Facing Foreclosure? Experts Advise Action

Here is an article that I was fortunate to participate in again that was published on the front page of the South Bend Tribune today. The photo to the right was used by the tribune in the article.

Homeowners can take steps to minimize fallout.

By KIM KILBRIDE
Tribune Staff Writer

Consumer advocates have a message for homeowners mired in foreclosure: Your situation is not hopeless.

Even if your house can't be saved, they say, there are steps you can take to lessen the fallout.

"When people see the foreclosure (notice) come to the door, they just give up," said Debra Voltz-Miller, an attorney in South Bend.

This, she said, is the time for homeowners to take action.

Those who call foreclosure-prevention hot lines, such as the one in Indiana, will be referred to local counselors who will serve as go-betweens for homeowners and lenders.

If nothing else, area experts say, homeowners should become their own advocates.

Call your lender and explain your situation, they say. Ask for a modification of the terms of your loan. And follow up to ensure the paperwork is received and your request is considered.

If you've already received a notice of foreclosure from the courts, respond to it in writing, advising that you're trying to work with your lender.

And finally, the experts say, do not pay in advance for the services of a for-profit "foreclosure-rescue" company.

What's new in Indiana?

Indiana Attorney General Greg Zoeller announced recently a new collaborative foreclosure-prevention effort among multiple state agencies.

Part of the initiative is to train attorneys across the state to assist homeowners — for free — in dealing with and preventing foreclosure.

And new foreclosure-related laws have been enacted, said Judy Fox, an attorney who teaches at the Legal Aid Clinic at the University of Notre Dame.

One piece of the new legislation, she said, is a requirement that lenders give homeowners a 30-day notice before filing foreclosure.

The other new part, Fox said, is that homeowners — beginning July 1 — now have the option of taking part in a settlement conference with their lenders.

The conference offers the opportunity for the borrower and lender to settle on new loan terms, though there is no absolute requirement for the lender to make concessions, Fox said.

At the meeting, the borrower can bring a representative and though the law is ambiguous, she said, she would argue it requires the person at the conference representing the lender to have the authority to settle with the borrower.

The settlement conferences, Voltz-Miller hopes, will be able to help slow down the foreclosure problem in the state.

"If the lender and the homeowner go in (to the conference) in good faith," she said, "I think it has the potential to stop a lot of foreclosures.

"If a homeowner doesn't have a job or any monetary resources, she said, the outcome will undoubtedly be worse, though perhaps not completely unworkable.

No settlement

If a home can't be saved, Voltz-Miller said, the homeowner and lender might be able to negotiate a deed in lieu.

Essentially, the homeowner would turn over the home voluntarily, and would avoid having a foreclosure on their record. Since the ownership of the home would be transferred to the lender, the homeowner also would no longer be responsible for keeping the house up to code, she said.

But if the house is worth less than what's owed on it, a deed in lieu may not be possible.

Fox said lenders may sometimes hold the homeowner responsible after foreclosure for deficiency balances, the amount he or she owes that's above and beyond what the house can be sold for.

At the settlement conference, she said, homeowners may be able to negotiate that amount with the lender.

Also, she said, homeowners may be able to arrange a move-out date that better fits their needs.

"Saving your home is number one," Fox said, "but (if that isn't an option) it's still a good idea to go to the settlement conference.

"Voltz-Miller acknowledged the new laws won't completely solve the foreclosure issue.

"But, we've got to start somewhere. If we don't stem this problem, it'll snowball," affecting the county's tax base, and residents' quality of life, among other things. "It's this vicious circle," she said.

Another option homeowners in foreclosure might consider is trying to sell their homes via a short sale.

Barry Skalski, with Prudential One Realty, specializes in short sales.

A short sale is when the lender agrees to accept an offer on a home that's less than what the current owner owes on it.

Short sales are a way of helping homeowners avoid foreclosure, he said, though selling a home via a short sale does affect a person's credit record for two years.

Also important to note, he said, is that the shortage must be reported to the IRS as income for the homeowner. But, he said, a law was enacted that says any tax liability on that income will be forgiven through the end of this year.

Good candidates for a short sale, he said, include those who are out of work and have no prospects for employment; people who have relocated for their jobs; and homeowners who care about their credit and the neighborhoods they're leaving behind.

Homes in limbo

Fox said she's dismayed by the number of homes in the area that are sitting empty with seemingly no action being taken to formally foreclose on them and get them on the market.

There are a couple of scenarios playing out, she said.

Banks are foreclosing on properties, but are not bringing them to sheriff's sale.

In Indiana, she said, homeowners should know they're allowed to stay in their homes until the sheriff's sale has been completed.

Also, she said, "We're hearing from some banks that the housing market is too depressed. They're not filing foreclosure.

"In this situation, she said, homeowners often move out thinking the foreclosure is complete or will be completed.

Another problem is that some lenders are writing off loan balances for homeowners who have been in foreclosure.

"Consumers think they have a free house," she said, "but they don't."

The debt could be sold to a third party who could seek payment from the homeowner later. Plus, she said, there still would be a lien on the property, which means the homeowner could not sell it.

Homeowners in this situation, she said, should try to keep making payments.

Two local banks and one branch office of a national bank were contacted for this story. Two of them would not go on the record and the third did not return a phone call.

Fox, meanwhile, is not alone in noticing the number of homes in the area that seem to be in limbo.

Among other responsibilities, Jessie Whittaker, director of the LEND Homeownership Center with the South Bend Heritage Foundation, is currently trying to identify five homes in specific areas of the city that have been abandoned or foreclosed on for potential rehabilitation.

Driving around those areas on the west side of South Bend, she said, it's been difficult to find five homes that are suitable, not because there aren't enough abandoned homes but because there are too many.

"We've got to know that when we rehab it, someone is going to buy it," she said.

And one rehabbed home sitting among five or six that are boarded up is not going to look very appealing to a buyer.

So, she's considering recommending the organization buy, with special grant money that's available, all five homes on the same block.

"Maybe that'll have an impact," she said.

Staff writer Kim Kilbride:
kkilbride@sbtinfo.com
(574) 247-7759