Foreclosure Q & A
Q1: Where can you turn for additional help?
- Union Plus Credit Counseling
- Union Plus myFICO discount and resources
- Union Plus Legal Service
- Making Home Affordable Program
- Federal Housing Administration
- State foreclosure laws
Q2: What is the Making Home Affordable program and loan modifications?
There are two programs under Making Home Affordable:
- a refinance program and
- a modification program
Q3: Do you need to be 3 months behind before you can get any assistance with your mortgage?
No, you may have still have options even if you are current on your loan. You may be eligible for the HAMP, for example, if you are at risk of imminent default – which means you may fall behind in the near future. In fact, it’s best to talk with a housing counselor before you fall behind on your loan.
Q4: If you are trying to work with your lender but they keep requiring you to resubmit paperwork, what can you do?
Call the Homeownership Preservation Foundation (HPF) at 877-304-9676. It has housing counselors available to help you work with your lender.
Q5: What should you know about loans resetting and adjustable rate mortgages (ARMs)?
Make sure you check your loan documents to see when your mortgage rate can increase, and by how much. If you don’t understand it, ask for help from your lender. If you cannot afford a higher payment, talk with a housing counselor right away to explore your options.
Q6: I’m concerned I may have problems with my current mortgage. What are things I should double-check?
Read Get a Mortgage Check Up
Q7: What happens if you do lose your home? What do you need to know then?
There are three things to consider if you lose your home.
- The first is whether you will still owe the lender money. In some states, lenders can try to collect a deficiency – the difference between what you owed, including foreclosure costs, and the fair market value of the home. If you cannot afford to pay this amount, you will either need to get written documentation from the lender that they will not try to collect a deficiency, negotiate a settlement, or talk with a bankruptcy attorney.
- The second issue that many people are concerned with is their credit. Falling behind on your mortgage will hurt your credit scores. Late payments, settlements (usually associated with short sales), and foreclosures can be reported for seven years. However, as information becomes older, it has less of an impact on your credit scores. That’s especially true if you pay your bills on time and maintain positive credit references going forward.
- The third is taxes. Generally if a lender forgives debt, the IRS considers that amount taxable income. Under the The Mortgage Debt Relief Act of 2007, taxpayers to exclude income from the discharge of debt on their principal residence.
Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. In addition, you may not be eligible for relief for mortgage debt that was used to consolidate debts or for other reasons. Be sure to talk with a tax advisor if necessary.
Q8: If you are in foreclosure, how long before you have to leave your house?
How long foreclosure will take depends on the laws in your state, as well as lender’s policies. In states that with judicial foreclosure proceedings, the lender must go to court before it can foreclose, and that process takes longer than states with statutory foreclosure proceedings, which are much faster. Research the foreclosure laws in your state so you have an understanding of the process. You can visit websites such as Foreclosurelaw.org or Foreclosures.com for general information. You can also check with an attorney. Union members are entitled to a free half hour consultation with an attorney through the Union Plus Legal Service.
Q9: What if you have two loans, and the second is not affordable?
The Treasury Department has announced plans to expand HAMP in 2010 to allow second mortgages to be modified. Under the 2nd Lien Modification Program (2MP), if a borrower's servicer is a program participant, the second lien will automatically be eligible for a modification when the first lien is modified under HAMP. The 2MP program is expected to be fully implemented in the first quarter of 2010.
Q10: What are some other debt management strategies?
Check out this free webinar
Q11: Does credit counseling or being in a debt management plan (DMP) negatively affect my credit score/report?
Credit counseling has much less of an impact on credit scores than most people think. FICO ignores the fact that you are in credit counseling when calculating your FICO scores. However, you will be required to close your credit cards when you enter into a DMP, and that will affect your credit. That may be offset, however, by the fact that the part of your credit score that evaluates how much debt you carry will improve as you pay down your balances.
Q12: How will a the options you choose – including modifications, refinancing, foreclosure, short sales or deed in lieu of foreclosure -- affect your credit score and credit report?
- Refinancing won’t hurt your credit, and may even help it by lowering your monthly payments.
- Some modifications help your credit, others hurt it. With HAMP, your loan will be reported as “partial payment” during your trial period. This is considered negative, and your credit scores may drop significantly. If your loan is successfully modified on a permanent basis, the status will be updated to state that it is being repaid under the federal program. This status currently does not negatively impact your credit scores, though it could in the future.
- Short sales are almost always reported as “settled” or a similar remark that is negative.
- Deed in lieu and foreclosure both very negative and are equally damaging.