Debt Management Solutions

Fight For Your Home: What You Need to Know If You're in Danger of Foreclosure

2009-12-10T09:24:00.000-08:00

With some reports estimating that a staggering 1 in 10 Americans is behind on their mortgage payments, the foreclosure crisis is currently a major source of stress for millions of ordinary people, many of them in the Greater Chicago area. If you’re struggling to keep up with your payments, the encouraging news is you’re not alone. Take responsibility, but don't be too hard on yourself. There is good evidence pinning a chunk of the blame on macroeconomic forces.

So, what do you do if you find yourself falling behind on your mortgage? Take action. There's been a frenzy of new legislation hurried out over the past year, much aimed at helping distressed homeowners. A good attorney can put the law to work and keep you in your home. If you don't think you can bear the cost of an lawyer, contact your local bar association. They may be able to offer more affordable alternatives.

5 Things You Need to Know if You're Behind On Your Mortgage

1) You can't ignore it. If you want to find a workable solution, you must open your mail and answer phone calls from your lenders. Burying your head in the sand won't solve anything - often it will create unforeseen problems.

2) You can stop or stall the foreclosure process. A loan modification or short sale placed in the hands of your lender can slow or halt the process if you ask the right person at the right time.

3) You probably have more time than you think. In Illinois, you can stay in your home at least 10 months without making payments. With a knowledge of the system, you can extend that time frame.

2) The lenders aren't always right. Sloppy lending practices, bad documentation, and title company errors could give you an opportunity to save your home.

5) Patience pays off. Solutions will generally take a longer time than you would hope or expect. Don't give up, be persistent. Fight for your home.

The Merits of Tenacity

2009-11-17T12:13:00.000-08:00

Perhaps they deserve it, but the recent economic crisis has struck fear into the hearts of lenders across the country. After taking a series of lashings from the media, public opinion, and their own bottom line as a result of their undisciplined and, well, downright greedy lending practices, lenders have become more cautious than ever when it comes to approving loans. And because of that, it is a particularly difficult time to be working with banks.

A dose of caution is probably not the worst thing for our society right now, but it is making certain aspects of doing business in the real estate world more difficult. The solution? Tenacity. In an environment where it seems like everyone is hesitant, fierce persistence is the only way to see things through.

Persistence (Literally) Pays
Case in point: On Monday, October 5, 2009 I closed on a short sale (see my blog on short sales) for a contract entered into on October 25, 2008. Yes, it took 339 days to close this transaction.

I found it to be one of the most challenging, frustrating and confusing files I’ve ever worked on. Why would Chase Mortgage not want a contract for $800,000? Granted they were taking a $400,000 hit, but the market had tanked and even if they went to foreclosure, they could not do better than the contract we had for them. Yet they stalled. First they would tell me that they didn’t have my documents – we’d send them in again. Then they would say they were missing a document – even though the document they were missing was in the middle of a pdf package we had sent. Then they would say that they changed their forms and I had to have my client fill out a new set of forms. After months of this they said they were missing the correct form to authorize me to speak for my client (I fixed this problem - I got my client’s Power of Attorney so that they could speak to me as if I were the client!). And then I waited and waited and waited.

Finally, I got tired of waiting. I called the Executive Resolution Center for Chase. They are part of the Executive Offices of the bank. I’d like to say that they help resolve the problem, but I got stonewalled there as well.

After ER put me in touch with my negotiator I got approval for the closing pending certain documents. As soon as I got him the documents (via email) I got an autoresponse that he was out of the office and that when he returned he would be in a different department. I had to start back with ER again. Vocalizing my frustration to my own banker at my Chase branch, he sat down with me for an hour after closing making phone calls and looking up the hierarchy charts. He gave me the names and phone numbers of the people I needed to talk to and the supervisors one and two levels above them. The next day I called the woman in ER who was assigned to my file and told her of my problem with not having a negotiator to resolve my closing. She said she would take care of it. I gave her three hours. There was no return phone call, so I called and had to leave a message on her voice mail. I waited 30 minutes longer and I called her boss – and left a voice mail message. Within minutes I had a return phone call with her asking “Did you just call my boss???” I explained that I did, because I couldn’t seem to get a response from her. She put me on a three way call with my new negotiator.

Now it still took another 60 days before I could close, but I was dogged in my determination. On Monday, October 5, we completed the closing. Those daily phone calls and emails really helped.

When Times Get Tough...
Needless to say, I was pretty thrilled. There’s nothing more satisfying than seeing a frustrating transaction all the way through. What I was able to take away from the experience was that, as the economy struggles through a slow recovery, the only way to be effective is to up the effort. If you’re in trying to get a loan or working on a short sale, I think it’s important to remember that, when times get tough, the tough get to work and they get tenacious. Persistence is half the battle.

