Consumer - Mortgage Foreclosure

To better understand the mortgage foreclosure process, here are some definitions of important terms:

  • Foreclosure – A foreclosure is the process by which your noteholder (e.g., the entity that owns your mortgage) can reclaim your home and/or land if you fail to make timely mortgage payments. Once your home has been foreclosed upon, you no longer have ownership rights in your home or your land, and your loan servicer can insist that you leave.  

  • Servicer – Your loan servicer is the company that typically is responsible for collecting your loan payments for the benefit of your noteholder. Your loan servicer is the first party you should contact with questions or concerns about your mortgage or mortgage payments.

  • Term – The term of your mortgage refers to how long you are required to make payments (e.g., 15, 20 or 30 years). Typically, the longer the term of your mortgage, the more you will pay in interest over the life of your loan.

The prospect of losing your home to foreclosure certainly would be a terrifying experience.  In the event you are having trouble keeping up with your mortgage payments, here are several suggestions to help avoid foreclosure. 
Communicate with your loan servicer. Be sure to speak with your servicer and let them know you are having trouble making payments. Some servicers will work with borrowers to help them avoid foreclosure by modifying loan terms to make their payments more affordable. If you ignore the problem, it almost certainly will make it worse. When discussing your loan with your servicer, be sure to do the following:

  • Before you speak with your servicer, write down the specific problems you are having with your loan. What caused you to have difficulty in keeping up with your payments? Is the problem permanent or temporary? What solution would you like to reach?

  • During the foreclosure prevention process, be sure to document all discussions you have with your servicer (e.g., write down the date, the name of the individual you spoke with, and the outcome of your call).  Additionally, be sure to follow-up all telephone requests with a letter to your servicer. Finally, be sure to meet all deadlines provided to you during the process. 

Know your mortgage. Review your loan documents to determine your rights and obligations under your mortgage. If you can’t find answers to your questions by reading your mortgage documents, contact your servicer and ask. Your loan servicer is the party responsible for collecting your mortgage payments.

Be sure to at least find the answers to these questions:

  • How much do I owe on my mortgage? 

  • What is the full term of the mortgage? The longer the loan payment period, the more you will pay in interest over the life of the loan.

  • Is my interest rate fixed or adjustable?

    • If you have a fixed rate mortgage, this means your interest rate will stay the same over the life of the loan. 

    • If you have an adjustable rate mortgage (commonly referred to as an A.R.M.), this means your interest rate can (and likely will) change and possibly increase substantially over the life of the loan. If you have an adjustable rate mortgage, you may wish to try to refinance to a fixed rate mortgage, if possible. 

  • Is there a balloon payment on my mortgage? A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note and leaves a balance due at maturity. The final payment of your loan that typically is larger than your other payments and is called a balloon payment. If you have a balloon payment on your loan and cannot make this payment or refinance your home, you may lose your home to foreclosure.

  • Does my loan contain a prepayment penalty? Some loans contain penalties that require you to pay a fee if you pay off your loan early.   This means that even if you try to refinance to a lower (or fixed) rate, your noteholder could require you to pay this penalty.  

Be wary of potential scams. There always are people willing to take advantage of desperate individuals to make an easy profit. Never sign a legal document without reading it and being sure that you understand it. If you do not understand something, it is wise to seek trusted professional advice from an attorney or a HUD-approved counselor. (See “More Information” below for details on HUD)

Be cautious of claims by individuals or businesses that they can “rescue” you and help you remain current on your mortgage. If an offer to help sounds too good to be true, it probably is. The most common mortgage foreclosure scams you should watch out for include:

  • “Mortgage Foreclosure Prevention Specialists”: Some scammers promise to help you make phone calls or complete paperwork, in exchange for an exorbitant fee. Often times, these are simple tasks that can be completed by the homeowner, without cost.

  • Lease-Buyback Scams: On some occasions, scammers will convince, or encourage, homeowners to transfer the deeds to their homes. Some of these transfers are disguised as lease/buyback transactions where the homeowner is promised he or she will be able to remain in the home on a lease term, and eventually buy it back. The terms of these agreements often make it far more difficult to re-acquire ownership of your home. 

  • Bait-and-Switch: In this type of scam, scammers trick unknowing homeowners into transferring the deeds to their homes. Typically, the scammer will convince the homeowner that he or she is signing documents to “bring their mortgage current.” In reality, the homeowner is signing documents to transfer ownership of their home to the scammer.

Consider selling your home without foreclosure. Sometimes, servicers will delay foreclosure proceedings if you have put your home on the market. If your home is less valuable than the amount of your loan, your servicer may allow you to sell your home at a loss, and forgive the rest of the loan (you could, however, owe income tax if you choose to go this route and should consult your tax advisor).
More Information:

  • The U.S. Department of Housing and Urban Development’s (HUD) Web site provides resources and information for homeowners having difficulty repaying their mortgages and contains a list of HUD-approved credit counseling agencies, which are available to help discuss options to help you avoid foreclosure.

  • The Federal Trade Commission’s (FTC) Web site. The FTC is the federal agency that advances consumers’ interests through education and industry regulation and enforcement. The site contains a wealth of information regarding the mortgage foreclosure crisis and other issues that consumers face everyday.  

  • Housing Opportunities Made Equal’s (H.O.M.E.) Website H.O.M.E. is a Virginia non-profit organization that was founded in 1971 to fight discrimination in housing. Among other things, it provides educational materials for, and assistance to, individuals who are facing foreclosure or are victims of predatory lending practices.

  • If you need the services of an attorney in Virginia, the Virginia State Bar (VSB) sponsors a service called the Virginia Lawyer Referral Service. If you are referred to an attorney through this service, you are entitled to an initial consultation with the attorney for up to 30 minutes for no more than $35. You may contact the VSB by writing to: Virginia State Bar, 707 East Main Street, Suite 1500, Richmond, Va. 23219-2800. Their nationwide toll-free number is 1-800-552-7977. Additional information about this service is available on the VSB Web site at: http://www.vsb.org/site/public/lawyer-referral-service/

  • If you cannot afford the services of an attorney, you may qualify for legal aid. Legal aid offices are nonprofit organizations that provide free legal advice and representation to low-income individuals. You may qualify for legal aid if you meet certain low-income thresholds, which typically are linked to federal poverty guidelines. For more information, contact your local legal aid office. You can check the phone book through the alphabetical listings for “legal clinics” or “legal aid,” etc. A statewide directory of legal aid offices is on the Virginia Legal Aid website.