negotiations, State Farm backed off its plans to withdraw from the state completely; instead, it would plug its financial leaks by dropping policies, abstain from offering discounted rates, and increasing the average rates by approximately 15%, statewide.  The insurance giant promised that it would not leave policyholders stranded in the middle of hurricane season, but that its agents would aid customers in transferring their policies to one of 16 other insurers authorized to do business in the state.   Florida homeowners were outraged.  But, really, should they have been?

Hurricane insurance rates were rising. In addition to rising premiums, some vulnerable insureds were faced with higher deductibles before being dropped entirely by their insurance providers.  Homeowner insurance providers, like State Farm, were passing the costs of doing business onto their consumers.  The companies, paid out higher than expected claims following the devastation in the wake of Andrew.  (I’m sure the actuaries prognosticating those events weren’t around long following these natural disasters.)  So, to mitigate the risk of additional future claim payouts, companies sought out reinsurance.  And, that increased the company’s cost of doing business.  As a result, insurers passed along those costs to consumers – the affected ones and the non-affected ones, too.  It stands to reason, then, that with a glut of customers seeking new insurance providers, competition for new business would act as a control on prices, allowing consumers to obtain competitive prices.

Now, let’s backtrack for just a second.  Would a national catastrophic insurance program be the best way to handle vulnerable properties?  Should all taxpayers subsidize the decisions of those who chose to build in a low-lying or natural disaster-prone area?  More specifically, how many times should a company pay out on a claim before it chooses to terminate the policy?

The Economic Logician examined the moral implications of a national catastrophe insurance program last September.  In his post, he asked: “why did private insurance companies leave the hurricane insurance market in Florida?”  A comment left on his blog stated:   “The implied answer to your question about private companies is that the risk in general is not fully priced into the government policy, and that on a practical basis the political tendency regarding differential risk based on location on government-sponsored insurance is that very high rates on at-risk property would meet more organized resistance than more moderately higher premiums across the board, which would imply in-landers would subsidize coastal folks.”

Was the commentator on The Economic Logician’s post correct in his conclusions?   Well, we can take a look at FEMA and its flood insurance program for an answer.

In 1968, Congress established the National Flood Insurance Program (NFIP) to enable vulnerable property owners in participating communities to buy insurance to protect against flood losses.  In exchange, states and local communities committed to regulating construction in floodplains to reduce future flood damage.  The floodplain management usually regulates the construction or expansion of structures in flood-prone areas.  The insurance was meant to act as an alternative to federal disaster assistance.

But NFIP cannot work alone.  Rather, it is intended to act in concert with a private insurance coverage portfolio in a way that appropriately apportions risk.  Given this example, do you think that a national program – or even a state program like Florida’s Citizens Insurance – is the answer when a major disaster occurs and an insurance company is not equipped to handle the claims?

Posted by Krystyna on February 23, 2010 at 11:37am.

From: LongIslandBankruptcyBlog.com

Almost 1 in 4 U.S. homeowners is drowning in mortgage debt. The Wall Street Journal recently reported that the percentage of homeowners who own more on their mortgage than their property is worth recently swelled to 23%, or just over 10.7 million households, according to First American CoreLogic.

Of that number, approximately 5.3 million households hold mortgages that are worth 20%+ than their home’s value. That number will rise in the coming months. The first wave of foreclosures has passed, but sub-prime mortgages involving balloon payments or adjustable rates will trigger another wave when consumers holding such rates fail to qualify for conventional loans.

Americans’ priorities have shifted. While in the past, making a mortgage loan was paramount, TransUnion recently reported that Americans now prioritize car payments and credit card payments above mortgage payments. Lisa Epstein recently reported that consumers recognize the need for a vehicle to get to and from work, while quoting Ezra Becker, Director of Consulting and Strategy for TransUnion, who concluded that “consumers recognize that their credit cards are their primary purchasing vehicles in this economy.” Many Americans attitudes toward home ownership has changed following the housing crisis over the past 2 years, and as a result many have become delinquent on their mortgage loans. For those homeowners who are drowning in mortgage debt and prefer not to go into foreclosure, there is the option of bankruptcy.