Thinking and Acting for the Long-Term: Mortgage Acceleration Programs

2009-10-23T10:36:00.000-07:00

We Americans have a funny way of dealing with major purchases. When we borrow money for a home, we tend to resign ourselves to the idea that we’ll be in debt forever. It’s easier to quantify the impact of a monthly payment on our life than the interest we’ll accrue over the course of what seems like a lifetime. So we put it off and assume we’re settled in. We take on the longest payment plans we can – for mortgages and car payments – to improve cash flow – and we never get free of debt. We say we want to make decisions based on what’s best for us in the long run, but when it comes down to it, we don’t always do it. If only there was an easier way to rationally make better long term financial decisions.

After doing real estate closings for more than 25 years and seeing the Truth-in-Lending Statement, where my clients faced the fact that they were paying 2-1/4 to 2-1/2 times the original amount they borrowed if they paid off the mortgage over the length of its term, I started researching mortgage acceleration programs. My husband and I had been doing it with our mortgage – turning a 30 year mortgage into one that will complete in 18.5 years (a year from now!), so the strategy seemed incredibly logical to me.

Here's how it works: Using the power of interest, the algarhythm-based software program weighs the rates of your loans with the value of your income, determining precisely the best time to make payments, effectively raising your monthly payment while lowering your principle. Mortgage acceleration programs are cash management systems that can help you pay off your mortgage in ½ to 1/3 of the time. They help you budget, determine the time value of your purchases, and determine the best time to make a purchase based on market conditions and your own cash flow.

These types of programs have been used very successfully in Australia for more that the past 12 years. In fact, currently, more than 30% of all homeowners in Australia and more than 25% of homeowners in the U.K. use mortgage acceleration programs (as opposed to 1% in the United States). But that is changing. In the wake of the recent economic crisis, many Americans are realizing the value of long-term financial thinking.

As an attorney, I’ve dedicated a significant portion of my practice to helping people get out of debt, and I've seen too many people struggle unnecessarily. I’ve done a lot of research in the area of mortgage acceleration and found a particular company that I think is the most effective and checks out as solid and reliable. I’ve become involved with United First Financial®, because I’ve seen it help my clients pay off their mortgages and take steps towards debt-free living. If you’re interested in learning more about the program, or would like to set up a time for a free consultation, please contact me! I’d be more than happy to discuss your options. You will never, ever regret thinking ahead and planning for the future.

Thriving in the Post Credit World

2009-10-08T08:24:00.000-07:00

Imagine, if you will, only spending the money you make (and not that which you have on a credit line), putting money away for the future and never borrowing money from any financial institution again. Can it be done? Absolutely. Does it take discipline? Absolutely. Is it worth it? Duh!

Our economy was on the brink of self-destruction last year because of a collective addiction to credit. It doesn’t take a genius to figure out that you can’t live that way forever. Well, whether we like it or not, as of October of 2008 the personal credit game was over. The buck stops here, the jig is up, party’s over, etc. A new model is inevitable, and the people who going to thrive are those who pick up on that the quickest. It takes knowhow, strategy, and maybe a little bit of expert help, but it can be done.

How Did We Get Here?

In the 1980s there was a paradigm shift in American spending habits. While credit cards had been around in some form since the ‘50s, a combination of technological limitations and strict usury laws had limited their usage by the US population. Americans were taught to save up over time for large purchases, put them on layaway or, for major purchases (such as a home or a car) borrow the money directly from a bank.

But in 1980, tough economic conditions and an obscure but important Supreme Court ruling opened the flood gates for banks to offer credit cards to the masses. The credit card business was floundering at the turn of the decade because inflation rates were higher than the interest rates NY state law allowed lenders to charge. A 1978 Supreme Court ruling allowed banks to export interest rates from whatever state the decision to lend was made. States like South Dakota and Delaware, eager to bring lucrative finance jobs to their states, quickly became pro-bank havens. Additionally, developments in technology facilitated faster communication between retailers and banks. The credit card industry was booming, and Americans were using their cards more than ever.

What followed was a massive effort by banks to shift the cultural mindset of Americans towards “spend now” and instant gratification. The credit card industry was literally expanding the US economy, and no one had more to gain than the banks themselves. "Banks had a multi-billion dollar mass-marketing strategy that led to the Nike 'Just do it' consumptionism -- the effort to get the new generation to reject those old school values,” explains Dr. Robert Manning, author of Credit Card Nation: The Consequences of America's Addiction to Credit. The whole idea of saving for what you want and paying on layaway became an arcane way of approaching purchasing. Bank cards became the way of obtaining everything from groceries to trips to furniture to timeshares. It is this mentality that has, in many ways, led us to our current circumstances.

The Remedy?

The new paradigm is living debt free. It is paying off debt. It is saving for purchases.

