Client Newsletters at GreenPath Debt Solutions, August 2008

GREENPATH CLIENT NEWSLETTER
AUGUST 2008

Foreclosures:
Is There Ever a Right Time to Just "Walk Away?"

Today's tough economy, challenging real estate and mortgage markets and a trend for consumers to spend more than they can afford have resulted in a troubling reality - a "foreclosure crisis." While many of the foreclosures are involuntary, some people are selecting foreclosure as a money management tool. GreenPath counselors feel this is a disturbing trend.

Struggling financially, some people are asking whether the best thing to do for themselves and their family right now is just walk away - from their expensive mortgages, their homes and their monthly payment. This voluntary, planned foreclosure may seem like a solution in some situations, but GreenPath counselors point out that it is actually a potentially debilitating financial mistake.

"Walking away may look right when you do the math on your budget, but it really should be considered very carefully before it is chosen as a potential solution," said GreenPath HUD-certified housing counselor, Dianne Reichel. "People also must realize that the commitment to repaying a mortgage loan is a binding contract and, in addition to the ethical and legal obligation to follow through on that promise, there are a host of other reasons to make good on that promise, all related to your family's long-term general financial wellness."

When a lender files foreclosure proceedings against you:

It stays on your credit report for at least seven years. After seven years, most agencies remove foreclosures automatically, but if they don't, it can remain on the report until you submit a formal removal request to the reporting agency.
It lowers your credit score significantly.
It means you'll pay the highest interest rates when borrowing, using credit cards, purchasing a car, etc., until your credit score has been repaired, which takes a lot of time.
It makes it harder to rebuild and repair for the future.

Foreclosures also eliminate the benefits you sought when you purchased the home in the first place:

Pride of ownership
Sense of stability and security
Investment in your future
Benefit of appreciation
Mortgage interest deductions
Property tax deductions
Capital gain exclusion
Preferential tax treatment
Opportunities to borrow against equity

"Foreclosure is one of the most heart-breaking, nerve-wracking and credit damaging realities of these times," said Reichel. "And, whether you rent or own, your housing payment is the most important payment you have. We want to see people make it a priority."

If you have concerns about your mortgage, call GreenPath at 888-860-4167 now.

Rebuilding Your Credit
By Ellen Bernards

Good credit gets you preferential treatment: lower interest rates, better credit offers, lower auto and homeowner's insurance premiums and more, so it is very much worth the effort and time it takes to turn things around. As you move forward rebuilding your credit, advice from GreenPath counselors can help.

Steps to Rebuilding Your Credit History and Score

Live without credit accounts: Learning to live within your budget now, while you are thinking about it, or while you are enrolled in a Debt Management Program, is the smartest thing you can do for the long-haul. It will help keep you out of trouble in the future.
Pay off old debts and rehabilitate existing credit: If you have an open line of credit or an installment loan, be sure it is up to date. Always pay on time and, in the case of credit cards, pay in full each month.
Prove yourself: If you're not currently in a debt management program, get a secured credit card for a reasonable amount and use it regularly, making certain to pay the balance in full each month. If you'll only be able to pay $50 each month, spend only $50 each month!
Go national: After about six months of paying down a secured card regularly (when you are more likely to have your application accepted), apply for a national retail or gas card. Your success using this card in a reasonable manner and paying in full and on time every month will be reported to all credit bureaus. After six months, do the same with a major credit card.
Pay attention: Use your credit sparingly, charging no more than 10 to 20 percent of your credit limit and paying in full and on time each month.
Enjoy the fruits of your endeavor! An improved credit score, better rates and a better quality of life.

What If I Stop Paying?
All About the Foreclosure Process

Not making your mortgage payment puts you in "default" on your obligation. What happens after that depends on just how delinquent you are:

One month behind: You may be contacted by the mortgage company to inform you that your loan is past due.
Two months behind: You may be contacted by phone by the lender looking for resolution of the past due amount.
Three months behind: You are likely to receive written notice of the delinquent loan and that you have 30 days to bring it current to avoid foreclosure. This notice is often called the "Demand Letter" or "Notice to Accelerate." At this point, though, it may be harder to make arrangements on the loan because by the time it gets this far, lenders are often unwilling to accept less than full amount due to bring the account current - plus late fees. It is still worth trying, though. Don't give up.
Four months behind: At this point, you are usually nearing the end of the timeframe given to bring the account current. If the notice to accelerate expires and you have neither been able to bring the loan current nor made formal arrangements, the loan will be referred to the lenders' attorneys who will begin foreclosure proceedings. At this time, all legal fees will also be added to the delinquency. State law dictates whether the foreclosure must happen through a judicial or a non-judicial process.

If a judicial process is selected, the foreclosure is filed with the court and served on the homeowner. Following that, a hearing on the sufficiency of the complaint is held and a date is then set for the redemption and sale. The sale is usually conducted by a public officer appointed by the court. Finally, the sale is confirmed by the court.

If a non-judicial process is executed, a date will be scheduled for the sheriff sale, which is the actual date of foreclosure. You will be notified by mail and, additionally, a notice will be attached to the front door of the property announcing the sale date.

The sheriff sale is usually scheduled about six weeks after the attorneys receive your file. At GreenPath, we encourage people to keep trying. Homeowners have until this date to work out arrangements with the mortgage company or to pay the reinstatement amount. If you cannot, you enter a "redemption period," during which you can still reside in the home. State law determines the redemption period timeframe, usually no less than 30 days and no longer than one year. Most mortgage companies allow six months.

During the redemption period, the only way to retain possession of the home is to re-purchase it. However, it can be very difficult to find financing with a foreclosure on your credit report. You may also sell the home during that time frame and GreenPath counselors always encourage homeowners in this situation to try. It is the only way to retain any equity that you may have in the home.

When you are setting a price, keep in mind that the amount owed on the mortgage will continue to rise throughout the redemption period.

How Can I Negotiate With My Lender?

The best time to contact the lender for assistance is when you anticipate problems in making your mortgage payment, not after. Lenders are usually more willing to assist if you are proactively seeking assistance. Either before or slightly after, though, you are working to make payment arrangements more than you are "negotiating."

It is all about keeping the account current and, when you can't, planning for how you will bring your payments current after you fall behind. One possible tool for the financially challenged homeowner is a forbearance agreement. In a forbearance agreement, you catch up later by making your normal monthly payment plus an additional amount to make up the past due total. Think about making a payment and ¼ for four months until everything is up to date and then reverting to the old payment. You may also be able to get a loan.

Comment? Suggestions?
Write to the editor at editor@greenpath.com