Facing Foreclosure
It's an Owner's Nightmare, but Not All Houses Go to Auction
By Sandra Fleishman
Washington Post Staff Writer
Saturday, February 2, 2002; Page H01
Foreclosure has always been a scary word, albeit for a very small
proportion of American homeowners, but rising delinquency rates
suggest the specter could spread.
As the economy has tanked over the past year, delinquency rates have
risen to levels not seen for 10 years. The number of homeowners with
prime loans -- that is, people with previously good credit records --
who are entering foreclosure has set a 30-year record. Those who get
subprime loans, which have higher fees and interest rates, are also
facing foreclosure at record rates, although this booming loan market
has only been tracked for about five years.
While experts said only 1 in 3 homeowners who go into foreclosure lose
the house at auction, housing counselors and consumer groups fear the
numbers will mushroom if the economy does not improve.
"An efficient foreclosure process is the reason why you can go out and
get a home loan for 7 percent," said John Burson, a foreclosure lawyer
with the Fairfax firm of Shapiro & Burson. "That's why credit cards
are at what, 18 percent, and home loans are at 7 percent. . . .
Because you have to be able to lend money, and people will not lend
money if there is not security." That security is the assurance that
lenders will either get the money or the house that backs the loan.
The current situation provides new reasons for borrowers to take a
look at what can, and will, happen if they do not pay their mortgages.
The consequences of foreclosure are dire. Not only can foreclosure
take the house, but it can ruin credit, wreak havoc on children who
have to change schools and leave friends and add unexpected moving and
storage expenses. It also can force a cash-strapped former homeowner
to look for a new place to live at a time when affordable housing is
tough to find.
The good news is that most lenders, pushed by secondary mortgage
giants Fannie Mae and Freddie Mac and by the Department of Housing and
Urban Development, said they are trying harder to keep houses off the
auction block.
The bad news is that bad actors, known as predatory lenders, seem to
be working overtime to take properties, according to consumer groups.
So what is a homeowner to do if there are signs of trouble?
The first tip, according to lenders, housing counselors and
regulators, is to head off the dreaded F-word whenever possible.
Do not ignore letters about delinquency from the lender, HUD cautions.
If you are having problems making payments, contact the lender
immediately, the agency advises. Explain the situation. Be prepared to
provide financial information, and then look for alternatives to
foreclosure.
The options can include such things as negotiating a repayment plan,
moving a lump repayment to the end of the loan, or extending the
length of time of the mortgage.
If there is no hope of repayment, a borrower can sometimes sell the
house before the auctioneerasks for the first bid.
Or a lender may agree to a "short sale," where a house is sold for
less than the mortgage amount. As a last resort, a borrower can ask a
lender to take back the deed.
"The thing that's really changed in the last few years is the lender's
capability to look for a workout solution even during the foreclosure
process," Freddie Mac spokesman Brad German said. "The search for a
solution starts once there's a delinquency . . . and doesn't stop
until either a solution is found or the foreclosure sale occurs."
"People today are working out forbearance plans on the eve of
foreclosure," said lawyer David Draper of Draper & Goldberg in
Leesburg, one of the biggest foreclosure law firms in the area.
Forbearance means giving the borrower a break by adjusting the terms
of the loan, often by allowing additional time to pay. "For every
three referrals we see [from lenders], one goes to sale immediately,
one goes to bankruptcy and one either reinstates the back payments,
pays off the loan [by selling the house themselves] or works out a
forbearance plan," where the lender agrees to restructure the loan.
Bankruptcy will stop a foreclosure, but it is not an absolute
protection. State bankruptcy courts can allow foreclosure if the
negotiated mortgage payments required by the court are not made. In
some states, there is also a limit on the number of times a borrower
can seek bankruptcy protection and avoid foreclosure.
And bankruptcy, like foreclosure, ruins a borrower's credit.
Housing counselors can help negotiate the maze of possible options
that legitimate lenders offer. So that is the second tip from most
housing experts: Seek professional help right away.
"Don't delay," said Marcia Griffin of D.C. housing counseling agency
HomeFree USA. "The longer you wait, the worse it gets."
If you wait, the costs mushroom, counselors said.