The new model requires two strategies – budgeting and savings. I have had what I refer to as my “purses and paychecks” principal. If I buy a small purse, I organize it and manage with the space I have; if I buy a large purse, I need all sorts of things in it until it gets too heavy to lift. If I have a large paycheck, I can spend that as easily as a small one – it’s all a matter of what I need. I recently found out that someone else had actually named this principal (I thought I had come up with it myself!). It’s called Parkinson’s Law. I think Cyril Northcote Parkinson had a vision of our future when he said “A luxury once enjoyed, becomes a necessity”.

Here’s the thing: at near record-low interest rates, there is no good place to save your money – not savings accounts, not treasuries, not CDs. With the roller coaster ride of the stock market, there’s no good place to invest. If, however, you are willing to budget yourself, take some time (years, not months – sorry no instant gratification here), you can live not only debt-free, you can use your own money to build wealth and stability. If you have a strategy, discipline, and the right team supporting you, it can work.

Options in Loan Modifications

2009-08-25T09:35:00.000-07:00

One of the most disheartening realities about any kind of major crisis is the inevitable emergence of opportunists who come out of the woodwork, ready to capitalize on the misfortune of others without offering anything that actually improves the situation. The current mess of the housing market is certainly no exception.

With so many people desperate to keep their homes, there are a lot of unqualified shysters who are preying on the confusion and fear. What makes this particularly unfortunate is that they are preying on the very people who, being under such dire circumstances, very well may need professional help in order to save their home. But with so many unqualified scam artists out to make an easy buck, many homeowners are understandably wary about whom to choose to help them or about paying anyone to help modify or negotiate their loans. This is unfortunate because the right kind of professional support can be particularly beneficial to many people struggling with their mortgage payments.

When homeowners attempt to negotiate with lenders on their own behalf, they are almost never as effective as a professional. This is because there are complexities involved in the loan modification process and approval that can be difficult for the average homeowner to understand. Since they are set up to be confusing, these nuances inherently benefit the lenders. The homeowner has to convincingly present a delicate notion to the lender: that they can’t pay the loan at the rate it is set at, but can pay if it is modified.

The statistics of where the country is currently at with respect to foreclosures and loan modifications are pretty scary –

• 340,149 U.S. Foreclosures in July - 32% increase over July 2008 - 1 in every 355 homes
• 87,000 homes were REPOSSESSED by banks in JULY, 2009 ALONE
• 79,000 homes REPOSSESSED in June, 2009
• Of 2.7 MILLION eligible homeowners - only 400,000 loan modification have been offered
• 235,000 homeowners are currently enrolled in the MHA/Forbearance program

What Can You Expect From a Loan Modification?
If your situation merits and your lender agrees, you may see an adjustable rate loan to be turned into a fixed rate loan either for a fixed amount time or for the life of the loan, first and second mortgages combined, and/or interest rates dropped. You may also see any missed payments recapitalized into the loan, so that you do not have to cure the arrears. It is unlikely that your loan balance will be lowered – but I have seen that happen in a unique circumstance. A one percent drop in the interest rate lowers your payment by approximately $100 monthly for each $100,000.00 of debt.

How Do You Avoid the Scam Artists? How Do You know if Your Negotiator is Legitimate? Should You Use a Free Service?
First and foremost, The BEST way to judge the integrity of the negotiator is to ASK QUESTIONS! The more, the better. If they don't have answers (logical answers) or if they double-talk their way through things, if you don’t understand what they are saying, you should be wary. Anyone in the Foreclosure Rescue business who knows what they're doing will gladly be able to OUTLINE the Mitigation/Resolution PROCESS in detail for you before asking you to make a decision.

* Any company who pressures you or asks for your commitment after only one conversation, should be looked at more closely.
* Grandiose pictures and promises are not part of the Consultative Process of the Homeowner's Evaluation Dialog. You should not expect your negotiator to guarantee a result.
* Ask the company how may resolutions they have effected and to give you the before and after details of each of their examples.
* Once you've discussed your particular situation, ask the representative if they’ve worked on cases like yours and to detail them for you.
* Ask for references! If they're that good, I'm sure people would be happy to sing their praises.

The government has a list of companies that have been certified to provide loan modification services for free. I have not investigated these services; there are too many to do so. I don’t know whether they are good, bad or indifferent. I know the kind of service I offer clients, so I can suggest the questions you should ask the negotiator to determine whether “free” is worth it.

• How long will they stay with the process? How do they determine whether the modification offered is worth taking? If it’s not worth taking, will they continue to work on the file to get the modification they think you should have?
• What happens if nothing happens? How diligent will they be on follow through? Will they escalate the process if they are not getting an answer? Do they know how to escalate the process and to whom?
• What counseling do they require of you to assure that you will stand a chance of success?
• How involved do you need to be in the process? Will this become your life’s work or will you be able to focus on earning a living? How much time will your involvement take?

