You may be tempted to wait and see. Maybe the problem will go away. Or you just can’t face it right now.
So you do nothing. This is a mistake!
The sooner you get help with the problem, the better your chances of solving it. Contact one of these
help agencies before you miss your first payment, or as early as possible:
Pine Tree Legal Assistance (contact your nearest office in Portland,
Lewiston, Augusta, Bangor, Machias, or Presque Isle)
Or contact a lawyer who does Chapter 13 bankruptcy work. If you don’t know anyone,
you can ask for a referral from the
Maine Bar Association: 1-800-860-1460. This could work for you if you expect to have enough
regular income to finish buying your home but need to adjust your payment plan.
I thought I would be able to afford my loan payments, but they turned out to be more than what I thought
I had agreed to.
Predatory lenders are everywhere - including Maine. If you believe that you are in trouble with your mortgage because
the lender, or your broker, took unfair advantage of you, get legal help right away. Contact one of the legal
services programs listed above. This area of the law is complex, and you will need legal help.
To learn more about predatory lending - and how to avoid it -
go to: Don't Borrow Trouble!
What if I can’t find a lawyer or Qualified Housing Counselor to help me?
Even if you cannot get immediate help from a lawyer or
Qualified Foreclosure Counselor , you need to
take action! The first thing to do is to contact your lender or loan servicer. Ideally, call them before
you miss your first payment. Or call as early as you can.
If you do nothing, the lender will declare that you have defaulted on your loan. After this happens, it may
be much harder to negotiate a deal or “workout” plan.
How do I know who to call?
It is hard to keep track of all the players. Almost all mortgages these days are sold to the “secondary
market” or “investors.” The largest buyers on the secondary market are Fannie May and Freddie Mac (see below).
Another company or bank may become your “loan servicer.” These are the people who collect your payments and
“service” your loan. In some cases, your original lender may continue to service your loan, even though they
no longer own your mortgage paper.
Contact your loan servicer first. Usually your call will be forwarded to the “collection department.”
Insist on talking to the “loss mitigation” or “loan retention” department. Work your way to a manager.
The challenge is finding someone with authority to help you.
Be strong! This is a complicated cast of characters. Even experienced advocates and lawyers often have
trouble finding someone with authority to negotiate an affordable "workout plan." One seasoned housing counselor has said
that sending homeowners off to negotiate on their own is like grabbing someone off the street and
putting him in a ring with a professional boxer! So you will need to be persistent, well prepared,
and strong.
What should I do before I call?
There are some important things to do before you call your loan servicer! Here is a To Do List.
This list will help you get organized and will be very helpful, even if you are able to get a lawyer or
housing counselor to work with you later on. It will also prepare you to send a packet to the loan
servicer. A loan servicer will almost always ask you to provide them with your budget, monthly bills,
proof of income, bank statements, and your "workout" proposal.
To Do List
Collect all of these documents and put them in a file where you can find them.
Do a budget. A budget will help you figure out how much you can actually afford each month. It is
important to be realistic. We have attached a monthly budget form.
Collect all your monthly bills for the last three months.
Collect your proof of income for the last 3 months, such a pay stubs, or an award letter from
Social Security or the Veterans Administration. If you do not keep those things, try to get copies.
Call your employer or the agency that sends you money each month.
Get copies of your bank statements for the last 3 months.
Write down the reasons you fell behind or can not afford the mortgage. Be prepared to explain
the events that led up to your financial problems. Write down in advance what you can afford and what
changes you need in the mortgage to make it affordable. Usually the loan servicer will want
you to send them a “hardship letter” telling them 1) what you want, and 2) why you fell behind.
View a Sample Hardship Letter. You may want to get
help
to prepare the hardship letter.
It is extremely important that any agreement you make with the loan servicer or bank is realistic and
affordable. Do not fudge your numbers. If you cannot negotiate an affordable plan, you have other options
to consider. We will review those options below.
What can I do to help my lawyer or Housing Counselor help me?
In addition to the steps in the "To Do List" above, you (or your legal advisor, if you can get one) will need to
get a complete copy of your loan documents and loan history.
To Do List # 2
1. Get loan documents from the closing agent, the broker and the loan servicer.
Here are some ways to go about getting the documents you and your legal advisor will need. Keep copies of all
your letters.
