Work It Out With Your Lender

Many people allow their houses to be sold to a stranger on the courthouse steps without ever talking to their lender about the problem.  Your lender does not want this foreclosure any more than you do (see below), but they will NOT automatically put you into a program to stop the foreclosure – you must call and ask! If you have not called your lender, now is the time. 
The earlier you call, the better. If you have already called them without success, finish this chapter and call them again; sometimes you can get another person who will be more sympathetic or flexible.  If you’re only one or two payments behind, and this is your first delinquency, they will almost certainly put you on a payment plan to get you caught up.  I’ll say this again - do not procrastinate in calling your lender! If you wait until they have started the official foreclosure process and documents have been filed with attorneys, things get more expensive and more complicated.  But no matter WHEN you are in the process, it never hurts to call, and try to work something out.
Also please notice, I said, “the earlier you call” – meaning that it is best to not leave the negotiating in someone else’s hands.  Your lender wants to know that you are responsible and interested enough to personally call and be the one to negotiate.  In the previous chapter we discussed “loss mitigation consultants” that will offer to “negotiate on your behalf” for a fee.  These are nearly always a waste of money. Your mortgage company wants to hear from you, not a consultant, and they will be far more motivated to work with an interested homeowner than a for-hire consultant. After you finish this chapter you will have the all the knowledge you need to work out a deal with your lender.

The Big Secret Revealed
Before we go any further, you need to understand a few things about your mortgage company and the person you are calling.

1) First, and foremost…the “dirty little secret” we were talking about earlier. Here it is: Your lender does NOT want to foreclose on you, and they do NOT want to own your house.  They are in the business of making loans, not owning and selling houses.  And furthermore, they are in business to MAKE money, not LOSE money, and if they foreclose on your house, they are going to LOSE money - probably a LOT of money.  The house will sell at a discount price, and they’ll have attorney fees, Realtor fees, court fees, not to mention they haven’t gotten a payment on their loan for several months. They will try ANYTHING to avoid doing all this, but you do have to ask nicely.

2) The person on the other end of the phone is not your enemy.  They’re doing their job.  It’s a crappy job and they probably hate it.  You need to be respectful, humble, and gracious at ALL times.  Call them “sir” or “ma’am”, and say “please” and “thank you”.  Most of the people they deal with are rude, evasive, and lying.  Distinguish yourself from “those” people and the person on the other end of the phone might go to bat for you.  Relate to them as another person.  Ask about the weather.  Ask if they’ve finished their Christmas shopping or have plans for the upcoming holiday. Mention your kids (and ask about their kids).  Don’t sound fake when you do this - be sincere, and if they don’t respond, then drop it and just go back to being extremely courteous.  But the more you can get them to like you and relate to you, the better off you are.

Okay, take a deep breath….now let’s get prepared to call your lender!

VA (Veteran’s Administration) Loans
 If you have a VA loan, you may be in luck! Their Loan Service Representatives can provide financial counseling and help to get you back on your feet.  Additionally, the VA has many programs that are not available to non-VA mortgage holders. For example, in some cases they will “refund” a loan, where they basically give you some time to get back on your feet.  I don’t have any personal experience with the VA but I have heard many success stories. Call 1-800-827-1000 and ask for the phone number of the Loan Service Representative in your area.

FHA (Federal Housing Association) Loans
 If you have a FHA loan, you may be eligible for a one-time payment from the FHA Insurance Fund. The FHA helps homebuyers get a loan with easy terms, and then insures the loan to make it more attractive to mortgage lenders. If you are in default, you need to see if you qualify for help from this program!  To qualify, you must be able to prove that you can begin making full payments, and your loan must be between 4-12 months behind. (NOTE: in most states, foreclosure proceedings begin when you miss your third payment, so you need to act quickly!)  If approved for this program, the FHA will make you an interest free loan to allow you to get caught up on your mortgage.  Like any other lender, they will place a lien against your property and the loan will have to be paid off whenever you sell your home. This is a very attractive program – if you have a FHA loan be sure to ask your lender about it immediately.

Prepare for the call
Get a pad and pen handy to take prepare for your call, and to take notes during the call.  You must document every detail of every conversation you have with anyone at your lender.  Write down the date and time each call begins and ends, who you talked too, and what was discussed. Once you determine who your loss mitigation contact is, try to communicate only with them if possible, to reduce the possibility of miscommunication.
Before you call, take a few minutes to prepare.  On the first page, draw a line down the middle and write “Income” at the top of the left column and “Expenses” at the top of the right column. Now, write down all your income sources and the corresponding amounts in the left column. In the right column, do the same with your expenses in the right column.  It may help to review your bank or credit card statements to help you remember what you spend money on. Don’t forget all your loan payments, car payments, gas, groceries, insurance, credit card payments – EVERYTHING.  The reason you are doing this is because the mortgage company representative is likely going to ask you all of this information to determine whether you can afford a forbearance or repayment plan.  Carefully analyze these numbers, and make sure that there is room in your budget. You really want to be prepared for these questions with accurate numbers. Make sure you are giving your lender numbers that will make them believe you can make your payments on whatever plan they are working out for you.  If they don’t believe you can make the payments, they might not approve the plan. Don’t rush through this process.
You may be asked questions like “what is the reason you’ve fallen behind in your payments?”  Think about your answers.  Don’t write down a script to read to them, you want to sound natural when you are talking, but know what you’re going to say.  Tell them the truth - I lost my job, my spouse is in the hospital, my dad passed away, WHATEVER. Tell them you want to make your payments but are just having a temporary problem. Explain that things will be getting better soon and tell them why.   (My spouse is back at work, our tax refund is coming in, whatever.) Think through all of this before you get them on the phone so you’ll know what you are going to say.