A good negotiator brings knowledge of how the lender’s system works, the right words to use, the time frame you should work within, and who you need to be dealing with. If you’re working with the right person, this can save you a lot of time and money, but because of the climate surrounding the Real Estate market, there is an influx of people who claim to offer these services who aren’t qualified to do so and ask you to pay for their bad service. While this is certainly reason to be wary and cautious, it shouldn’t stop you from exploring the option of hiring a qualified professional to negotiate for you – just do your homework and be thorough. In the long run, getting the best modification possible can far outweigh the cost of hiring a negotiator. On the other hand, if you go for a free service, you may just get what you pay for.

© Copyright Erica Crohn Minchella, 2009

Lessons of the Great Depression : Or - how are we getting out of this mess? Is the Past Prologue?

2009-07-28T09:49:00.000-07:00

It has been almost 80 years since we, as a country, have faced such a challenging economic environment. As history is prone to repeating itself, the causes of our current crisis share some similarities to the former. In the 1920’s banks and lenders, speculating that the market would continue to rise, knowingly lent money to investors for the purpose of purchasing stocks. This in turn kept rates low and pushed stock value higher, an odd and damaging version of the “house on sand” metaphor. Similarly, bankers fueled the current crisis by building on a foundation of weak credit, although this time, literally, for houses. By offering unsound amounts of credit to would-be real estate buyers, lenders created a situation that wreaked havoc upon our economy at the first signs of a downturn.

But while the Wall Street shot callers may have been ignoring lessons of past as they got us into this current era of economic distress, we can certainly can benefit from history’s insight as we try to cope with the after-effects. Challenge builds character, and the struggles of the Great Depression, from the personal to the collective, built a wealth of knowledge and understanding we can draw upon as we understand how to best survive. Beloved Chicago native and author, historian, actor, and broadcaster Studs Terkel lived through the Great Depression, and his sharp perspective yielded what I think to be some valuable insights into what living through the worst economic period in American history taught him.

The lessons of the Great Depression? Don’t blame yourself. Turn to others. Take part in the community. The big boys are not that bright…Hope dies last – ‘la esperanza muere ultima’ Without hope, you can’t make it. And so long as we have that hope, we’ll be okay. Once you become active helping others, you feel alive. You don’t feel, ‘It’s my fault’. You become a different person. And others are changed too.

Terkel, who lived a long, fruitful life, died last October, just as the current economic collapse was beginning to gain momentum. His words clearly still resonate though, perhaps more now than ever. By taking a closer look at Terkel’s lessons of the Great Depression, we see valuable parallels that, I think, offer some answers and insight into our own present struggles.

Don’t Blame Yourself (But Don’t Be Afraid of Self-Improvement)
First and foremost, “don’t blame yourself.” You certainly cannot blame yourself for the state of the economy and you had no control over the derivatives market or the auto industry. You only have control over your own life, income and expenses. You can’t blame yourself for the decrease in values in the housing markets or falling unemployment. If you have recently lost your job, are being foreclosed upon, or feel like your life is spinning out of control because of unmanageable debt, it is neither helpful nor fair to beat yourself up over it. There are many forces at work directly affecting your life that are out of your control.

But (and this is very important) this does not mean that you are incapable of having control over your finances. This is a challenging time, but is also an opportunity for self-improvement. To begin, you must ask yourself a few questions and be prepared to give honest answers. Have you used your credit wisely? Were you talked into “can’t-miss” deals that ended up failing? Did you make decisions based on an expanding economy that made no sense as the economy changed (as it always will)? It is important to examine what was done wrong and how to fix it going forward and assure that it doesn’t happen in the future. Being excessively hard on yourself can be harmful, but using tough times as an opportunity for self-improvement by critically examining your lifestyle and financial choices can be both helpful and necessary.

Turn to Your Community
“Turn to others. Take part in the community.” While this is good advice for all times, it is especially relevant and vital during times of economic hardship. For those struggling financially, remember that you are not alone. No one wants to admit they are having financial troubles, in fact more people than you think put on a happy face and fake it. Of course you don’t need to tell everyone your problems, but being part of the community means being open and willing to accept support. This makes it easier for friends, family and professionals to help you get back to where you want to be. Remember, businesses, social services, religion, and family can all be sources of support.

You Don’t Want to Follow the Jones’
Terkel next reminds us that, “the big boys are not that bright.” Anyone who has witnessed the collapse of AIG, Lehman Brothers, and dozens of other Wall Street investment houses knows that this certainly still rings true. One of the most interesting stories I heard was from Michael Lewis, the author of “Liar’s Poker: Rising Through the Wreckage on Wall Street”. He said that once the investment houses started turning these huge profits, even though they knew something was wrong, they couldn’t stop – because the investment house down the block or higher in the building was turning those kinds of profits. If you couldn’t give the returns the other boys were giving, your investors would go to them. In fact, money market managers were going to companies and demanding a certain return or threatening to cash in their investments, so companies started cooking the books, or insisting upon unrealistic profits without worrying about the day of reckoning.