Even if you have the documents you got when you signed for the loan, send a letter to the
“closing agent” and ask for a complete copy of the loan documents. If you cannot remember who the closing
agent was, try to remember where you signed your documents. That was probably the closing agent’s office.
If you signed documents at your home, try to remember who came to your house. That person may be able to tell
you the name of the “closing agent.” Keep these documents safely in their own file.
If a mortgage broker was involved in your loan, send a letter to the mortgage broker
and ask for a copy of their loan file including the appraisal.
Attached is a Sample Letter you can use, asking the closing
agent and mortgage broker for your
files. Keep these documents safely in their own file.
Send a “Qualified Written Request” to the loan servicer and ask for a complete copy of your
loan history. This can also include the request for all of your loan documents (see above).
Get a
Sample Qualified Written Request. If you dispute any charges to your loan account, or disagree with something
the loan servicer did, this is a good time to ask them to fix it or to explain to you why they won’t.
You will need to send the Qualified Written Request to a different office than where you send your payments. Call the company
you send your payments to and ask them where to send your Qualified Written Request.
The loan servicer has 20 days to acknowledge your Qualified Written Request and 60 days to take action or explain
why they won’t. Keep a copy of your written request and any documents you receive safely in their own file.
The place you send the qualified written request is different than where you send your payments. Call the
company you send your payments to and ask them where to send your qualified written request.
This company cannot charge for your credit report, but they can charge for your credit score. The credit
score usually costs about $15.00. Ask for your credit score if you can afford it.
3. Get a broker's opinion of your home's value.
Knowing the value of your home is helpful for several reasons. It may be important in trying to obtain
a “workout.” Mortgage companies want to know whether your property will still be worth the value of the loan
if they negotiate an agreement. It will also help you and your advocate discuss all your options.
To find a real estate broker, call a reputable company in your area. It may be best to call one of the large
companies you
have heard about. Do not make a commitment to sell your home through them. Simply tell them that you are
interested in a market analysis or similar report of the value of your home so you can consider whether
selling is something you might want to do. This is truthful because selling your home is an option to
consider and one you may choose. In most cases, a broker will provide you with an estimated value of your
property for free.
Gathering all of this information is a lot of work, but it will allow your lawyer or housing counselor
to help you more quickly and give you better advice, or give you the tools you need to try to negotiate a
workout on your own – which we recommend only as a last resort.
What are my options when negotiating a deal?
If you have little hope of getting enough income to finish buying your home, you may not be able to
keep it.
Important Exception: If you think that you are a victim of predatory lending,
get legal help right away.
On the other hand, if you are just having temporary money problems (such as a temporary lay-off, a natural
disaster, a sudden illness or disability), or if certain changes to the loan terms might help save your home,
here are some possible “workout” solutions.
Temporary Relief Situations
The loan manager may be able to offer these solutions.
Temporary indulgence
30-day grace period to allow you to repay all past-due payments at once (such as when you are expecting
a lump sum)
Repayment Plan
You must make current payments and cure past-due payments over a certain period of time
Forbearance
You make a reduced payment, or none, for a specified period. Or you could skip a certain number of
payments, or pay a reduced amount, then resume regular payments and make up the past-due payments
over a period of time, such as 18 months (or sometimes longer with special approval). But you might
have to make larger payments later on. Make sure you can afford a forbearance agreement before you agree
to it.
Waiver of late charges
Loan servicer can waive or defer late charges in certain hardship cases.
Long Term, Serious Hardship Cases
Loan modification
You get a permanent change in the terms of the loan, such as a reduced interest rate, a fixed rate, a longer
loan term, or adding in past-due payments to the loan amount. The servicer may charge a fee for this.
Mortgage assumption
You sell your home to a buyer who assumes your mortgage. The buyer must be able to qualify for the loan,
and the home cannot be worth significantly less than the mortgage amount. Again, there may be a fee to
the servicer.
If you are able to work out a deal, here are some additional tips:
Get the agreement in writing.
Make sure you understand the terms of the agreement.
Notify the “escrow department,” to make sure that they know about the agreement.
