When You Can’t Afford to Sell

Letting the bank foreclose on your house is a drastic, although not invariably disastrous, step you can take if you want to get rid of your house and cannot afford to sell it.

But suppose you really want to keep your house and are in a financial bind? Ironically, many lenders won’t talk to you until you fall behind by three or four payments.

“More lenders are not foreclosing at two, three or four months like the old days, but at six, eight and 10 months,” said Richard Pittman at Consumer Credit Counseling, a nonprofit group approved by HUD for real estate counseling. “Then you try to come up with eight payments for a mortgage and it’s not practical. It’s a self-fulfilling prophecy of defeat.”

Pittman advises consumers to come in for free, confidential counseling before they start missing mortgage payments. You will be asked to bring documentation of your current income and expenses and a list of creditors. The staff will develop a budget and debt repayment plan or--if you haven’t enough money coming in to pay your debts--a debt management plan.

“We figure out the problem and the options--where the client needs to go next,” Pittman said. “Is this a situation that will pass? Can a payment plan be offered?

“When a client is in default, we sit down with them and find out: How much (money) is available, based on income? How much are they willing to cut of their daily spending to give the house the priority it deserves--which is No. 1?

“If they’re short with all their other obligations, there’s nothing to offer the lender. Then the lender will see this is going down into foreclosure.”

When you call your lender, Pittman advised, “Go through the ranks. Don’t try to jump. (A senior vice president will say), ‘Why should I talk to you if you haven’t given the collection staff a crack?’

“Most important: Make sure it’s all in writing. Whatever your proposal is, make sure you can document it to a T. (For example, ‘Here is what my income is, not only now but at the time of default.’) . . . A lender may ask for two years of 1040s. If you were laid off, they (will ask) what happened to your two-month reserve. If you were out on disability, you need a statement from your doctor.

“This is where the motivation of the client comes out so clearly. Suppose he asks if the interest rate could be reduced. Then (the lender) pulls the credit bureau (information) and find out he just bought a new car. They’re not going to give the client the time of day.

“We peel back layers of problems to find out about more problems,” Pittman said. “The average client we counsel owes $12,000 just on credit cards, without (taking into account) car payments, student loans, a mortgage. (The problem) does not begin when loan goes into default. . . . Extended families may be part of problem--(money goes to ) help parents and grandparents.”

Pittman impresses on clients the importance of maintaining a businesslike relationship with the lender: keeping good records and not flying off the handle on the phone.

It’s also important that you understand whether the lender has sold the mortgage, Pittman said, and to what sort of institution. Has it been sold to another bank? A holding company like the Federal National Mortgage Corp.? A finance company?

“If they’ve sold it to a finance company, the level of cooperation (you can expect) is almost nil,” Pittman said. “Their game is pure numbers.”

How do you find out whether your lender is servicing your loan? Ask. (“Are you an in-house servicer or an outside servicer?” Or: “What constraints keep you from considering my repayment proposal?”)

If there’s an investor, you can ask for their name and phone number. The loan servicer is not obligated to give you this information, but even noncooperation can be leverage if you keep good notes. If you have an FHA or VA loan and you can show that it is being improperly serviced, Pittman said, they will stop foreclosure proceedings until your file is reviewed.

“I’d much rather go down kicking and fighting than lose everything,” he added.

The ideal client tells the lender, “Here’s my documentation. Here’s my budget. I’ve cut every possible corner and come up with a plan of action--steps I’ve taken, steps I’m contemplating, a list of times I’ve contacted you, letters I’ve sent you, actions I’m following up on.

“Now that I’ve showed you everything I have done to keep my house, what have you done for me and what will you do in the future?”