So what does this say about us as individuals and what can we learn from this era of irresponsibility and unrealistic returns? For one, if it looks and sounds too good to be true, it most likely is. (This isn’t as easy as it sounds . Just look at how many really intelligent, sophisticated people Bernard Madoff was able to scam). Also, seriously consider making decisions based on what you need, not what your neighbor has. One of the most important lessons from this recession is that the Jones’ just might not be as well off as they appear to be on the surface. Base your financial decisions on what will be healthiest for you, not on what others are doing.

Hope Prevails Above All
“Hope dies last… Without hope you can’t make it. And so long as we have that hope, we’ll be okay.” Several people who lost their saving to Bernie Madoff committed suicide, and the housing market collapse has claimed at least two local real estate agents. While the emotional toll of losing a life’s worth of work or facing utter financial failure is certainly traumatizing, there is always, always hope. All clichés aside, hope is the basis for all progress, and improvement is only possible if you can manage to keep a strong faith in yourself and the possibility of better times. (Think Trump)

Look at your skill set and think creatively. More millionaires are created during a bad economy than at any other time. Surround yourself with the people who support you and help you with solutions. And don’t dismiss people who are not telling you what you want to hear. Make sure you are open to listening to ideas that are outside of your comfort zone – and explore them.

The Need for a Strong Foundation
By almost every standard possible, the Great Depression dwarfs the struggles our nation currently faces. Our parents and grandparents survived though, and with the values and lessons of the past fresh in their minds they ushered in one of the most fruitful eras in American history. Both individually and collectively, we possess the potential to come out of these challenging times stronger than ever, but we have to apply the lessons of the past and learn from our mistakes in order to build a strong foundation.

Foreclosure Defenses Part II – The Process

2009-07-16T21:24:00.000-07:00

One of the first things I try to do when beginning a foreclosure defense is to determine the expectations of my client. Some just want to buy time so they can consider their options. Others are interested in pursuing a short sale, or trying to keep their home at any possible cost. Right now, if a homeowner did absolutely nothing to defend a foreclosure, they could stay in their home, rent free for nine months to a year. If you consider that most mortgage payments average $1,200 to $2,500 per month, that could be a pretty solid amount saved over the course of the foreclosure. The process has a number of steps that amount to about 10 months from the first missed payment until the time a homeowner must give up their home. That’s more time than most of my clients think they have if they’ve fall behind on payments. From the first missed payment to the ability to evict is minimally 10 months and can be more.

Well, you have a lot more options than you might think. I’ve found that in the flurry of lending that went on in 2004 to 2007, there were some major errors made on the part of the lenders. Since these lending errors might release the borrower from his obligation to pay – or may render the property free of a mortgage, checking to see if there is a defense to a mortgage, rather than just assuming that nothing can be done, is important. But beyond defending a foreclosure, the mere fact that the case is filed, opens up a number of different solutions for the homeowner.

The standard way that a foreclosure in Cook County works is as follows:

1. After 30 days of default the lender is required to send a notice to a homeowner who resides in the property and has never filed a bankruptcy proceeding during the life of the loan advising them of their right to seek HUD counseling. If the HUD counselor advises the lender that they are working with the homeowner, there is an additional 30 days to see if a solution can be reach. (See 735 ILCS 5/15-1502.5). This time can run concurrently to the 3 months that most lenders wait before filing any foreclosure action.
2. At the end of thirty days, the foreclosure suit will generally be filed.
3. The sheriff has thirty days to serve the homeowner. Once the homeowner is served the homeowner’s “Appearance” (the document filed with the Clerk of the Court to initiate the homeowner’s involvement in the case) needs to be filed within 30 days. Of course, if the homeowner isn’t served by the sheriff in the first 30 day period, the time frames just get expanded.
4. If the Appearance is not filed, the lender can “default” the homeowner and seek the entry of a Judgment. At this point it is approximately 6 months since the first mortgage payment was missed. Of course, if the homeowner files an Appearance, that mere act can delay things an additional 30 to 60 days.
5. If the Judgment is entered, there is approximately a ninety day time period to “redeem” the property – that is, pay off the loan – and the Sheriff’s Sale or Foreclosure Sale can be conducted any time after that. (An amendment to the Mortgage Foreclosure statute will extend that time to 120 days once signed by the Governor). After the Sheriff’s Sale is conducted, the Court must approve the Sale and if the homeowner has not already moved, the Lender may seek an Order of Possession and have the homeowner evicted.

