Interview: Fighting Foreclosure

By Susan Weber

Image of Stephen Elias, attorney and author — Learn more about what happens in a foreclosure.

If you are facing or fighting foreclosure you need to know your options. Attorney Stephen Elias, author of The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket shares his knowledge on the foreclosure issue and gives easy-to-follow tips on what to do to stop foreclosure and avoid scams.

What should a homeowner do if they will not be able to pay their next mortgage payment?

If they want to keep their house, the first step is to hook up with a nonprofit Housing and Urban Development (HUD) certified housing counselor. You can locate a HUD-certified counselor by calling HUD at 800-569-4287 or visiting the HUD website. Other options are to contact:

HOPE NOW Alliance on their website or by phone at 1-888-995-HOPE
National Foundation for Credit Counseling on their website or by phone at 866-557-2227

These folks will help you determine your home's affordability and whether changes can be made to lower your mortgage payment or even convert it to a 30-year fixed rate mortgage under the Hope for Homeowners Act of 2008.

What are the first three things a homeowner should do if they receive a foreclosure notice?

First - Contact a HUD-certified nonprofit housing counselor for help in negotiating a foreclosure workout.
Second - Based on information you receive from a housing counselor, determine whether you plan to keep the house and start fighting foreclosure, or let the house go.
Third - Research some basic information about your state's foreclosure procedures such as the amount of time you have before your property is sold and the procedures to remove you if you remain. Determine whether foreclosures in your state occur in court or outside of court under a "power of sale" in the deed of trust.

What rights does a homeowner have if their home goes into foreclosure?

The homeowner has four key rights:

Right to prior notice of foreclosure sale as determined by laws of each state
Right to reinstate the mortgage by paying arrearages and fees in full (in most states)
Right to redeem the mortgage by refinancing it before foreclosure sale (in most states) and after the foreclosure sale (in some states)
Right to remain in the home after a foreclosure sale until they receive a Notice to Quit and until a court order is issued after a notice and hearing (almost all states)

What can be gained or lost by negotiating a workout?

Typically a workout extends the term of the mortgage and puts missed payments at the end of the term. This has two benefits:

Allows the homeowner to skip payments for a short period of time and then make up the payments with a surcharge when things get better (forbearance)
Reduces the loan principal (modification) with a resulting decrease in the monthly payment amount

By definition a workout will let you keep your home. However, if the mortgage is unaffordable even after the workout, you might do better to put as much of your mortgage payments as you can in the bank instead of sending them in to the lender. While this will ultimately lead to a loss of your house, you hopefully will be able to remain long enough to amass a considerable savings which will help you obtain future housing.

What is a judicial foreclosure?

A foreclosure is judicial when the foreclosing party has to sue you in court and obtain a judgment of foreclosure. This should be contrasted with a non-judicial foreclosure in which the foreclosing party need not go through the court to obtain title to your home in the foreclosure sale. About half the states use each approach. It's easier to contest a foreclosure in judicial foreclosures than in non-judicial foreclosures since you automatically get to have your day in court. In non-judicial foreclosures you have to sue the foreclosing party in order to raise any defenses you have.

Is there any foreclosure protection if the homeowner is on active duty in the military?

Yes. There are several important protections. Homeowners on active duty are entitled to:

A judicial foreclosure even in a non-judicial foreclosure state
A nine month delay in foreclosure proceedings upon written request
Relief from default judgments in judicial foreclosure proceedings
A reduction in the mortgage interest rate to 6 percent

Will a homeowner still owe money after the foreclosure?

Yes. With some exceptions the homeowner will owe the difference between the amount owed on the mortgage and the amount the lender ends up with (the deficiency). The exceptions are that in some states the "first mortgage" is considered a non-recourse loan, meaning that the homeowner can't be sued for the difference. However, even in these states the owner can be sued for the deficiency on a second or third mortgage. Any deficiency existing after a foreclosure can be discharged (cancelled) in bankruptcy.

Is declaring bankruptcy a good option if your home is in foreclosure?

Bankruptcy can accomplish a number of goals when a home is in foreclosure. Chapter 7 bankruptcy can be used to delay the process for roughly three months (in addition to other delays caused by notice and waiting requirements). It can also discharge any debts you owe because of a deficiency, make your mortgage more affordable (by eliminating your unsecured debt) if you are trying for a workout, and eliminate tax liability for "forgiven debt." Chapter 13 bankruptcy can help you keep your home by spreading out your missed payments over a three to five year repayment plan, assuming you qualify for Chapter 13 and have enough income to continue making your regular mortgage payments as well as the plan payments on your arrearage.