June 1st, 2011
Recently the Press Herald ran a two-part series on home foreclosure, and how it can be avoided.
In the article “Facing foreclosure,” Ray Routhier points out that Maine residents are being foreclosed on less frequently, and by the end of 2010, the number of foreclosures had gone down for three straight quarters.
Routhier partly attributes the drop in foreclosures to programs that assist at risk homeowners. These programs are at both the national and state level. He says,
At the state and local levels, Maine has made a very active effort to help people facing foreclosure, or the possibility of it, during the past few years. In 2010, a state law created the Maine Foreclosure Diversion Program, which allows any foreclosed homeowner to ask for mediation, in which a court-appointed third party is charged with helping the homeowner and lender work out an alternative solution to foreclosure.
While such programs aid homeowners who are literally at the brink of foreclosure, there are warning signs and means of prevention for homeowners who may be vulnerable.
For instance, those who find that they’re constantly paying their mortgage a week or two late, or who neglect other bills in order to pay the mortgage. Others may not be struggling yet, but if life changing events are occurring – job loss, major illness, divorce – then the chance of foreclosure increases, as these incidents can be expensive.
For these “at risk” homeowners, it’s critical to acknowledge the potential of foreclosure early on, rather than putting it off in hopes that the situation will get better.
Routhier’s article mentions that it’s important to identify bills that are luxuries, versus bills that are necessities. Luxury bills – cell phone, high-speed Internet, cable – should be eliminated first. If they can’t be completely eliminated, such as in the case that you need your cell phone for work, then you should try to lower the cost by changing your plan or options.
It is also noted that communication with the lender is key. Keep in mind that the better your financial health is, the more options you have. If you wait until you have missed several payments, then you may not have the choice to refinance or renegotiate the terms of the loan.
On the other hand, if you go to your lender and explain the problem you foresee, then the lender can most likely work with you to avoid foreclosure. Remember, foreclosure is the worst-case scenario for the lender, too, and something that they want to avoid.
Routhier offers these foreclosure terms for homeowners:
ACCELERATION CLAUSE — The clause in a mortgage that can be enforced to make the entire debt due immediately if the borrower defaults on a payment.
DEFAULT — The failure to make mortgage payments in full, on time or at all, or to live up to any other obligations placed on the borrower by a loan agreement.
DELINQUENCY — When a mortgage payment is late, but the borrower is not yet in default.
FORECLOSURE — The process of a mortgage holder filing a lawsuit to take a mortgage-holder’s property to satisfy a debt.
LOAN MODIFICATION — Changing the terms of a loan after negotiations between a lender and borrower, hopefully resulting in the ability to pay off the loan.
MEDIATION — In Maine, homeowners who are being foreclosed upon have the right to request court-run mediation between themselves and the bank. The lender and borrower, aided by a trained mediator, try to resolve the issues at hand. The mediator does not have the power to make the ruling; the two parties will control the outcome.
SHORT SALE — Selling a home for a price that is lower than the amount owed to the bank. Sometimes a short sale can help the homeowner resolve foreclosure proceedings with the bank.
UPSIDE-DOWN — When the loan balance is more than the worth of the house.