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Smart homeownership: What everyone should know about foreclosure
Don’t just walk away from your house
Robert C. Reed
Foreclosed homes are available in a wide price range. This house in Conover is listed at $327,900.
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Published: November 1, 2008
HICKORY - Faith's house was sold at auction last week on the front steps of the Catawba County Justice Center.
The Newton woman, who asked not to be identified to protect her privacy, said making payments on the three-bedroom house had been a struggle from the time she bought it nearly five years ago. A second mortgage and payments on a home equity line of credit put the 51-year-old divorcee in debt and kept her there.
When her lender started foreclosure proceedings in late summer, Faith did what many people in similar circumstances do. She walked away from the house without even talking with her lender.
Government programs and the mortgage industry have thus far been able to do little to help troubled homeowners caught up in a nationwide foreclosure crisis. According to the latest data from the Mortgage Bankers Association, more than 4 million homeowners with a mortgage were at least one month behind on their payments at the end of June, and a record 500,000 had entered the foreclosure process.
Faith's scenario is one that is played out much too often, said Sherry Long, community development director for the Western Piedmont Council of Governments, which offers U.S. Department of Housing and Urban Development-approved counseling for homeowners facing default and foreclosure issues.
"It's not a time to ignore notices and dodge phone calls," said Long, who estimates that more than half the people who lose homes to foreclosure never discuss options with their lenders.
"It's a time to be proactive, to talk with your lender as soon as possible," Long said.
"Most lenders would much rather work with you than foreclose," said Helen Whisnant of Consumer Credit Counseling Services of Catawba Valley, a specialized program of the Family Guidance Center.
"They are in the lending business, not the real estate business," Whisnant said.
Area attorneys, Realtors and lenders agree. As the number of foreclosures increases in the Catawba Valley, so do the options available to strapped homeowners.
According to the Council of Governments, the filing of foreclosure civil cases has increased 198 percent in North Carolina since 1998, when there were 16,661 foreclosures. In 2007, the state had 49,754 foreclosures.
In the Hickory metro area, the foreclosure growth rate has been greater. Filings grew from 473 in 1998 to 1,952 in 2007, an increase of 313 percent.
Through September of this year, 1,504 foreclosure cases were filed in Alexander, Burke, Caldwell and Catawba counties.
"All signs indicate that 2008 is going to be even busier than 2007," said attorney John H. Cilley of Corne & Cilley, PLLC, Newton, whose office handles foreclosure cases.
"The market is absolutely saturated with foreclosed properties," he said.
Cilley said mortgage defaults in the Catawba Valley most often occur as a result of job loss, domestic changes including divorce and serious illness.
Job losses hit hard
Since 2000, the Hickory metro has lost about 25,000 jobs, most of them in manufacturing.
Realty Executives of Hickory's Gina King, who works primarily with foreclosed properties, said it can take several years for job losses to translate into foreclosures.
"People lose good-paying jobs, they try all kinds of things to save their house," King said.
"They spend their savings, live on credit, borrow from friends and relatives. Finally they lose the house.
"I think we have three to five more years of this," she said of high foreclosure rates.
Cilley said that while foreclosures have traditionally been seen in the low-to-middle-priced home range, high-end foreclosures have skyrocketed in recent years.
"Every price range is now affected," Cilley said.
"Business executives have lost jobs, too."
Adjustable rate mortgages and subprime loans, which are blamed for much of the foreclosure problem in other parts of the country, are lesser factors here, Cilley said.
He said in some cases people borrowed too much money.
"People thought their jobs were safe and that their salaries would continue to rise," Cilley said.
"They thought that real estate prices would continue to go up. They thought that when the interest rates went up, they'd be able to pay the new amount or sell their house. Others thought they'd flip a house in two years before the rate readjusted.
"Then the bottom fell out of the real estate market. People got stuck paying the higher rates. No one foresaw this economic downturn."
So what should a homeowner do to avoid foreclosure?
If you're getting behind on your mortgage payments, the Federal Trade Commission recommends discussing the following foreclosure prevention options with your lending agency:
Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may work if your problem paying your mortgage is temporary.
Repayment plan: Your loan servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may work if you have only missed a few payments.
Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. This may work if your income is reduced temporarily. Forbearance won't help if you're in a home you cannot afford.
Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make the payments more manageable. Modifications can include lowering the interest rate, extending the term of the loan or adding missed payments to the loan balance. A loan modification may be necessary if you are facing a long-term reduction in income.
Selling your home: It could give you the funds you need to pay off your current mortgage debt in full.
Short sale: Your servicer may allow you to sell the home before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance.
Deed in lieu of foreclosure: With the servicer's agreement, you voluntarily transfer your property title to the servicer in exchange for cancellation of the remainder of your debt. Though you lose the home, this can be less damaging to your credit than a foreclosure. A deed in lieu may not be an option if other loans or obligations are secured by your home.
Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort. A bankruptcy stays on your credit report from seven to 10 years, and can make it difficult to obtain credit, buy another home, rent a home, get life insurance or even get a job.
Hickory attorney J. Bryan Elliott, whose practice includes consumer bankruptcy, said bankruptcy should only be considered after other options have been exhausted.
Bankruptcy might work for someone who lost a job and got behind on payments, but is now working again, Elliott said.
"For someone who can now make their house payment, but can't come up with four or five back payments," it could work, he said.
Under Chapter 13 bankruptcy, that person could stop the foreclosure process and get up to five years to make back payments. However, he or she would have to start making regular house payments immediately.
Bankruptcy doesn't come cheap. Up-front costs average $800 to $900. An additional $2,750 or so in attorney fees must be paid over five years.
Still, if you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate bankruptcy. It could allow you to keep your house while making payments under a court-approved plan.
Other options: If you have a mortgage through the Federal Housing Administration or Veterans Administration, you may have other foreclosure alternatives. Contact the FHA (www.fha.gov) or VA (www.homeloans.va.gov) to explore your options.
Long, at the Council of Government, said the main thing is to take action.
"Explore every option before you walk away from your home," Long said.
"Walking away ruins your credit rating and leads to a lot of other unforeseen problems."
Faith regrets not facing her situation more squarely.
"I should have dealt with things two years ago, not let them get to this point," she said.
"I'm depressed, overwhelmed and shamed. And frightened about the future.
"I don't even want to know what my credit score is."
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