As a bankruptcy attorney in Indiana for more than 20 years, I've been helping folks with their financial affairs every day. I always try to read up on news—local, national, and even worldwide news—so I can provide my clients with the best advice possible.
Given the state of today's economy, people are reading and listening to all these news stories, and more and more folks are expressing to me that they don't know what to make of it all.They don't really understand how these events and changes are going to affect them as they raise their children, do their best to make everyday ends meet, and save for the future.
I'm hoping this column will help you read and hear news reports with a greater understanding of what that news can mean to you and your family.
We take pride in being parents, don't we? A big part of that is keeping a roof over our children's heads. Most of us parents never used to think about the word "foreclosure," and now foreclosures are a big topic in the daily news. Credit Suisse recently released a report predicting one in eight mortgages will be foreclosed in the coming two years. Home foreclosures add to the oversupply of homes for sale, pushing prices even further down. As a result, many homeowners find themselves with mortgages bigger than the value of their homes.
Are there ways to avoid having a lender foreclose on your home? Certainly. But just as with an antiques auction, everything depends on your reaction time.
Going, going gone!
The first "Going" (and this is the one so many people refuse to acknowledge) means things are sliding rapidly out of control in your financial life. You're late paying bills, and your credit cards are maxed out. You have "month left at the end of your money," as Ziggy would say in the cartoon.
You keep hoping and praying for a "fix." Perhaps a job offer, an insurance claim payment, a loan from a relative, a winning lottery ticket. Meanwhile, with each passing day, you put off taking action to keep yourself and your family financially afloat.
The second "Going" is an actual foreclosure notice. Now some of your options are gone. But, if you respond quickly, there are still choices remaining to save the home.
However, once the "Gone!" sounds, that means the sheriff's sale has taken place, and essentially your options are few to none. I've spent almost 25 years urging folks whose circumstances have taken a dramatic downward turn to get professional help before the "auctioneer" sounds the three-count. The earlier in the game I can help clients negotiate with their home lenders, the more flexible they are. There is a better chance for a positive response.
Five settlement alternatives
There are many variations on settlements between homeowners and their creditors, but most fall into five general categories. The first three types keep the homeowner in the home. One strategy of this type is getting the lender to modify the terms of the mortgage by either reducing the interest rate or lengthening the payment period.
The second is a "catch-up" repayment plan, whereby the homeowner makes a bigger payment each month to catch up on the arrears. In some cases, the catch-up payment can be moved to the end of the note's term. The federal government facilitated the forming of an initiative called Hope Now. This is an alliance of credit counseling agencies, lending institutions, mortgage security investors, trade associations and loan servicing companies formed specifically to work with troubled homeowners on settlement plans.
The alternative settlement types involve the homeowner's losing his home, but getting out from under the debt without having a foreclosure on his record. With a deed in lieu of foreclosure, the debtor gives the house back to the lender in exchange for total forgiveness of the mortgage even if the home is worth less than the amount owed. In a "short sale" situation, the homeowner sells the home to a third party and the creditor accepts this price as full payment.
I work with every possible variation of these four strategies (mortgage modification, catch up, deed in lieu of foreclosure, and short sale), and there is no one-size-fits-all solution. It depends on the situation. Some people have been responsible with money all of their lives, but their finances were derailed through no fault of their own, whether by a major illness, being laid off at work, or divorce. Maybe now they're getting back on track with a new job, and, given a couple of years, they can see their way clear to catching up on the house payments and on other debts. If moving would mean their children having to change schools, parents might want to try everything possible to keep the home.
On the other hand, some people just bought more house than they could handle. The sooner they escape that oversized financial drain, the better. Then, too, if an adjustable rate mortgage is jumping so high that the family just cannot handle the new payment, staying in the home just might not make sense.
Foreclosure is a frightening prospect, no doubt about it. But in today's economy, more and more people are facing just such a possibility. The main thing is not to wait until the countdown begins, because what might be "gone!" are valuable options and choices.
Mark Zuckerberg is one of only 15 board-certified consumer bankruptcy specialists in the State of Indiana. He has bankruptcy law offices in Indianapolis, Columbus, Bloomington and Anderson. The opinions in this column are not to be construed as advice in specific situations and do not necessarily reflect the views of Indy's Child. Questions and comments may be addressed to Mark Zuckerberg, c/o Indy's Child. Zuckerberg may be contacted directly at 317-687-0000.