By the time a borrower gets a formal foreclosure notice, according to
the timetable set by state law or by the deed, the bill includes more
than just the amount of missed payments.
Instead, a delinquent borrower will have to pay for: the lender's
legal costs, advertising fees for public notices, messenger and
postage fees for notices delivered to the borrower and to any
lienholders, and title fees for determining if there are lienholders.
The borrower must also pay for an auctioneer, even if the auction is
only scheduled but does not take place.
"An auctioneer runs a business and has to keep people on staff,"
foreclosure lawyer Draper said. "So the auctioneer has to be paid even
if the auction isn't held."
A typical foreclosure includes other fees, such as "a line to docket
fee" and "a line dismissal fee," that most homeowners have never heard
of.
Then there are recording fees, tax certificate fees and, if required
by state law, bond fees.
Olney consultant Candace Parrott had never heard of any of this when
she got a call concerning a friend's mother who was facing foreclosure
on a two-bedroom {*filter*}inium.
Parrott said she was horrified by the mounting fees and by what she
found as she tried to negotiate the process for Jessie Hopkins of
Columbia.
Hopkins, a retired Head Start employee, said she did not realize the
foreclosure date had been set until she saw the notice in a Howard
County newspaper. The public noticewas published Dec. 4, 14 days
before the sale was to be held.
Though the long-time Montgomery County employee had gotten notices for
four months that she was delinquent, Hopkins thought the clock was
still ticking to develop a repayment plan when the sale was set.
By Maryland law, Hopkins should have gotten a notice by certified mail
of the impending sale. State law requires one notice, not more than 30
days before the sale but notless than 10 days.
Hopkins said she did not get the message.
She said she fell behind initially on her mortgage after she had
serious back problems. When her sick leave paycheck came up short, all
of her electronic deductions in September bounced without her
knowledge, she said.
Hopkins said she fell further behind because the "high-powered {*filter*}"
she was prescribed kept her from focusing quickly on the problem. She
claims the lender, GMAC Mortgage Corp., then did not send her workout
papers she requested.
When Parrott got involved in trying to work out a repayment last fall,
the bills were mounting.
As she made calls, the amount quickly jumped from three months of
missed payments and fees to four months and fees. Though the monthly
payment was $564, the bill at three months was $2,800 and the bill at
four months was $5,425.
Parrott said the lender's lawyer took too long to send a list of the
fees. And she claims that the lender and foreclosure attorney did not
seem interested in accepting anything less than $5,425. Parrott said:
"If she couldn't raise $2,800, how was she going to raise $5,400?"
Parrott and two friends eventually were able to stop the foreclosure
sale by paying $4,725. She got the bill lowered, she said, after
questioning some fees and after finding out that the total would drop
if the bill were paid before the Dec. 18 sale date.
Parrott said the system is stacked against the borrower. "What
happened to Jessie seems more like a forced closure than a foreclosure
to me," she said.
Hopkins agrees. "They don't care if you're in trouble," she said.
"They think they're human and you're not."
Rick Gillespie, an executive vice president for GMAC Mortgage, said
this week that he is prohibited by law from commenting on Hopkins'
loan.
But he said, "It absolutely is our policy to do everything we can to
assist a customer to bring their loan current. That includes such
things as waiving late charges and working on a case-by-case basis to
come up with a solution."
Gillespie added that the company is also "responsible to the investors
who we represent" to make sure loans are paid.
Burson, the Fairfax foreclosure lawyer, represented GMAC in the
Hopkins case; he also said he is not permitted to comment on any
particular loan. But he said, "We try anything that we can to give
people an opportunity to correct a delinquency."
"One of the biggest myths about foreclosure is that lenders don't want
to work out the loan," he said. "But you get [that idea] from the bad
actors. The major institutional lenders do not like foreclosure; they
will do everything they can to stop foreclosure."
Other lawyers said Hopkins's experience seems contrary to what
normally occurs. But they acknowledge that the process is daunting to
those who are not familiar with it.
"It sounds very, very unusual that the attorney would not want to talk
to her to work out the loan," Draper said. "It's a very common
misperception at the consumer level that lenders want to take the
properties. They don't."
Lawyers also said they have to follow state law when it comes to the
process, and they follow Fannie Mae and Freddie Mac guidelines
...
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