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Andrews, Bongar, Starkey & Clagett: Waldorf, Maryland Attorneys

Foreclosures - A Resource Guide For Consumers

If you are faced with a foreclosure, or you are worried about it happening to you, we have written this article to help you. We want you to know your options and be informed, so you can avoid a foreclosure.

This article, which was adapted from a Resource Guide by the Maryland Association of REALTORS®, explains what a foreclosure is, what the process is, and what your options are for avoiding it. We also provide a lengthy list of resources and helpful organizations dedicated to preventing foreclosures in Maryland. Often bankruptcy is not your only option. Perhaps a bankruptcy is all that can be done, but you can avoid filing a bankruptcy if your situation allows you to take advantage of other options.

If you have any questions about this information, or if you wish to explore your legal options, we offer a free consultation for anyone in financial trouble who may face a possible foreclosure. In that consultation we will discuss all of your options, including, but not limited to, bankruptcy. If bankruptcy is not right for you, we will be more than happy to tell you so and not charge you. Please contact our office today for an appointment.

What is Foreclosure?

When you went to settlement on your house, you signed a lot of documents. One of those documents you signed was a contract agreeing that the mortgage company has a right to take back ownership of the property through a process called foreclosure. They can only do this if you stop paying your monthly mortgage payments.

You may have heard the saying "you don't own your house, the bank does." That is partly true. You technically own the house, but the bank has a lien on it. A lien is just a legally enforceable right to take back a piece of property. When you cannot make the payments due, the bank can legally enforce its lien. Foreclosure is the legal process the bank must go through to enforce their lien. The bank that financed your car has a lien on your car if you don't make payments, and they can repossess it. Foreclosure is the same thing for a house. It is, in a sense, repossessing the house.

Foreclosure is a technical legal process. The rules are set forth in the state and federal statutes. A bank cannot simply knock on your door and tell you to get out. They have to go through all of the very technical details of the foreclosure process before they get your house back. The law has a lot of protection for you – the consumer – before a foreclosure can be filed. You should know your basic legal protections, and consult with an attorney if you feel your foreclosure is not right, or was not done legally.

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Will I Get Notice of a Foreclosure on My Home?

Yes. Under various state and federal laws, you must receive ample notice of a pending foreclosure. First, you must be late on your payments for at least 45 days (so you know you are in danger when that happens). The lender will usually notify you of a serious problem before they even move you into the collection stage. The law requires them to notify you at least 45 days before filing a formal foreclosure action in court. After that, you will be notified of the foreclosure sale date before it happens.

You have plenty of opportunity for notice, and you have the right to take action to stop a foreclosure right up to the date of the sale. However, be warned that some of your options for stopping the foreclosure, including bankruptcy, require some preliminary steps before you are able file and stop the foreclosure. You cannot wait until the last minute. You should make sure to contact an attorney for a free consultation long before you get notice of a foreclosure sale date. Know your options and be informed. Do not just sit back and hope it will get better. It will not.

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What is The Foreclosure Process?

First, please understand that this section is designed to be a VERY general overview of the foreclosure process, made for the consumer so you know generally what to expect in a foreclosure situation. It is not a technical step by step guide to foreclosures. With that said, here are the basic steps in every foreclosure:

Default: When you miss mortgage payments you are considered to be "in default" on your mortgage. Being "in default" is a different legal status than just "being late." When you are "in default", the mortgage company is legally justified in starting the foreclosure process. Being behind by 15 or 30 days may not necessarily mean you are "in default." (It's not good, and will adversely affect your credit, but it may not lead to foreclosure.)

Sometimes, you can be late up to 45 days (and sometimes more than that) before the lender will consider you "in default." Your settlement documents should tell you how long you must be late before you are "in default." State and federal laws also affect this.

Collections: When you are "in default", the mortgage lender can move your loan into the collections process. Once in collections, the lender can start the foreclosure process. They can also do other things short of foreclosure in an attempt to get paid. These other options may be good for you, or they may not.