Neither does a consumer any favors in terms of saving their credit rating, but bankruptcy does offer some flexibility.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also called straight or total bankruptcy or liquidation, allows debtors to keep certain property that is considered exempt under the U.S. Bankruptcy Code.  It is this type of bankruptcy that may seem most attractive for a homeowner who has large amounts of unsecured debt and is willing to walk away from his/her home.  The downside, here, is that the bankruptcy will remain on your credit history for 10 years, limiting your credit options and indicating the precarious nature of your creditworthiness.

The upside is this:  Chapter 7 bankruptcy will discharge most types of unsecured debt, such as credit cards and installment loans.  Lienable debts, such as real estate mortgages and security interests for car loans, survive the bankruptcy.  So, too, do student loans.  However, the bankruptcy trustee will sell those assets – hence, the term liquidation – to repay creditors and provide you with a fresh start.

Chapter 13 Bankruptcy

Chapter 13, or individual reorganization, has been likened to a payment plan and it is the preferred method for those who do not want to lose their assets.  It remains on your credit history for 7 years, similar to other negative credit items.  If a debtor has a regular income and limited debt, Chapter 13 will allow it to keep property, such as a mortgaged house or car, that the debtor would otherwise might lose. In Chapter 13, the court approves a repayment plan that allows the debtor to pay off a default during a period of three to five years, rather than surrender the property.

The decision to file bankruptcy is serious and should be made with much consideration.  While it might provide a debtor with a life jacket during a crisis, bankruptcy can have consequences for a decade.

Posted by Krystyna on February 1, 2010 at 5:14pm.

From: The Sacramento Bee

The S&P/Case-Shiller Home Price Indices measure the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. The latest Index reveals an apparent softening of demand in October, which translated into weak home price growth across the 20 markets that the index tracks.

Even before the release of this latest index, Mark Zandi, the chief economist for Moody’s Economy.com forecast that U.S. homeowners should expect another wave of mortgage foreclosures by the third quarter of 2010.  His troubling estimate is that “7.5 million foreclosure sales will have taken place between 2006 and 2011. The majority of these sales, however, have not emerged yet, with 4.8 million foreclosure sales expected between 2009 and 2011.”

Zandi also concludes that a significant obstacle to a housing recovery is the number of mortgages that are “underwater.”  Underwater mortgages occur where borrowers owe more on a loan than a home is worth. Zandi said about 25 percent of single-family homes with mortgages have negative equity.

If you are falling behind on your mortgage, you must carefully assess your situation and understand your rights.  All too often, homeowners ignore their money problems because of a misguided belief that banks will immediately begin the process of collection or foreclosure or because of embarrassment associated with being a ‘bad money manager.’  However, both parties benefit when foreclosure can be avoided.

Here are some tips if you are falling behind on your mortgage payments and want to keep your home:

First and most important, contact your bank immediately.  If you explain your situation, you may be able to work out an agreement to avoid a foreclosure suit, including:

• Temporary indulgence: The lender may give you a month or two to make up the payments with no penalties.
• Deferral of principal: You pay the interest only on your loan for a period of time and then go back to making regular payments again.
• Forbearance: You stop making payments, or you have smaller payments for up to 18 months. Then, at the end of 18 months, you must make all the payments that you missed.
• Mortgage modification: You can change one or more terms of the original loan to get rid of the amount you owe. The interest rate can be lowered if current market rates are lower than the mortgage interest rate. Or, you may be able to make the mortgage last for a longer period of time so that you will have smaller payments each month.
• Refinance: You can get a new loan from another lender. You should be very careful about refinancing. You are likely to get many offers to refinance and save the home. The terms of these offers may be “predatory.”
• Repayment Agreements: You pay the overdue amount with an extra payment each month. You can usually only do this for 12-18 months. A credit counseling agency may also help you get a workout agreement to prevent foreclosure.

