How to Avoid Foreclosure
 

If you are a homeowner at risk of foreclosure you need to know there are programs and services that can help. It’s important to act quickly and before you are three months delinquent on your mortgage payment, says Beth Llewellyn, CEO of the Partnership for HomeOwnership and a U.S. Housing and Urban Development (HUD)-certified homeownership counselor with over 12 years of experience helping lower-income families achieve homeownership.

“Foreclosures in Illinois are a nine-month judicial process but after 90 days the lender will turn the delinquent loan over to foreclosure attorneys and then the fees really start to mount up,” says Llewellyn. “The key is to not ignore letters from your lender. There are ways to work through a bad situation if you act quickly. A certified foreclosure intervention counselor can also negotiate with a lender, servicer or private mortgage insurance provider to restructure the loan if it can be determined the homeowner has the financial wherewithal to keep the home in the future.”

Other options for people facing foreclosure include:

• “Forbearance” whereby a lender lets a borrower pay less than the full amount of the mortgage or skip a few payments if there is a reasonable plan to become current on the loan.

• “Reinstatement” is another option if the homeowner is able to make a payment that covers all of the previous late payments.

• A “repayment plan” from a lender will allow a borrower who has fallen behind to make additional payments each month until the amount past due is paid.

To address the current wave of foreclosures, some state and local governments and nonprofit organizations are offering financial assistance. At-risk homeowners are encouraged to ask a local REALTOR® or a HUD-certified financial counselor to find out where to go for help. Llewellyn recommends the following:

• U.S. Housing and Urban Development homeowner counseling, 1-800-569-4287, www.hud.gov  
• Neighborhood Works America Center for Foreclosure Solutions, 1-888-995-HOPE (4673), www.nw.org
• Illinois Legal Aid, www.illinoislegalaid.org  

Some homeowners may be eligible to refinance with Federal Housing Administration (FHA) insurance if they are falling behind in their mortgage payments with a new program called “FHASecure.” Homeowners can qualify for this option if they meet the following five criteria: 1) a history of on-time mortgage payments before the borrower's teaser rates expired and loans reset; 2) interest rates must have or will reset between June 2005 and December 2009; 3) three percent cash or equity in the home; 4) a sustained history of employment; and 5) sufficient income to make the mortgage payment. See www.FHA.gov for more details.

Another option for the homeowner is to sell the home. Oftentimes in these situations the sale will be a “short sale in lieu of foreclosure.” A “short sale” is an industry term for when the owner of the home does not have enough equity in the property and not enough cash or liquid assets to be able to sell the property, pay off liens and selling expenses (e.g., property taxes, transfer taxes, real estate commissions) and provide a clear title to the purchaser. Many consider a “short sale” better in the long run for the homeowner because it avoids foreclosure which will damage a person’s credit score and make it much harder for the owner to buy another home in the future.

According to Llewellyn, a foreclosure will stay on the credit report for at least 10 years as it is a court action similar to bankruptcy. However, foreclosure does even more damage to a credit report than bankruptcy. Ultimately, if you attempt to get a home loan in the future you must prove to the lender that the foreclosure happened due to something beyond your control such as job loss or illness.

“It’s ideal if the homeowner who chooses to sell can work with a professional REALTOR before they are delinquent three months,” says Llewellyn. “Within this short window of time, a professional REALTOR can negotiate with the lender to place the property on the market and possibly save the buyer any equity left as well as prevent a foreclosure on their credit file.”

Things to remember for Illinois foreclosures:

• Don’t ignore letters from your lender. Some of the information will include foreclosure prevention options.

• Address the problem immediately and BEFORE YOU ARE THREE MONTHS DELINQUENT on your mortgage payment when the loan is turned over to foreclosure attorneys and fees mount up.

• Find your mortgage paperwork and read it to understand the terms.

• Contact a HUD-certified counselor who is trained to help and provide information on foreclosure prevention options, 1-888-569-4287 or the Neighborhood Works America Center for Foreclosure Solutions at 1-888-995-HOPE (4673).

• Learn more from Illinois Legal Aid, www.illinoislegalaid.org

• Know that you may qualify for options such as working with the lender to restructure the loan or a repayment plan.

• Find a professional Illinois REALTOR to help you negotiate with the lender to place the property on the market if selling your home is the option you choose.

• Avoid foreclosure scams. Make sure you protect yourself by working with a HUD-approved counselor, professional REALTOR® and/or an attorney.

• Learn more: www.hud.gov, www.nw.org, www.fha.gov

• Foreclosure should be your action of last resort since it will stay on your credit report for at least 10 years and greatly affect your ability to obtain a home loan in the future.