Make the Call
 Call the customer service number on your mortgage statement and ask to speak with loss mitigation.  At some companies the first person who answers may be able to help you, but most lenders have a dedicated loss mitigation department to work with borrowers who are behind on their payments to help them avoid foreclosure.  If you don’t ask for this department right away, you might end up going through your entire story twice – a waste of time for you and them!
When you get through to the loss mitigation representative, be sure ask for their complete contact information, including name, mailing address, direct phone number or extension (to hopefully keep you out of the queue if you have to call back), fax number, and email address.  You might not get all of this but you should ask for it. Not only does it show you are engaged and interested in solving your problem, but you should follow up with a fax or written letter summarizing every call.
Be sure to use their name when you are talking with them – you want to show respect and get them to relate to you on a personal level.  In this example, we’re going to pretend his name is John.  After you have verified all your personal information, say these magic words: “John, I’m in a temporary, bad situation and I NEED YOUR HELP. I’m behind on my payments, and I want to get caught up.” Now, in a few sentences explain your situation (lost job, medical bills, etc.) and then end with “…What can you do to help me?”  Make sure you explain why the situation is temporary and things are better or are going to get better soon.  If your situation is permanent, your lender may not be as eager to help you – be persuasive, sell your case and make them want to help you. Now shut up and listen!  See what their offer is, if they make one. If they don’t, be prepared to ask. 
The first option they are likely to suggest is a forbearance agreement.  Your mortgage company is likely to consider agreeing to a forbearance agreement if they have reason to believe that your situation is temporary, and that you will have the money to make up your missed payments at a specific time in the near future. Be prepared to tell them the source of your funds – a bonus, loan, tax refund, etc.
You may be allowed to make no payment or a partial payment with the understanding that you will pay the balance of the past due amount by a specific date. If they don’t offer, ask:
• ”John, my cousin told me that he was behind on his payments, and his mortgage company let him pay interest only for a few months and tack those payments onto the end of the loan.  Is that possible?”

Another common option is a repayment plan, where the mortgage company allows you to make a partial payment on your past due amount along with your normal monthly payment for several months until you are current.  To oversimplify it, let’s just say your mortgage payment is $1000 and you’re two payments behind ($2000).  They might let you repay the $2000 over the course of six or more months by adding 1/6 of the amount, or $333.33 to your normal $1000 payment.  For the next six months, you would pay $1333.33.  After that, your payment would go back down to your normal payment of $1000.00.  Ask:
• ”John, my friend at work said his mortgage company let him just pay a little more every month for a few months until he had caught up, can we do that?”

Yet another possibility is a loan modification. In this scenario you and your mortgage company agree in writing to permanently modify the original terms of your note to make the payments more affordable. Some common loan modifications are adding the missed payments to the existing balance, adding months or years to the length of the note, and transforming an adjustable-rate mortgage into a fixed-rate mortgage.
This is important:  Be realistic about what you can afford, and don’t agree to a plan that you are not going to be able to keep. If you work out a plan that is not within your real budget you’re going to be back in foreclosure before long. If for some reason you can’t follow through on your agreement, stay in communication with them, but don’t expect them to be as sympathetic the second time.  If a pattern develops where you agree to payments and then don’t make them, your lender will quickly abandon any work-out agreements and proceed to foreclosure. Say what you’ll do, then do what you say.
If you come to an agreement with the loss mitigation representative they may fax or mail a copy of the agreement for your signature. Be certain the written agreement is the same as what you discussed on the phone, then sign it immediately and submit it back.  If you are faxing, make sure to get a fax confirmation sheet.  If you are mailing it, send it certified mail, return receipt requested.  After a few days, call your representative back and make sure they acknowledge receipt of your signed agreement. If they don’t send something in writing, then you should send them a confirmation letter.  Fax or mail (certified mail, return receipt requested) it to the address your loss mitigation representative gives you so you have record of the agreement. This doesn’t have to be anything fancy, just “Dear John, This letter confirms the conversation we had on xx/yy/zz regarding my loan 1234567. We agreed I will make payments as follows….”
Postponing the Sale
 In some states, the foreclosure process happens so fast it is hard to come up with and finalize a solution before the Sheriff’s Sale. In some cases, your lender may agree to delay the Sheriff’s sale to give you time to come up with your payments or sell the house, but realize that this costs them additional legal fees and you will have to provide written proof in most cases.
In judicial foreclosure states, you may succeed in getting the court to order a delay of your sale, even if your lender will not agree.  You will have to write a letter of adjournment to the court where you spell out exactly why you are requesting the delay, and be prepared to provide documentation. State laws vary, and the format can even vary from court to court, depending on how that particular judge prefers it. You should contact your court or a local attorney to determine the exact format. 
For example, if you have money coming from a retirement plan or tax refund, you might have to give them copies of the documents showing that you have this money coming, and when.  Or if you are selling your home and have a contract in place, but the buyer needs more time to close the sale, the lender will probably be willing to work with you.  Remember, they don’t want your house – they want their money!

If you just can’t do it…

If you just don’t feel comfortable calling and negotiating with your lender, or if you have tried and were unsuccessful, don’t give up hope. The U.S. Department of Housing and Urban Development (HUD) has a network of counselors who may be able to help, and even negotiate for you. You can call them at (800) 569-4287 or check on the web at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm for an agency near you.
If you prefer to enlist the help of a private organization, there are many available that will help for a fee, but again I stress, you must be very careful not to fall prey to a scam artist here. Ask for references and call those references yourself; make sure this organization is legitimate and has helped other people.  Call the Better Business Bureau in their area and see if they have a record – good or bad.  You may check the resources page at http://www.stop-foreclosure-manual.com/resources.html for links to organizations that are known to be legitimate.