© Copyright Erica Crohn Minchella, 2009

The Many Options in Foreclosure

2009-07-07T12:54:00.000-07:00

The economy has created the need for a new specialty amongst lawyers – Foreclosure Defense. With foreclosure filings up a staggering 338% in 2008 over the prior year (and with 13,196 cases filed in the first three months of 2009 alone), it is no surprise. You might wonder if there is any way to defend someone who can no longer afford to pay their mortgage. After all, if you can’t make your monthly payments, how many options could you have?

Well, you have a lot more options than you might think. I’ve found that in the flurry of lending that went on in 2004 to 2007, there were some major errors made on the part of the lenders. Since these lending errors might release the borrower from his obligation to pay – or may render the property free of a mortgage, checking to see if there is a defense to a mortgage, rather than just assuming that nothing can be done, is important. But beyond defending a foreclosure, the mere fact that the case is filed, opens up a number of different solutions for the homeowner.

1: Buy Time for a Short Sale

Sometimes people want to have the time to seek a short sale or a loan modification. Given the time frames for getting approval of a short sale or loan modification, sometimes ten months is just not enough. However, for the sake of a homeowner’s credit, it is often worth trying to stave off the entry of a default judgment to accomplish a short sale or loan modification. It may or may not have an impact on one’s credit to have judgment entered. If it is worth it to the homeowner not to have judgment entered and the homeowner is seeking alternatives, it is often not difficult to hold off the entry of judgment for an additional thirty to ninety days.

2 : Defend Against Foreclosure

When a client comes to see me about a foreclosure defense, I always ask them to provide me with their closing documents. In order to determine if there were any mistakes made in the lending process, I have to know the specifics of the loan. Not surprisingly, during the flurry of lending that went on during the sub prime lending years, things were done hastily and carelessly. I have found these circumstances have led to a wide range of scenarios.

In some instances the loan has not been properly documented, allowing my clients to defend the foreclosure and have the lender seek compensation from the Title Company that insured the loan, and keep their property free and clear. On the other end of the spectrum are instances where my client allowed incorrect information to be included on their loan application, making any defense impossible. I will not defend a foreclosure where the possibility of my client being charged with fraud – even if it was unintentional – is substantial.

Another defense to a foreclosure is that the mortgage document and the Note do not match, that is, the parties who signed the note are not the same parties or party who gave the mortgage or owned the property. If the property is owned by a company, the Note and Mortgage must be signed by an Officer – in his corporate capacity – not as an individual, even if the individual is guaranteeing the debt. The principal may sign a guarantee, but the Note and Mortgage must match. Because there can be legitimate defenses to a foreclosure, I always ask the lender to provide me with the closing documents before I will file an Answer to the Foreclosure Complaint, in case there is an opportunity to file a Motion to Dismiss instead.

3 : Other Options

Forbearance – In a forbearance agreement the Lender agrees to allow the homeowner to pay off the arrearage in payments along with keeping current with each new monthly payment. The Lender will decide over what time period they will carry the arrearage out over. A forbearance agreement can be entered into even if a foreclosure suit is pending – the Lender will just advise their attorney to stop the proceeding to see if the homeowner can successfully fulfill the agreement.

Chapter 13 Bankruptcy – In a Chapter 13 the Debtor is generally given 24 months to cure a mortgage arrearage and can also address other outstanding debt. The foreclosure suit is stayed or enjoined without any further action on the part of the homeowner other than filing the chapter 13. As long as the homeowner makes his current mortgage and chapter 13 payments, he will be allowed to cure the arrearage and manage outstanding debt.

Loan modification – A loan modification will address the loan by lowering the rate, thus lowering the payment and recapitalizing the arrearage. This too can be done while the foreclosure is pending and generally the Lender will stay the proceedings themselves, without the need for the homeowner to appear in Court. Loan modifications will be the subject of my next newsletter.

Having a foreclosure filed against you is scary. Armed with information on your alternatives should help to navigate through the options. The worse thing you could do is nothing – unless it’s used as a strategy.

Short Sales Explained

2009-06-16T13:06:00.000-07:00

The first client I represented in a short sale had a mortgage that adjusted and they couldn’t meet the payment. In order to prevent imminent foreclosure by the bank, it was critical that they sell the home as soon as possible, even if it meant selling below the amount the initially borrowed. This was in March of 2007 and it was the beginning of my becoming an expert on short sales. The buyer wanted to close by the beginning of the summer because they wanted to do some rehabbing during the warm months. But the bank was hesitant to take our offer. It was truly a sign of things to come – the ominous direction of the mortgage market, why sellers were seeking short sales, how long lenders would take to make a decision, and how long buyers would hang in to get the benefit of a good bargain.

