WHAT IF I CAN’T KEEP MY HOME? Local Nonprofit CCCS of MD & DE Offers Financially Stressed Homeowners Advice and Support

For many of us, homeownership represents the American dream, but for those facing foreclosure, the dream rapidly becomes a nightmare.  More than 2.3 million U.S. households received foreclosure notices last year.  As the economy is slow to improve, many consumers still spend sleepless nights worrying about how to afford their next mortgage payment.  The sooner distressed homeowners seek help, the better chance they have to keep their homes.  Unfortunately for some it’s already too late.  The good news is even these homeowners may avoid foreclosure if they take the proper steps.

Matt Gregory, who serves as a housing counselor at local nonprofit Consumer Credit Counseling Service of MD & DE (CCCS), says that no two foreclosure prevention cases are exactly alike and the options that are available are based on each person’s circumstance. Some consumers qualify for a mortgage repayment program or loan modification, making it possible for them to keep their homes.  Others lack the financial resources to qualify for these programs.  According to Gregory, “People sometimes think just because a friend or neighbor locked into a reduced interest rate or a loan modification, they can too.  But it doesn’t work like that.  We help clients make a reality check.  If they decide they don’t have enough income to keep their homes, there are still options that may save them from foreclosure.”

CCCS Housing Manager Tom Simonton believes one of the most important roles his counselors play is offering objective support:  “When people come to us for foreclosure prevention counseling, they’re often torn.  They view their homes from an emotional perspective -- ‘this is the place where I’ve lived and raised my family.’  Meanwhile, they’re struggling to pay their mortgage.  We help them take an in-depth look at their financial situation -- not just the here-and-now, but what their finances will look like a year or two down the road -- then review the options that are open to them.  There is no sense trying to remain in a home that’s ultimately unaffordable.  When options are limited, we help them come to terms with the difficult situation they’re in, so they can make an informed decision.”

Falling behind on a mortgage and the threat of foreclosure are a frightening prospect for most families, so it isn’t surprising that some people are tempted to just walk away from their homes instead of taking formal steps to deal with the situation.  CCCS Executive Vice President Lori Jankalski cautions against this approach.  “If you simply mail in your keys and leave your home to the lender without seeking prior approval, they will most likely go forward with foreclosure and resale. Once this takes place, you could be in greater financial trouble, because you may be liable for additional taxes or any shortfall if the bank receives less from the resale than what you owe.”

Short sale and deed in lieu are two alternatives that may help financially distraught homeowners avoid the stigma of foreclosure.  These options both have a less serious financial effect than foreclosure and may even provide consumers with relocation assistance.  Gregory says, “The amount of relocation assistance homeowners receive depends on your financial situation and what your lender will approve.  These funds make it easier to transition to more affordable housing, because they help cover the cost of moving.  Foreclosure offers no such help.”

When consumers can’t afford to stay in their homes, short sale generally is the next best alternative.  Under this option, your lender agrees to accept less than you currently owe on your mortgage and allows you to resell the property yourself.  Brandon Brittingham, head short-sale trainer for Long & Foster, says this strategy is often advantageous for both the lender and the homeowner.  “Under a short sale, the homeowner is responsible for finding a realtor and placing the home on the market. This saves the bank the time and costs associated with foreclosure, maintenance, and sale of the home.  Lenders also generally make 17-to-25 percent more on a short sale than they might if the property goes through foreclosure.”

How does a short sale benefit the homeowner?  “Short sale has a smaller affect on your credit rating than foreclosure,” Simonton explains.  “A foreclosure stays on your credit history for up to seven years.  A short sale probably won’t have the same impact or stay on your credit record this long.”  Brittingham agrees and notes, “Short sales also make it easier to qualify for a mortgage in the future.  Depending on your situation, you might be able to eligible for a mortgage again in a year or two.  A few FHA programs allow people to purchase a home even sooner.”

To be approved for a short sale, you must meet two qualifications: 1) your home must be worth less than the amount you owe on it.  2) You must be able to show you’ve experienced financial hardship, such as due to job loss, reduced wages, divorce, or serious illness. Brittingham says, “Proving financial hardship is like offering factual evidence in a litigation trial.  It isn’t enough just to say you lost your job or got divorced.  You actually have to provide a copy of your employment record or divorce degree.”

Although short sales generally don’t take as long as foreclosures, they can still be time consuming and require a lot of documentation.  Brittingham notes, “It’s a complicated process.  You’re more likely to save time and succeed if you work with a realty professional with extensive short sale experience -- someone who is familiar with all the current programs and each bank’s different processes. This helps insure that you submit exactly what’s needed, so you won’t be denied.” 

Simonton recommends that homeowners also learn as much as they can themselves.  “For example, if the short sale price for your home turns out to be less than what you owe on your mortgage, how will the bank handle the deficiency in what you owe?  During negotiation, your lender could agree to waive this amount or hold you liable.  It’s important to know where you stand before you sign a contract.”

Deed in lieu of foreclosure is a less common foreclosure prevention alternative.  Under this plan, you agree to voluntarily deed your home back to the lender, and this satisfies the default on your mortgage.  Gregory says, “Deed in lieu proceedings are relatively rare, because lenders aren’t always willing to approve this route.”  But in some cases, a lender may agree after weighing the time and costs involved in seeking a foreclosure.  Before granting approval, the mortgage company may require you to pay for an appraisal and title search to insure there are no additional liens on your property.  Like short sale, deed in lieu is likely to have a less lasting effect than foreclosure on your credit history.

Brittingham says that even when clients can’t remain in their homes they are best off getting outside assistance as early as possible.  “The sooner you seek help, the better chance you have to negotiate a favorable outcome.” 

CCCS of MD & DE offers free, confidential HUD-approved foreclosure prevention counseling at its local offices and by phone.  All of the agency’s counselors are certified.  Simon concludes, “We think of ourselves as the client.  We give honest, unbiased assessments and will stay with you throughout the process.”   Call 1-866-731-8486 to schedule a housing counseling appointment at CCCS.  Visit www.cccs-inc.org to learn more about the agency’s services and take advantage of its free, self-paced e-Learning course on “Preventing Foreclosure.”