Make sure you can afford the plan. If you negotiate a plan that is not affordable, it could be almost
impossible to negotiate another workout plan.
What if I can’t seem to negotiate a plan?
Bankruptcy might be an option. If you have not been able to speak with a lawyer or housing
counselor about your loan, you may want to consult with a bankruptcy lawyer. Most bankruptcy lawyers will
give a free consult. Also, if you have been the victim of illegal predatory lending, the bankruptcy court can
consider these issues in determining a fair resolution between you and the lender. Bankruptcy could be a good
option, but it is not for everyone. Learn more about bankruptcy from our pamphlet:
Bankruptcy: Is It the Right Choice for Me?
What if my only option is to give up my home?
If you have decided that you cannot save your home and it is not too late, here are some other possible
options:
Put your home up for sale
This may be a good choice if you have owned your home long enough to build up some financial equity. That is,
you own a significant share of the current value. This may also be a good
solution for the mortgage owner, if he believes that you will be able to sell for a good price in a
reasonable amount of time.
Do a “short sale” or Pre-Foreclosure Sale
This may be a more realistic approach if you have little equity or the real estate market is depressed (as it is now).
The lender agrees to accept the proceeds from the sale as a total settlement, even if the sale price
does not cover the total amount you owe.
Deed in lieu of foreclosure
As with a “short sale” your lender is agreeing to take the deed to your home and cancel your debt.
What are the tax consequences of the lender forgiving part of my debt?
In the past, if the lender forgave your debt, the IRS taxed you on the amount of money
the lender "wrote off" in the deal. However, a recent federal law reverses this for some people.
Now if your lender "writes off" some debt on your home (effective during 2007-2012), you may quality for
special tax relief. This means that you will not have to pay federal tax
on the forgiven debt.
But not everyone will benefit from this tax law. According to the IRS, the
law applies only to "forgiven or cancelled debt used to buy, build, or substantially
improve your principal residence...Debt used to refinance qualifying debt is also
eligible for the exclusion, but only up to the amount of the old mortgage principal,
just before the refinancing."
In other words, if you took out a home equity loan and used the money to buy a
car or pay bills and the home equity loan is forgiven, you will probably still owe tax on it.
Or if you refinanced your home for more than the original balance and did not use the new
money to improve your home, the extra amount would not qualify for the tax break.
However, if you were insolvent (your debts are more than your assets) at the
time the debt was forgiven, you may get a similar tax benefit under another part
of the tax code.
Tax rules can be complicated. If you have questions, contact our Low
Income Taxpayer Clinic (942-8241) for more information.
Does it matter who currently owns my mortgage?
Yes. Most mortgages are held by Fannie Mae or Freddie Mac. These two agencies have set “workout standards.”
Their loan servicing agents should be following their guidelines and must work with you to
try to avoid foreclosure. All the options listed above should be considered. Keep in mind that the loan
servicer and the loan owner do not have to agree to any particular “workout" plan. However, they may want to strike
a deal that will work well for everyone.
December 2008 update: As you may have seen in the news, Fannie Mae, Freddie Mac, and the Federal Housing Finance
Agency (FHFA) recently announced a streamlined modification program (SMP). This plan aims to
fast-track the highest-risk borrowers into an affordable monthly payment. The program defines "affordable payment" as
"a first mortgage payment... of no more than 38 percent of the household's monthly gross income." The program will serve homeowners
who haved missed at least 3 monthly payments.
Get more details here
It can be difficult to figure out whether your loan is owned by Fannie Mae or Freddie Mac. But if you think
that you should qualify for one of the options explained above to avoid a foreclosure, and the loan servicer will
not agree, try contacting Fannie Mae or Freddie Mac directly.
Whether talking to Fannie Mae or Freddie Mac, ask for someone in the loss mitigation department
who can review
your workout proposal and talk to you about your loan. If they own your loan, they may be able to help.
Warning: Negotiating with the servicer or loan manager does not always postpone a foreclosure. The owner of
the loan can begin taking steps toward foreclosure even while you are still negotiating a workout plan.
Workouts for FHA-Insured Loans
If you are a low-income or first-time home owner, find out if your loan is insured by HUD’s Federal Housing
Administration (FHA). Your loan documents will reference FHA insurance. If you don’t have your documents, ask
your lender. As a last resort, try contacting the
Maine HUD office:
(207) 945-0467.
