Solutions To Review With Your Lawyer

The NY Times published an article about the foreclosure crisis. About 500,000 loans are expected to go into default in the US soon. I have been helping many clients evaluate various options, including refinancing, forbearance agreements, loan workouts (settling with the lender), Chapter 13 bankruptcy repayment plans, short sales, straight sales, and leasebacks. Unfortunately, some clients jump right into one of these alternatives without consulting a lawyer and sometimes the client makes the wrong choice or doesn’t fully understand the implications. Since I’ve been offering free telephone consults, there is really no reason for this to ever happen. Ironically, the story that purports to be about helping homeowners, quotes Bruce Bergman, a well known mortgage foreclosure attorney who is the author of an excellent treatise, but who nonetheless represents lenders (and not borrowers) to my knowledge.

Here’s the story . . .

When Borrowers Face Foreclosure

By JAY ROMANO
Published: October 14, 2007
THE interest rates on some two million adjustable-rate mortgages will be reset over the next two years, according to an estimate from the Department of Housing and Urban Development, and of them, about 500,000 are expected to go into default. FHASecure, the plan announced by President Bush in September, is expected to help about 240,000 of those borrowers, but the rest may well find themselves on their own.

For anyone about to default on a mortgage, the first and most crucial step is calling or visiting the lender immediately.

“A HUD study found that half of all homeowners facing foreclosure are afraid to contact their lender for help,” said Adam Glantz, a HUD spokesman in Manhattan.

Mr. Glantz said that under FHASecure, borrowers who went into default when the interest rates on their loans increased may qualify for refinanced mortgages from the Federal Housing Administration.

To be eligible, they must have a sustained history of employment, sufficient income to make the refinanced mortgage payments and a history of on-time mortgage payments before the rates reset. The reset must occur between June 2005 and December 2008, the borrowers must have at least 3 percent equity in their houses, and they must pay for mortgage insurance.

Those who do not qualify for FHASecure may have other options. “The first thing you have to do is open your mail,” said Lisa Breier Urban, a Manhattan real estate lawyer. “People tend to ignore the notices they receive because they believe there is nothing they can do about their situation. But a lender will often make accommodations to keep you out of foreclosure.”

David Petrovich, the executive director of the Society for the Preservation of Continued Homeownership, a nonprofit loan-counseling organization in Oakhurst, N.J., said the lender might be willing to accept partial payments for a few months if the borrower’s financial problems are temporary and will improve.

Borrowers may also be able to persuade the lender to lower the interest rate or extend the loan’s term. “Lenders want to avoid foreclosure as much as borrowers,” Mr. Petrovich said.

Bruce Bergman, a Garden City, N.Y., lawyer who specializes in mortgages, said that there were other ways to avoid foreclosure but that they would require the borrower to give up the house.

One is what is called a “short sale.” “Suppose you have a house that is worth $300,000 but the balance on the mortgage is now $320,000,” he said. “The lender might be willing to allow you to sell the home, accept the $300,000, and forgive the rest.”

It is also possible, Mr. Bergman said, that a lender might accept what is known as “deed in lieu of foreclosure.” With such an arrangement, the borrower voluntarily deeds the property to the lender, who then waives the right to sue for the amount still owed. Another possibility is to persuade the lender to allow the sale to a qualified buyer who will assume the balance of the mortgage.

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