If you are having trouble keeping up with your mortgage payments, or if you have received a notice from your lender asking you to contact them, don't ignore it. That is the worst strategy. At least contact your lender and tell them when they can expect payment, and ask about your options. If they do not hear from you, they will assume the worse.

Before you agree to any new deal with your lender, you should call an attorney who knows this area of law. Do not go to any attorney. Only an attorney who knows foreclosures, and your options for avoiding them, can really tell you what you should do in a given situation. The right answers depend on your other debts, the value of the house, your work situation, and many other factors. We offer a free consultation if you are in foreclosure, or you are worried about it, so you can know and understand all of your options.

Filing the Foreclosure Action: The first formal legal step the lender will take after you are in default is to file a formal lawsuit for foreclosure against you in court. This is like filing a lawsuit to get the property back. A foreclosure action cannot be filed in court until at least 90 days after you are "in default" on your loan. Additionally, under the new federal law, your lender must send you a notice of their intent to foreclose at least 45 days before they file that foreclosure action in court.

Service of Process: You must be personally served with a summons from court when the foreclosure action is filed, just like a regular lawsuit. If your lender tries to serve you the papers twice in person but is unsuccessful, the lender may serve you the foreclosure papers by posting them on your property and mailing them by certified mail. Either way, there will be notice of the foreclosure action in plenty of time for you to stop it.

Notice of Sale: Your lender must wait at least 45 days after you are served with the court papers before selling your home at auction. If you add up all the time limits, you will find that the earliest a lender could sell your house is 135 days after you are in default. That is over four months. Often, it is much longer than that because the lender has other foreclosures to process and the entire legal system moves very slowly. But if you are in that process, do not delay. Consult an attorney now to find out your options.

Publishing Notice: Your lender must publish a notice of sale in a newspaper three times before the sale takes place. This takes time, and provides notice. However, the notice is usually in the legal section of the newspaper. You are not likely to read it casually unless you are looking for it. But it will be public record, and anyone who does look for it will see it. With the internet, that information is not hard to find out. Do not be surprised if your neighbors find out.

Foreclosure Sale: If you do nothing to stop it, the foreclosure sale will occur (usually at the court house in the county where you live), and the bank will be in legal possession of your house. They can then file further legal actions to have you evicted.

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What Are My Options in A Foreclosure?

You have a lot of options, believe it or not. You have the right, up until one business day before the auction, to pay any overdue payments, late fees and charges to stop the foreclosure sale. You can also take other action, such as filing a bankruptcy, which will stop a foreclosure in its tracks. A bankruptcy filing immediately stays all pending legal actions against the person who files the bankruptcy. For more information on bankruptcy, see our article Bankruptcy – what you need to know.

There are other options short of payment in full or bankruptcy, but you must work them out long before a sale is held. These can be some great options, and may allow you to keep your house without filing for bankruptcy. Having a chance to work out these options is only one of many reasons to start examining your options early.

We will say it again and again, because it bears repeating: do not ignore notice that you are in default or have been sued for foreclosure. Meet with an attorney to figure out your options. We offer a free consultation, so you have nothing to lose. We have bankruptcy attorneys if you need them, but we also do mortgage modifications, and can negotiate with your lender for you. We can set you up with a realtor who can do a short sale. We can do a lot of things other than bankruptcy, and we will be happy to advise you of all of your legal options if you contact us.

And since the consultation is free and you have nothing to lose, you should not agree to any of the options your lender presents you with until you consult with us. Always know your legal options and be informed before you start making deals with mortgage lenders.

Option 1 – Reinstatement: If you want to pay in full, and get back to the point you were before the foreclosure process started, you can be reinstated. The lender agrees to accept the total amount owed to them in a lump sum made by a specific date. If you do this, be sure to keep records of the agreement and proof that you paid. Make your payment is made either electronically, or send a check by overnight mail (like Federal Express) so you can be absolutely sure it gets there on time, and you can track it.