Owners of FHA-insured loans must consider these HUD-required options before foreclosing on your home.
Some of these options are similar to the choices listed above.
Special forbearance
You are 3 or more months behind in payments but, with a temporary forbearance, you can catch up on the past-due
payments through a future repayment plan.
Streamline finance
If you are no more than 2 months late with payments, this offers you a new loan with better terms; you must
pay closing costs or an interest charge.
Loan modification
Similar to the above option; can include conversing an adjustable rate to a fixed rate loan; you may have to
pay legal fees.
Partial claim
You are 4 to 12 months behind in payments and none of the above options work for you. HUD may grant you a
“junior mortgage loan,” to cover the past-due amount which you can pay at a later time. You must have the
long term ability to repay both loans.
Pre-foreclosure sale
An attempt to sell the house - along with an agreement that the proceeds will satisfy the mortgage debt - can
delay foreclosure for up to 6 months. The home must be appraised for at least 63% of the amount owed and the
sales proceeds going to HUD must be at least 82% of the appraisal. HUD must approve.
Deed in lieu of foreclosure
You transfer the title to HUD in exchange for a loan cancellation.
Loan servicers get incentive payments from HUD for successful workouts. But if you don’t think the servicer
is dealing fairly, you can contact HUD at (888) 297-8685.
VA Guaranteed Loans 1-800-827-0336
As with FHA insured loans, where Veterans Affairs has guaranteed your loan, the VA provides
servicing guidelines. (Proposed VA rules are pending and, if adopted, will cause some changes.)
To review these VA workout rules, go to VA Servicing Guide.
(Follow link to "Servicing Guide"; also, "Servicer Loss Mitigation Program" covers "short sales" and "deeds in liew" procedures.)
USDA, Rural Housing Loans 1-800-414-1226
Your “workout” options vary, depending on whether you have a direct RHS loan or an RHS-guaranteed loan
through a private lender. In both cases, the agency or lender must follow published guidelines.
Depending on which type of loan you have, possible options include:
Interest Credit and Payment Assistance
Payment Moratorium
Workout Agreement
Protective Advance
Special Forbearance
Modification
Pre-Foreclosure Sale
Deed in Lieu of Foreclosure
Contact your lender, the RHS call center 1-800-414-1226, or your
local RHS office.
What if the owner or insurer of my mortgage is not one of these agencies?
You or your lawyer may still be able to negotiate a workout plan. On one hand, your servicer may not have
clear guidelines to follow; on the other hand, this may give him more flexibility. Be careful not to make an
agreement that will put you further in debt but will not really help you to save your home in the long run.
It may be worthwhile to find out if your lender is under government investigation or is being sued for illegal
practices. To find out, contact the Maine Office of Consumer Credit Regulation: 1-800-332-8529. Also, if you
think that you have been a victim of an illegal predatory lending practice, you can file a complaint with this
state office or with the Maine Attorney General’s office: 1-800-436-2131.
Save your mortgage payments. It is very important that you save your mortgage payments if at all
possible and put your payments in a separate bank account. If you can’t save the full amount, then save
what you can afford. But save! Make sure you do not spend the money, and make the mortgage payment a priority.
If you have income and have saved your mortgage payments, you will have a much better chance of saving your
home, even when a foreclosure is already happening.
Will declaring bankruptcy help me?
Maybe. Again, this depends on whether you may have enough income in the future to meet a revised payment
agreement. This may be worked out through a Chapter 13 bankruptcy filing. Talk to a bankruptcy lawyer. If you
don’t know of someone to contact, you can get a referral through the
Maine Bar Association: 1-800-860-1460.
If I am having difficulty with my payments, can I refinance into a more affordable loan?
Maybe. Even if you are in foreclosure, it may be possible to refinance your mortgage. But don’t borrow more
trouble! If you are considering refinancing, stop and think carefully about your options, including negotiating
with your current mortgage servicer. Read our
Don’t Borrow Trouble! page. Talk to a
Qualified Foreclosure Counselor. Refinancing may not save your home; it may only
put you in a worse financial position.