Be sure to contact a reputable credit counseling agency.  All too often, homeowners fall prey to unscrupulous companies that offer to renegotiate a homeowner’s mortgage or to handle its foreclosure process, only to be burned in the process.  Instead, consider speaking with a HUD-approved foreclosure avoidance counselor.

If you did not contact the bank yourself, and you receive any letters from the bank, open and read all of them.  Make note of any deadlines given by the bank.  Make sure to keep each and every letter that you receive.  You will need these documents when speaking with a foreclosure avoidance counselor or an attorney.

If you are a homeowner and are behind on your payments but do not want to keep your house, you also have several options available:

• Sell the house: Try to sell the house yourself or through a realtor. If you can sell the house before a foreclosure sale, you might get a good enough price to avoid owing the bank money. Also, if you sell the house for more money than you owe, you will be able to save money.
• Deed in lieu of foreclosure: Any time after you are behind on your payments, you can ask the lender to let you deed the house to them. This means that you would give your lender the house. If the lender agrees and accepts a deed from you, you lose the house, but you will not owe any more money. In other words, the lender is giving up its right to sue you in a foreclosure case.
• Consent foreclosure: If the lender has already sued you, you can ask for a consent foreclosure. If the judge orders a consent foreclosure, you will not owe any money under the mortgage. But you might have to pay the lender’s court costs and attorneys’ fees.

If your bank has already sued you for foreclosure, you should speak with a lawyer about your options.  Defending foreclosure suits is seldom simple and a lawyer may be able to determine if the bank has made errors which entitle you to keep your home or help you negotiate the terms of foreclosure that are more favorable to you.  Finally, a lawyer may be able to advise you about the relative merits of filing a bankruptcy in order to protect your interest in your home.

Posted by Krystyna on January 21, 2010 at 3:35pm.

Southern California is really suffering from wild fires, and the major fire season, when the Santa Ana winds kick in, hasn’t even gone into effect! Last I checked fires in Los Angeles County were only about 38% contained. Could you imagine over 60% of wild fires ravaging areas surrounding your house? California residents must feel angst as they hope for the fires to spare their homes.

Interestingly enough, coverage of this California natural disaster takes place almost exactly four years after Hurricane Katrina destroyed the city of New Orleans in Louisiana. Hurricane Katrina survivors don’t have to imagine what it feels like to lose everything as the ones whose houses were ruined by flood waters lost nearly every material belonging when the storm struck. Perhaps, what is even more disheartening is that current news stories are reporting how four years later after Hurricane Katrina, so much still has to be rebuilt. Reportedly, neighborhoods are still covered with debris from destroyed homes, and the city once known for its unique, Cajun culture has yet to fully revive its vivacity.

If you were to experience a natural disaster, would you know how to protect your belongings and rights? Is it worth investing in disaster insurance when there’s a potential for the deductible to be high?  From a legal standpoint, it’s helpful to know your insurance policy in and out. You can ask your attorney to help you sift through the jargon to learn if your insurance will really cover you during a natural disaster.

It’s interesting that some homeowners, even after learning about the benefits of having disaster insurance, may still opt to not be covered. Their arguments are that it costs too much for insurance that may be too limited. And, in many cases, they believe that the government will step in for assistance. However, we’re still watching the rebirth and rebuilding of New Orleans with assistance from programs like FEMA, and I can’t say with confidence that all of the homes destroyed by Hurricane Katrina have been restored.

Would you trust the government to help rebuild your home once it’s been destroyed by a natural disaster? If you don’t insure your home, and rely upon the government’s reponse, do you think that your home would be built back and restored to its original condition? How can you ensure that all the things that made your home yours and unique would be replenished unless you have disaster insurance?

Posted by Adrienne on September 3, 2009 at 11:46 am.