Option 2 – Forbearance: This is available if you have a temporary problem but expect to be back on track soon. The lender can allow you to reduce or suspend payments for a short period of time, after which another option must be agreed upon to bring your loan current. They can agree not to consider you "in default" during the period of forbearance. A forbearance option is often combined with a reinstatement, for example, when you know you will have enough money to bring the account current at a specific time in the future due to a hiring bonus, investment, insurance settlement, or a tax refund.

Option 3 – Repayment Plan: This is also for those times when you have a temporary setback but will be back on your financial feet soon. You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.

The first three options above are really for people who are in a short term financial jam, and their financial life will get back to normal soon. If it appears that your situation is long term or will permanently affect your ability to bring your account current, you have other options.

Option 4 – Mortgage Modification: Your lender may be able to change one or more terms of your original loan to make the payments more affordable to you. Your loan could be permanently changed in one or more of the following ways: (i) Adding the missed payments to the existing loan balance; (ii) Changing the interest rate, including making an adjustable rate into a fixed rate; and (iii) Extending the number of years you have to repay.

You should be careful about trying to negotiate a mortgage modification by yourself. You should hire an attorney to do it for you. That is what we recommend. At the very least, the attorney makes the lender aware that they really do have to make a deal with you, or else you will be filing for bankruptcy. The same threat does not exist if you are doing the negotiations yourself. Remember, we offer a free consultation if you are worried about foreclosure, so it doesn't cost you anything to find out what your options are, and get some good guidance beyond what this internet article can provide.

Option 5 – Claim Advance: If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years.

Option 6 – Sale of Your House: If you just cannot keep the house, then sometimes you can sell it to get out of foreclosure. Your lender may give you several options, including allowing you to do a short sale, giving you time for a full sale, or allowing an assumption of your mortgage. We have written a separate article about your various options for short sales. Please read it by clicking here. And do yourself a huge favor by consulting with an attorney AND a real estate professional before trying to sell your own home. You could really end up in a mess if you do not.

Option 7 – Bankruptcy: Yes you can sometimes file for bankruptcy and keep your home. You do not always give up your home when filing for bankruptcy. Sometimes bankruptcy is the best option. Sometimes it is the only option. It depends on the details of your financial situation, and only a bankruptcy attorney can really advise you properly. A bankruptcy can be a chapter 7, which wipes out your debts, or a chapter 13, in which you create a repayment plan for your debts.

Bankruptcy is probably NOT as bad as you think it is. The bankruptcy laws were made for people facing large debts they cannot pay, and they will not permanently ruin your credit. Chances are, if you need to file one, your credit is already ruined and only a formal bankruptcy can start you on the road to recovering your credit status.

This article is not designed to discuss all of the details of bankruptcy, but we have a bankruptcy related article on our website, written by our bankruptcy attorneys, that is specifically designed for that purpose. Before you decide not to do a bankruptcy, you should at least read Bankruptcy – What You Need To Know by clicking this link.

You really should contact our office for a free consultation with our bankruptcy attorneys so you can know exactly how a bankruptcy will and will not affect your current situation. Even if you do not plan on filing bankruptcy, you should get the facts. Always know your options and be informed.

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Foreclosure Help for Homeowners in Maryland:

There is a lot of help available for those Maryland homeowners who face foreclosure. Some are government funded, and some are private. Below is a list of some of those organizations you can contact for help. Not to sound like a broken record, but you really should get a free consultation with our office before deciding on any one course of action. Since it is free, you have nothing to lose in making sure you know all of your legal options to avoid a foreclosure, or stop one if it is started.

The Maryland Department of Housing and Community Development (DHCD) offers the HOPE initiative (Home Owners Preserving Equity) featuring two refinance programs to Marylanders who are caught in adjustable rate mortgages, combination or interest-only loans, as well as the Bridge to Hope program intended to help homeowners with FREE housing counseling and up to $15,000 to catch up on late mortgage payments. Call 877-462-7555 or go to:
http://www.dhcd.state.md.us/Hope/Index.aspx.
Also try http://mdhope.org/ or
http://www.makinghomeaffordable.gov/pages/default.aspx

The U.S. Department of Housing and Urban Development (HUD) has created "Tips for Avoiding Foreclosure," which provides an index of broad information on foreclosure assistance at http://www.hud.gov/foreclosure/index.cfm.