Although it is harder to refinance with private lenders now than it was in past months, you may qualify
for a refinance through a federally backed program.
If you are a veteran, try contacting the Veterans Administration.
Next, consider your local bank or credit union.
Here are two other federal agencies that may be able to help:
U.S. Housing and Urban Development (HUD): 1-800-CALL-FHA (1-800-225-5342)
You may have noticed that Congress has passed several new FHA-backed loan programs over the last two years.
To date, all of these programs are voluntary; your lender or potential lender is not required to participate.
The most recent law, effective October 2008, is the “Hope for Homeowners Act” (H4H). Very basically, here’s how
it works:
The new mortgage cannot be more than 90 percent of the new appraised value.
The current first mortgage holder must accept the proceeds of the H4H loan as full settlement of all outstanding indebtedness.
Existing subordinate lenders must release their outstanding mortgage liens.
As of March 2008, your total monthly mortgage payments due were more than 31 percent of your gross monthly income.
You must agree to share with FHA both the equity created at the beginning of this new mortgage and any
future appreciation in the value of the home.
U.S. Dept. of Agriculture, Rural Development Office
Offers refinances, from non-USDA loans, only in very limited circumstances: if you are in jeopardy of
foreclosure due to circumstances beyond your control. Currently, this does not include adjustable rate
increases. However, other circumstances – such as divorce or other unexpected events – could trigger eligibility. Find your Maine regional office
NOTE: As with FHA, Rural Development may be relaxing its rules as the housing crisis continues.
Check with them on current policies.
If you contact another loan company, just remember that if someone offers to refinance on terms that sound
too good to be true, be careful! "Rescue scams" are everywhere; the worst ones will try to drain away your
equity and leave you even worse off than you are now.
What if someone offers to help me improve my credit and then refinance my home?
Again, beware of foreclosure rescue scams. If you are behind on your bills or your mortgage payments,
or your home is in foreclosure, you are likely to get lots of phone calls, letters, or even people knocking
on your door offering to save your home. Be careful! These people know you are vulnerable, and they are
counting on your desire to save your home at all costs.
There are many foreclosure rescue scams out there. Before signing anything or accepting any offers, consult
with a HUD Approved Housing Counselor (see attached list)
or a qualified lawyer. These foreclosure rescue
plans usually end with you losing your home to someone else.
Foreclosure rescue scams come in many variations. But here is one common pattern to look out for:
The foreclosure rescue will require you to sign over the home by giving a deed to your house with an agreement
to lease the home back to you. Sometimes the agreement will be for six months, eight months or perhaps a year.
You are usually allowed to buy it back, but for more than you owed on it before you signed over the home.
Sometimes the monthly “rent” will be less than your mortgage but often it is more or will be increased soon
after the deal is completed.
Sometimes the foreclosure rescue will involve paying off your mortgage; sometimes it does not. Often, you
will have to buy back your house before the lease ends, sometimes in as little as six months. More often
than not, you cannot afford buying back your home for more than you owed, and the home is lost. Often,
despite promises to improve your credit, your credit will not improve in
such a short time. Also, despite a promise to help you obtain refinancing, no such help is available. Typically,
the rescue scammer then evicts you from your home and sells it. Any equity or value in the property is lost
forever to the foreclosure rescue scammer. Get more information from our post:
Foreclosure Rescue Scams: Just Say No!
Shouldn’t I try to keep my home at all costs?
No. As hard as that might be to hear, keeping your home may not be your best option.
Selling your home may be your best option. If you are not able to make a realistic workout plan, refinancing
with a legitimate company is not possible, and you will not benefit from bankruptcy, the best remaining option
is to sell the home at fair market value. Although selling may not feel like a solution at all, a sale at or
near fair market value will allow you to pay off the mortgage and keep the equity in your home. Depending on
how much you have paid in over time, that equity – the value of the home after you pay off the mortgage - could
be in the thousands of dollars.
Sometimes the laws
change. We cannot promise that this information is always
up-to-date and correct. If the date above is not this year,
call us to see if there is an update.
We provide this
information as a public service. It is not legal advice.
By sending you this information, we are not acting as your lawyer.
Always consult a lawyer, if you can, before taking legal action.
