Monday, August 13, 2012

"RepoMan Cometh…Notice of Default Received…Now What?"

As the economy cools, mortgage foreclosures increase. Mike and Margaret had worked hard for all of their 10 years of marriage. During that period they had some rough patches and vowed not to get jammed up on their finances again. Mike from time to time would take a part time job to help make ends meet. Five months ago Mike was told by his employer that they were moving out of town and going to another state and merging the business and would not be taking any people with them. As an Informational Technology (I.T.) expert he kept the companies computers humming and made a decent living.

Margaret was staying at home to take care of an asthmatic child that needed acute attention almost around the clock. There were other medical complications that centered around this affliction that put a severe strain on the budget. Today, Mike and Margaret received a Notice of Default issued by the Mortgage Company by way of the local Sheriff who knocked on the door and served the notice of action. The order stated that all arrears, attorney fees and late charges would need to be made immediately or foreclosure proceedings would start right away. The total amounted to $8,493.22. Mike and Margaret had tried to work out a repayment plan as well other credit card debt consolidation. Without a job and being down four months on the mortgage payment and credit cards unpaid their credit scores plummeted below 500. Lenders were not willing to work anything out in the way of a new loan. The equity had shrunk since they had bought the house on top of the housing bubble two years ago. Values have fallen back now in their area and city. Behind every foreclosure is a sad story of people getting up against it.

What to do? Many people in this position chose to do nothing and somehow think that someone will swoop in and save them and all they have to do is wait. Denial abounds all the way to the Courthouse steps to the day of sale. A few states have a redemption period, other states it becomes a done deal at time of sale. Mike is frantically trying to find work but the I.T. jobs have all but dried up. When Notice of Defaults are filled in public records the sharks smelling blood start showing up on front doors with offers to solve their problems. All they have to do is sign a quitclaim deed over and agree to something like $1,000 and move out and the new owner will assume the liabilities. Letters pour in daily with similar offers of "help". Right at this moment, with all the costs to catch up and get current, there would be about $10,000 in equity when the smoke clears. Mike and Margaret decide to call three or four local Realtors and get a handle on some options. They also contacted a Bankruptcy Attorney to determine what those options would be in this particular case.

Mike and Margaret learned they could sell the property and ask the lender to consider a short sale, as selling costs are higher now (this is when the lender agrees to take less than what is owed). Short sales are given consideration by lenders as many foreclosures result in a 20% to 30% loss after the court house sale. The short sale may only cost a 10% write down. The seller gets nothing in this scenario. It was also mentioned that the seller could lease-option the property, which would involve sufficient money up front to pay the arrears and make the mortgage current. The lease option or lease purchase might be attractive to someone who has less than stellar credit but believe things will be better in a few years for the leasee/buyers by exercising the option and closing with a new loan. The original mortgage would be paid in full. A close relative may buy the home and lease it back to the Mike and Margaret. This would be a long shot. Mike and Margaret could try to sell the home themselves, but time is against them. They need to move fast and get a quick resolution on this challenge. The Bankruptcy attorney gave two options, a Chapter 13 Bankruptcy or Chapter 7 Bankruptcy (which now they would qualify having little income now). The Chapter 13 would allow them to put the arrears into the Chapter 13 Repayment Plan but the monthly mortgage payments would need to be made on time as well as to the Chapter 13 Trustee payments for all the other debts. Having gathered all the information they could, Mike went back and took two low paying jobs working 16 hours per day to hang on and get current. In this case, Mike and Margaret selected the Chapter 13 option.

If this is happening to you or someone you know, gather all the options and make a decision. To do nothing is just giving up. Bad things happen in foreclosures: divorces, health problems, credit erosion, BUT it is not permanent and it's not fatal. You can fight your way out of this and turn it around. Consider your options and take action Credit repair will be the final step. Reinventing oneself in other vocations will also need focus.

Dale Rogers

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