HUD supports approved home mortgage counseling for families at risk of losing their homes. Please use HUD Housing Counseling Program's toll free number 800-569-4287 or go to http://www.hud.gov/offices/hsg/sfh/hcc/fc/

If you have a loan with Fannie Mae or Freddie Mac, you may be eligible for loan modification or refinancing under the new Obama program through the U.S. Treasury and HUD. Go to: http://MakinaHotneAffordable.gov

To find HUD approved non-profit counseling:

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?&webListAction=search&searchstate=MD
http://www.freddiemac.com/avoidforeclosure/

The Federal Trade Commission has a web page about avoiding foreclosure:

http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm

If you have a loan with FHA, you may be eligible for loan modification or refinancing under the HOPE for Homeowners program, effective until 9/30/2011. Call 800-CALL-FHA (800-225-5342) or see their website.

Operation HOPE has created the Mortgage HOPE Crisis Hotline at 800-592-4673 to give information and guidance to families including how to: negotiate with your lender; apply for a loan modification; avoid foreclosure; sell a house or purchase an affordable home; re-structure existing debt and obligations; and, refinancing your home.

The NeighborWorks' Center for Foreclosure Solutions was created to preserve homeownership in the face of rising foreclosure rates. In conjunction with the Homeownership Preservation Foundation, national nonprofit, mortgage and insurance partners, the Center has built a network among certified foreclosure counselors around the nation. It conducts public outreach campaigns to reach struggling homeowners with information about how to keep their homes.

Anyone in Maryland who calls 888-995-HOPE will be then connected to the staff at St. Ambrose Housing Outreach Center which coordinates counselors for the NeighborWorks® locally. For more information visit www.995HOPE.org or go to http://www.nwconsumer.org/foreclosure help.html

IRS website: Believe it or not the IRS has a great website, well at least it has a lot of great information if you do a little digging.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayer's financial condition.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision? Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

http://www.irs.gov/individuals/article/0,,id=179414,00.html
http://www.irs.gov/pub/irs-pdf/p4681.pdf

The Baltimore Homeownership Preservation Coalition, created by public and private funders, lenders and nonprofit practitioners, develops and implements key programs and policies to reduce the incidence of foreclosure and high cost lending in Baltimore. Trained professional housing counselors give consumers sound advice, contact their lender and connect consumers with local housing counselors at various Baltimore Homeownership Preservation Coalition member sites. The service is free, confidential and available 24 hours a day, seven days a week. Call 877-462-7555 to be connected automatically to qualified housing counselors who can advise homeowners about foreclosure issues or go to: www.preservehomeownershim.org.

The Coalition for Homeownership Preservation in Prince George's County was formed by public and private sector leaders in 2007 to address the high number of foreclosures occurring in the County. The goal of the Coalition is to strengthen homeowner assets and neighborhood stability in the Prince George's County area by helping troubled borrowers and by increasing homeownership success with homeowner counseling and loss mitigation workshops. Contact Lloyd Baskins at 301-883-HOME (301-883-4663).

HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market participants who want to reach and help distressed homeowners directly (http://www.hopenow.com/). The participating mortgage servicers are listed at http://www.hopenow.com/mortgage_directory.html.

Consumer Credit Counseling Service of MD & DE, Inc., an accredited non-profit community service organization, has been serving the community since 1966. CCCS is dedicated to helping individuals and families resolve financial problems by promoting the wise use of credit through confidential budget counseling, debt management repayment program, and community education. For more information, call 866-731-8486 or go to: www.cccs-inc.org.

There may be others, and new organizations are popping up all the time. We at Andrews, Bongar, Starkey & Clagett sincerely wish you the best of luck in avoiding a foreclosure. Thank you for reading.

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