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Do You Have Enough Time to Negotiate?

It takes a while to work things out with your lender (typically through its representative, a mortgage servicing company). If you’re not sure how much time you’ve got left before your house is sold in foreclosure, find the page for your state in the appendix and see how much notice you’ll get. Failure to be aware of your time constraints can sink your attempt to keep your house.

EXAMPLE: Paul and Veronica’s payment on their first mortgage is $2,000 a month. When Paul is laid off, they can’t make their payments and are now three months behind. They receive a notice that their home will be sold in 60 days unless they make up the missed payments, plus costs and interest, before that date.

 

Paul believes he will find a job soon and thinks they could resume their mortgage payments if they were reduced to $1,500 a month through mortgage modification or refinancing. They decide to call their mortgage service company’s loss mitigation department directly and ask for assistance. They are told to submit a hardship letter, a workout proposal, a financial statement, and other documentation of the facts. They do all this—a ton of work—but hear nothing for several weeks. When they call to ask for the status of their modification request, they are told it is “in the pipeline.”

They express concern about the impending foreclosure sale and are told not to worry, that they’ll hear something soon. More weeks pass, and when they are still told the workout is in the pipeline a week before the sale, they decide to bail. Unfortunately, there’s not enough time for them to arrange to file for bankruptcy (which would stop the foreclosure sale, at least temporarily), and they lose their house.

Delay is not necessarily intentional on the part of the servicer. It’s just that in many cases the servicer can’t tell you anything until it gets word from the mortgage owner—which may be your original lender, another lender who bought the mortgage from the first lender, a mortgage trust, the mortgage insurer, or a major investor.

The lessons are obvious: Get started as soon as you can, and be assertive if you don’t get a timely response.

Because of the number of defaults flooding the system, there is virtually no way most servicers can process a modification on time in many states unless:

• you begin the process when you first realize you can’t make your payments, or
• the lender agrees to put off the foreclosure sale while you are negotiating.

If a foreclosure sale looms in the near future—two weeks should have the alarm bells ringing—consult a bankruptcy lawyer immediately. Filing for bankruptcy is the only way to stop an imminent sale unless the lender voluntarily agrees to pull back. (See Chs. 5 and 6 for more on bankruptcy.)

Avoid foreclosure rescue scams. Companies that offer to rescue you from foreclosure on the eve of a foreclosure sale are all too often con artists. (See “Don’t Get Scammed by a Foreclosure “Rescue” Company,” in Ch. 1.)