Things are going from bad to worse. First, you lost your job. Then you couldn't find another one. And now, the threat of foreclosure is looming . . . so you may lose your home. What should you do?!
If you're like many folks, you'll ignore the handwriting on the wall and continue to pay the bills for "frills" . . . persuading yourself that your present circumstances are bound to improve soon, and that you'll be able to catch up on the big debts then. This type of shortsighted thinking is very common (remember Scarlett O'Hara's famous "I'll think about it tomorrow" speech in Gone With the Wind?), since it's human nature to assume that things will get better in the (nebulous) future.
However, such disoriented optimism can plunge you deep into trouble. While you wait for a change in your fortunes, time grinds on — as does the relentless routine of the lending world — so, all too soon, you may find yourself at the receiving end of a foreclosure notice. If you do nothing to thwart this legal proceeding, be assured that the preventable will become, instead, the inevitable.
The moral is this: Don't wait. The best time to take steps to protect your home is today.
As soon as you lose your job, if you realize that you don't have any solid prospects for finding work in the near future, you should notify your mortgage holder. But before you contact that institution or agency, figure out just where you stand by taking an inventory of your needs, income, possessions, and bills. To do this, you'll need to compile five lists.
The first should consist of the absolute necessities. . .your home is pretty sure to be number one on this roster. Food and certain utilities — electricity and your source of wintertime heat — will likely share the second spot. If you don't have access to public transportation, then you'll probably designate your car as your third priority. After those fundamentals, rank the other items you consider essential to your existence.
On the second list, write down the goods and services that you owe money on and could do without. These might include such holdovers from better days as a vacation cabin, a snowmobile, a speedboat, a second car, a stereo, some credit cards, and so forth. A good way to distinguish the essential from the nonessential is to ask yourself if your forebears owned it a hundred years ago. . .if not, you may well be able to get along without it now. In the case of expensive possessions you can no longer afford to make payments on, it's a good idea to notify the merchant or lender involved about the change in your financial situation before repossession proceedings are started. Perhaps the two of you can work out an amicable agreement that will preclude that drastic step.
The third list should itemize every possible way you can cut down on utility and grocery bills. Look around the house and see what can be unplugged. Television consumes electricity . . . so why not switch off the one-eyed monster and visit the local library instead? How about cutting off the heat in parts of the house? Keep in mind that you can move beds into the warmer rooms and that family members can wear heavier clothing. While it's true that the kitchen, bathroom(s), and laundry area need some warmth to prevent pipes from freezing, insulative wrapping will enable you to turn down the thermostat a bit.
Apply the same scrutiny to the family food bill. Do you still need costly convenience foods? You've now got plenty of time to substitute for money by preparing meals from scratch. . .and a few basic cookbooks from the library will suggest some savory recipes. To provide the produce, plant a vegetable garden.
Tally all your income and other potential sources of money on the fourth list. This encompasses worker's compensation, disability payments, unemployment benefits, or—if those have expired—public assistance funds. Other assets might include an insurance policy that you can borrow against (or close out entirely).
The last list will contain all of the possible items that you could sell. Be ruthless in composing this list by asking yourself, "If I do lose my home, where will I move all those belongings, anyway? Would a government subsidized apartment hold them?"
OK, you've finished compiling your lists, and it's time to get on the phone. Let's say that you have a conventional loan. . .the type issued by banks and other financial institutions. Call the company that holds your mortgage (if need be, call collect), and ask to speak with someone in the mortgage-servicing department. Tell whoever is assigned to answer your call that you want to talk about your overdue mortgage payments or discuss future installments that you're afraid you won't be able to make.
If you aren't able to contact the mortgage company by phone, write and explain briefly why you can't meet your obligations, requesting that a company representative contact you as soon as possible for further discussion. Supply a phone number (if possible) where you can be reached and the complete address of the property on which you can't maintain the payments. Include in your correspondence the number assigned to the mortgage by the lender. This last detail will enable the firm to respond more quickly.
When the bank does get in touch with you, be prepared to discuss the problem honestly and in detail. Explain why you've fallen behind in your payments, whether it's because of a job layoff, unexpected medical or funeral expenses, or whatever.
Since a foreclosure does cost lenders money, they're generally interested in working out some alternative method of payment. If you have substantial equity in the house, refinancing the loan to reduce payments is a possibility. Lenders may also offer one or a combination of the following options: a temporary suspension of payments (some companies may require that you continue to pay the interest on the note) . . . an increase in the amount of future payments once you get another job-to offset the amount of the delinquency . . . or an extension of the length of the mortgage to compensate for the missed payments.
The procedure for handling payment problems on federal government-insured loans is basically the same. What's more, many of these notes already have provisions to deal with a fluctuation in a homeowner's income. The best place to start is with one of the more than 600 housing-counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD). (These agencies will often advise people who don't have HUD-insured loans, too.) If there's not an agency in your area, call the nearest HUD office and ask to speak with a loan-servicing officer.
If you have a conventional loan and weren't successful in persuading your lender to work out an alternative method of payment, you might try approaching the company that has insured your mortgage for the bank. This institution is the one that will have to make good on your loan, should you default on the payments. You can find out what company insures your mortgage by asking the bank. While this is a long shot, it's definitely worth a try.
You should always decline the services of intermediaries (professional "pro raters"), who will negotiate with the lender for a large fee. The last thing you need is another debt! Also avoid the temptation of a debt consolidation loan, heeding a slogan used by professional credit counselors: You can't borrow your way out of debtors' prison.
No matter how bleak the situation may look, think hard and long before letting the lender take back your property. Paying off your mortgage is usually the most economical path in the long run. Unless you're able to get into government-subsidized housing, your rent — at today's rates — could end up being more than your mortgage payments are now! And if your home is sold for less than the amount of your loan, you could be held liable for the difference.
To sum up, if you do find yourself out of work and in fear of losing your home, face the situation, remain as calm as possible, and don't give up! Follow the steps I've outlined here and seek advice from professionals at a nonprofit consumer credit counseling agency. The chances are good that you'll be able to avoid foreclosure and save your home. . .if you act promptly.
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