- The Washington Times - Friday, November 3, 2000

Foreclosure. The very word has the ring of finality to it, conjuring up images of belongings piled up on the street and a lifetime of bad credit.
"I don't know what was worse, the fact that the neighbors knew everything or the fact that I had failed," says one Virginia woman whose home underwent foreclosure proceedings 12 years ago. "I felt like I was on a freight train that I knew was going to crash, and there was not one thing that I could do about it."
If you are one of the many people lurching toward foreclosure, there are a few things you can do before that final crash.
Which options are right for you? Where can you go for good advice? Most important, whom can you trust when you're wading through all the dot-com sites on the Internet that promise instant relief, easy credit repair and a quick resolution to all your problems?
The U.S. Department of Housing and Urban Development (HUD) offers easy-to-understand on-line advice on how to avoid foreclosure. It's available on the HUD Web site (www.hud.gov:80/foreclos.html). The site provides links to HUD-approved housing counseling agencies that have information on free credit counseling and other services.
Still feeling overwhelmed? You may want to consult a professional.
"It makes sense to work with someone who knows the rules," says Mory Brenner, a Massachusetts-based "debt workout" attorney with a nationwide practice and an information-loaded Web site of his own (www.debtworkout.com).
"People may have their own ideas about what they want to do, but banks are not necessarily going to agree. They're used to putting round pegs into round holes," Mr. Brenner says.
Of course, it is best not to start down that slippery slope. Mr. Brenner says many foreclosures could have been prevented had the homeowner just recognized a few warning signs. These include missed mortgage payments, late notices and collection attempts.
If you have missed only one payment, you have a number of options available to you. Miss several payments, and the options start to disappear.
"I like to start working with people before they start having problems," Mr. Brenner says. "Of course, that tends to be the exception."
Anyone can find himself in unexpected financial circumstances and subject to foreclosure. Mr. Brenner has been there himself, when, as a real estate developer, he suddenly was confronted with the 1990 New England real estate crash.
"I went from $2 million equity to a $3 million negative equity," he remembers, "but I never declared bankruptcy. I was able to negotiate all of my debts."
Whether you're in straitened circumstances because of business conditions, illness or a lifestyle that ultimately has worked against you, the fact is, you'll have to formulate a goal about what to do.
"The most important thing is to set a goal about what you want to have happen," Mr. Brenner says. "Then, it's all about what you have to do to manage to keep that goal."
That goal may or may not include keeping your house.
If your monthly house payment, including property taxes and insurance, does not exceed 40 percent of your gross monthly income, you should consider selling or transferring the property to avoid negative impacts to your credit, according to one Internet adviser (www.all-foreclosure.com).
For some people, that can be a relief.
"I had one woman who said, 'You mean I don't have to keep this rat hole?' " Mr. Brenner remembers. "She was so relieved that she wouldn't have to keep trying to keep up with repairs and she could stop dealing with all the things that went wrong in that house. For some people, losing the house is the best thing that can happen to them."
In fact, it may not be feasible economically to keep your house. If your house is worth more than you owe on it, selling it can allow you to pay off your mortgage, back payments and penalties.
"At the worst, you want zero equity," Mr. Brenner says. "You never want negative equity."
For most people, holding onto the house is crucial. The key to ensuring that will happen is to take a proactive approach to your debt.
Just starting down that slippery slope? Only missed a few payments? The worst thing you can do, according to Mr. Brenner, is to do nothing.
"Communication is key," he says. "The most common but absolutely the worst response to mounting debt is simply to bury your head in the sand."
Instead, you should talk directly with your lender.
"To a lender, foreclosure is the last resort, especially since the process is expensive, time-consuming and unprofitable," writes James R. DeBoth, president of Mortgage Market Information Services Inc. (www.interest.com).
In a situation called "special forbearance," your lender will try to arrange a repayment plan that is tailored to your financial situation. In some instances, this can include a reduction or even a temporary suspension of your payments. A deferred payment program allows you to make up past-due amounts by adding them to your regular payments. Your lender also may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.
"You have to make sure that you will be able to make the new payments," Mr. Brenner cautions. "People always make the mistake of thinking they will be able to do it, and then suddenly they have double trouble."
Talking to a consumer credit counseling service can help you consolidate your bills and get budgeting advice. Be careful here, though. Some "counseling" services actually function as fronts for lawyers who want to steer you into bankruptcy proceedings. Others charge for services rendered. According to HUD, if you are paying for a consumer credit counseling service, you may be paying for a service you could do yourself or for free with the help of a HUD-approved housing counseling agency.
Whether you are working on your own or with a counselor, it's important to get a clear picture of your circumstances. That can be difficult, especially if you are one of those people whose head-in-the-sand approach has gotten you into this predicament in the first place.
Mr. Brenner suggests making a list of your expenses under six categories:
Essential expenses, which he limits to food.
Very important expenses, such as first mortgage, rent, other mortgages, utilities and work-related transportation.
Important expenses, including clothes, taxes, other transportation and credit-card payments if credit is good.
Regular expenses, including daily expenses, the cost of household goods and credit-card payments if credit already has been affected.
Luxury expenses, such as entertainment, vacations and jewelry.
Wasteful expenses, including gambling, playing the lottery or falling for get-rich-quick scams.
"You have to be willing to take a real hard look [at] what got you into trouble in the first place," he says. "You may have to make some major changes in your lifestyle."
After determining your financial situation, it's time to consider your options.
Mortgage modification allows you to refinance your debt or extend the term of your loan. After paying a lump sum to the bank, you then can re-amortize or extend the loan.
Then there's refinancing. Most people, Mr. Brenner says, should be able to refinance their homes with second mortgages. The problem comes if you haven't come to terms with what got you into trouble in the first place.
"If you have an ongoing income problem, going from a $20,000 to a $30,000 mortgage isn't going to help. You'll default on that too," he says.
A short sale can be useful if you owe more money on your house than it is worth. Though it may not save your house, it saves your credit and allows you to rehabilitate your finances and credit history. Keep in mind, though, that the money waived by the lender is treated by the IRS as taxable income.
Often seen as a last resort, a deed in lieu of foreclosure means that you stave off foreclosure by returning the house to the lender. The bank keeps the deed, and you move out, but you won't have that black mark on your credit.
If you do have to file bankruptcy, a Chapter 13 bankruptcy reorganization will stop a foreclosure.
"It's a misconception with bankruptcy that you'll automatically lose your house," Mr. Brenner says. "That's absolutely not the case."
In the end, Mr. Brenner says, it all boils down to just three simple classes of things: the things you can do, the things the bank can do, and the things you both agree to do. The bottom line is, most banks would rather have their money than have your house.

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