Maybe because I do so many of them, I am surprised when someone asks me what a short sale is. The simple answer is that it is the sale of real estate for less than the amount owed to the lender to prevent foreclosure. The idea is to make the best of a less-than-great situation. Sellers preserve their credit (to some extent) and their dignity, buyers get a bargain, and lenders get a better value, since the financial worth will go down an additional 20 to 30 percent if the bank has to sell the property after a foreclosure. A short sale can be an advantage to all the parties and, since the property will generally sell for more than in a foreclosure, it is better for the neighborhood and the overall economy. For people who can no longer afford their homes – because of job loss, because of adjustable rate mortgages that have adjusted beyond the homeowners’ ability to pay them, or due to illness or divorce – a short sale is one solution.

Of course, while the idea is simple, the process can be emotionally draining, frustrating, and downright confusing. In the hopes of shedding some light onto this often misunderstood practice, I've broken down the process into a few basic steps. The requirements for conducting a short sale vary by lender (bank), but the strategy is generally the same.

Step 1: Notifying The Lender
The first step is notifying the lender of the sellers's urgent need to sell, essentially offering proof that it will be impossible for them to pay their current mortgage off. If a homeowner is requesting that a lender release without full payoff, the lender is entitled to know that the homeowner has no other alternative. The customary requirements to open a dialog with the lender are:

The Listing Agreement
The listing history
The signed contract
Two years tax returns
Two month’s bank statements
The last two paycheck stubs, or other proof of income if not a w-2 employee
A hardship letter explaining why the homeowner can no longer pay for the property
Authorization for an attorney, real estate agent or negotiator to talk to the lender about the short sale.
Financial documents required by specific lenders.
A preliminary HUD (RESPA Statement or Net Statement which says how much the lender will be paid at closing.

After all of this is received by the lender, there is usually a 30 to 60 day wait. Depending on whom the lender is and how backed up their processing is, it may take longer. It can be a frustrating time for everyone involved.

Step 2: Getting the Lender's Approval
Before giving their approval, the lenders of course want to make sure they are, in fact, getting as much as is owed to them as is remotely possible. When the lender finally does review the package for a decision, they may make certain requests in order to give an approval. These requests may vary from demanding a certain payoff – and the parties can figure out how to get to that figure (i.e. by the brokers and lawyer taking a reduction in fees) – or denying or reducing payment of certain amounts (I’ve seen surveys disallowed, attorneys fees reduced or disallowed, broker’s fees cut). Sometimes it takes time to educate the lender on how transactions work in Illinois, since the negotiator is based out of California or Alabama or North Carolina and doesn’t understand the way real estate taxes are prorated because we pay the taxes a year in arrears here.

If there is a second mortgage, the challenges can be enormous. Some second lenders will not release their position without a certain amount being paid to them, despite the fact that if the property went through a foreclosure they would get nothing. Some lenders insist that you negotiate with the first lender, the brokers, the buyer, the seller, and assure them there is not one more penny that can be shaken out to pay them. Sometimes the first lender and the second lender are from the same institution, but because they are in different divisions, they won’t talk to each other. Other times, it is only one conversation for both loans.

Step 3: Finalizing the Sale
Once the lender does approve, the parties to the transaction have to jump through hoops to get the sale closed before the expiration of the approval. The buyer has to get their lending finalized, a survey has to be ordered, transfer stamps must be ordered for the city or village where the property is being sold, and a condo association right of first refusal may need to be obtained. In Chicago, a zoning certification (that the property being sold has the same number of units as in the records of the city) takes 8 days to obtain. There can be numerous other challenges to getting the closing done before the approval expires.

Avoiding The Alternative
And so while it is often a long, tedious, and frustrating process, short sales can be a good defense against foreclosure and work to avoid a much worse scenario. If there is a foreclosure pending, the case is dismissed, which can mean some improvement to a credit score. Putting the property on the open market as a homeowner will usually fetch more money than a sale by the lender. If the lender goes through the foreclosure process, they can bid in any amount they choose at Sheriff’s sale, leaving the homeowner with substantially more owed on the balance of the mortgage – if they are going to pursue the homeowner for the balance.

For people who short sell investment properties, the amount obtained by selling the property themselves as opposed to letting the lender foreclose, can mean a significant difference in the tax implications of debt-forgiveness.

Debunking Short Sale Myths
A short sale is NOT a defense against a weak housing market. I recently heard of a man in Arizona who was going to try to obtain an agreement of his property at short sale because it had lost so much in value. He was able to pay his mortgage and he wasn’t planning on moving, but someone had convinced him that the only way to deal with the downturn in the market was with a short sale. This makes no sense to me. While a short sale is certainly preferable to a foreclosure, it still deals a significant blow to the seller's credit. If one can afford to make their payments, it is always advantageous to ride out the market and wait for prices to improve. A short sale is an alternative to a foreclosure, not an alternative to a bad market.

Back to my first short sale, we notified the lender of our desire for the sale in March of 2007 and didn’t close until September 5th. As the housing market continued to deteriorate, the bank realized that recouping most of their money was going to be preferable than a foreclosure. Needless to say, after surviving the long and drawn out process, we were relieved. The buyer got a good deal that allowed him to invest more money into rehabbing the property. It wasn't exactly the best-case-scenario for my client as the seller - he clearly would've preferred to have been able to pay his mortgage on time and keep his home - but he certainly was content to be able to avoid foreclosure.

Next: Is there a defense to a foreclosure?

Debt Management Strategy : You Need One!

2009-06-09T11:19:00.000-07:00

I was at a networking meeting on Chicago's Northside a few weeks ago when I met a woman named Martha who had recently lost her job. Like many of the people I meet, she was a victim of the current economic climate. Not even the brightest, most qualified people are immune to budget cuts when companies are desperate and on the brink of collapse. But unlike many, Martha did seem immune from the stress I see people in my office experiencing on a daily basis.

That's because Martha is debt free. Her house is paid for; she has no credit card debt, no student loan payments for children, and no car payments. She has a retirement fund she can rely on, and she has some money saved for unexpected circumstances. She was simply trying to decide what to do with the next phase of her life. At worst her situation is inconvenient.

I couldn’t help thinking how in control and powerful she seemed, and it was in that moment that I realized Martha embodied exactly what I strive to develop in the people I advise. She was able to meet challenging times with confidence, and she had power to choose her future, instead of being compelled forward by circumstances; the power to build wealth, instead of always paying debt.

When I did bankruptcy work (long before the laws changed and bankruptcy became exponentially more difficult to get out of), I used to joke that I had a magic wand in my credenza. I was going to wave it over them and make their debts go away. In today's reality, though, there are no magic wands. I guarantee Martha can attest to this. It’s not magic, it’s hard work. It's discipline. Most importantly, it's a strategy.

So what do you need to do? Everyone has a unique situation, but there are a few basic steps that, for the most part, should be incorporated into anyone's debt reduction plan. After all, the foundation of financial confidence is a clear idea of where you are, where you're going, and how you're going to get there. You will never get out of debt unless you have a strategy. After all, your lenders have one!

Strategy Tips

First of all, you need to start operating on a cash basis. If you cannot afford it, you cannot have it. Need to buy something on the internet? Pay for a hotel or rental car? Use your debit/charge card. Imagine yourself without credit and change your way of looking at it.

Next? Look at your charge cards. What are the interest rates? Can any of them be negotiated down with your lenders? Are you in so deep that the negotiation of your balances won’t affect your credit rating – it’s awful anyway? If you are only paying the minimums on your credit cards you need to understand that your credit card companies reduce your minimum payment as your card gets paid down so that they keep you on the hook as long as possible.

Pull your credit. Make sure the information being published about you is correct. If not, look for strategies to correct the information.

Look at your mortgage. Are you at the beginning, middle or end of your mortgage? If you are at the beginning or middle, you should seriously consider using a method of mortgage acceleration to reduce the amount of interest and the length of time you will be paying your mortgage.

Look at your loans. The same methods used for mortgage acceleration may well work in reducing interest and length of payment for student loans and car loans.

Of course everyone's approach is going to be tailored to their personal situation, but the first step towards financial freedom is to have a plan. Martha was able to embrace the challenge of unexpectedly losing her job because she had been disciplined in employing an effective strategy. If you want to be able to meet challenging times with confidence, want to choose your future, instead of being compelled forward by circumstances, and want to build wealth instead of always paying debt, you absolutely need a strategy. You owe it to yourself to always know where you are, where you're going, and how you're going to get there.

Solutions and Opportunities: An Introduction

2009-05-08T09:52:00.001-07:00

People want to be in control of their finances. Not everybody is. Sometimes it is a matter of things outside of their control – a health problem, a loss of job, the needs of a parent or child that were unanticipated, a divorce. Sometimes it is matters within their control – simple overspending or a job change that didn’t work out the way they had hoped.

If you are in control of your finances, you generally cannot understand how people can not be. You are not the person for whom this blog is intended.

It is intended for people whose finances are not where they want them to be. It is intended for people for whom financial control would be in their grasp “if only” – if only the right job came through, they were healthy, their kids got financial aid for school… you know the rest. It is intended for people who want but don’t know quite how to get their finances under control.

This blog is a means by which I want to reflect and offer insight into the most common themes I have seen people struggle with in my 27 years of practicing bankruptcy and real estate law. I’ve spent the last two years addressing the distressed real estate market and have seen too many people suffering due to poor debt management. I’ve helped people improve their finances for about half of my life and while I don't offer investment advice, I have and always have offered solutions and opportunities for people in debt.

If you think I can offer you insights from my years of helping people improve their finances, please sign up to receive this blog as a syndicated e-newsletter. I will provide articles regularly (which means I have no idea how often the muse will strike). Read on…