GET BETTER NOT BITTER: LESSONS LEARNED FROM THE AMISH

In a recent MSNBC article, several members of the Amish community in Elkhart, Indiana were interviewed about the effect of the current recession on their income earning ability. The Amish traditionally shunned employment outside their communities, earning a living through farming and producing and manufacturing home made items. Over the past decade, many began working in factories as their traditional means of earning income no longer sufficed. The current economic struggle forced many, including these adaptive Amish, out of their jobs. Once again, the resilient folks moved on and found a different way to earn a living. Rather than turn bitter, many Amish reported that their lives had changed for the better. Several reported that the decrease in income made them realize just how reliant they had become on the next paycheck and less reliant on doing things or making things for themselves. And the loss of jobs allowed many to spend more time with their families as factory work was replaced with home based businesses.

While the Amish approach to life does not work for many, the “get better not bitter” philosophy is, perhaps, something most of us can use. Those who are struggling to pay their mortgages, and hoping to get their loans reinstated before foreclosure proceedings begin need to change their way of spending and living. Those who are in foreclosure need to look at their options and, in some cases, choose the one that may not seem the most appealing, such as negotiating a deed in lieu of foreclosure with the lender. It is easy to become bitter with these choices, especially since most people making these choices have been forced into them by hard times and unexpected events.
Allowing yourself to become angry and bitter may lead to rash decision- making. For example, some may give up and walk away from a foreclosure action without thinking about the deficiency judgment that may result and others may rush to file bankruptcy. Both of these decisions have serious long term consequences and should not be made without careful consideration of all the options. Instead of becoming bitter, focus on making your situation better, even if those better days are in the long term future.

HOW TO CLIMB A MOUNTAIN

You are probably wondering what mountain climbing and foreclosure have in common. The answer is that both start from a similar position of being on the bottom and trying to reach a point on the top. If that answer confused you even further, read on and I’ll explain.

During one of my first mountain climbing trips, I looked up at a summit way in the distance and thought, I will never get that far. It was too high, too difficult and I didn’t know that I’d have the energy to do it. I decided to stop looking at the top of the mountain and instead focused on a point not too far away. I told myself I just had to reach that point, and then the next point, and so on. After a while (quite a while actually), I was standing at the top.

Facing foreclosure is overwhelming. There are so many questions. Can you save your house? Should you try to negotiate the loan? How much can you pay? Who can help you? Its like standing at the bottom looking up and not knowing if you can get to the top.

Much like the mountain climber, you need to take things one step at a time. Instead of thinking about how you are going to solve the problem in one big step, focus on that point just in front of you. What are your options?

Speaking with a foreclosure attorney can help you figure out what those options are. If you were served with foreclosure, an attorney can help extend the process and give you time to figure out what you are able to do. If you are behind on your payments and believe foreclosure is coming, you can start working with your lender to prevent this from happening.

You cannot climb a mountain in one step and you cannot deal with a foreclosure or potential foreclosure situation in one step either. You need to address both situations one step at a time.

What is a Qualified Written Request (“QWR”)?

A qualified written request is a letter to the loan servicer requesting specific information about a mortgage. A QWR can be used to request copies of documents, question calculation of outstanding balance and to obtain information about the loan. Once a QWR is sent, the servicer has 20 days to acknowledge receipt of it and 60 days to respond. Failure to respond may result in a fine. When sending a qualified written request, you, the borrower, can request a “life of loan history”- in a nutshell, your servier must tell you everything that has happened with your mortgage since you got up from the closing table.

In foreclosure defense matters, we always send a QWR on behalf of the borrower immediately after being hired. This is the first step in the forensic loan audit process which we highly recommend for our clients. We ask for an extensive list of documents relating to the originally signed note, all assignments of the note and any other servicing documents that may be available. In addition to this extensive document request, we also ask an extensive series of questions regarding the servicer’s relationship with the loan, payment history and accounting of late fees and interest payments.

Many people wonder, why bother with all of this? In most foreclosures, there is no dispute that the borrower owes money to the lender. While this may be true, the lender has an obligation to state not just how much is owed but to prove that exact amount. Even if you are prepared to give up your house, you have the right to know exactly how much you owe, especially since the lender may obtain a deficiency judgment against you for this amount. If you are attempting loan modification, this information will be extremely valuable in negotiating with your lender.

FEARING RATHER THAN FACING FORECLOSURE

I learned a great deal about fear from my first rock climbing instructor. When you are hundreds, if not thousands, of feet off the ground, secured by a thin rope and need to convince your mind that nothing will happen to you, the experience alone can teach a great deal about fear, especially when you’re afraid of heights, as I am. But the instructor taught me that there are two types of fear: the one that freezes you (hanging on a rock wall and refusing to go any farther) and the one that makes you more cautious and makes you evaluate your decisions more carefully (double checking your belay loops and, sometimes, your belayer.)

Fear is often associated with foreclosure, and for good reason. The loss of one’s home, legal proceedings against a bank or lender, a.k.a, the big guy with all the power, is enough to freeze anyone in his/her tracks. And many people do. Most people do not fight foreclosure. They simply give up, do not answer the summons and let the bank get its judgment.

This action is equivalent to freezing on the rock wall mid-climb. The situation feels so scary that inaction seems to be the safest thing to do. But, much like in rock climbing, inaction during a foreclosure fails to protect you.

Although it seems so cut and dry (you owe money, the bank can take your house), foreclosures rarely are. The bank has a case to prove and it may not be able to do so. This does not mean that you can stay in your house forever without paying, but it does give you some options for negotiating with the bank. Much like the rock climber who needs to check safety equipment, you, too, should examine your options before deciding that there is nothing you can do.

There is another reason not to go the “do nothing” route. While you may be prepared to walk away from your house, the foreclosure may not end for you at the time of sale. If your house sells for less than what you owe (and, in a foreclosure, this is bound to happen). the lender has the right to obtain a deficiency judgment. The lender also has up to 10 years to collect on that judgment, depending on what steps the lender takes. While a judgment may not be a concern in your present circumstances, it might be a big deal later on when the bank begins collection proceedings. You might be able to avoid this in a successful foreclosure settlement by getting the bank to waive its right to collect a deficiency judgment.

Foreclosure is scary and it may make you feel that you have no options. But, in many cases, you do. Before you walk away from your biggest investment, you need to know what those options are. At the very least, you may need to protect yourself from having your wages garnished or a lien placed on future property. After all, if you are walking away from your home or other property, you need to make sure the door is completely shut when you leave.

LOAN MODIFICATION AND HAGGLING: IS THAT THE BEST YOU CAN DO?

Haggling is such an intrinsic part of many cultures. Visitors to a Chinese marketplace or an outdoor bazaar in Morocco wouldn’t think twice about engaging in some back and forth about the price of an item. Its expected even. The practice isn’t as mainstream in the United States. Or is it. After reading an article about the increase in price haggling in the United States during the current recession (a bitter relief to finally use that word), where haggling was used to negotiate the price for goods such as electronics and furniture as well as services such as doctor visits and dry cleaning, perhaps our Western civilization is finally grasping the concept. And perhaps we should take the concept and apply it to loan modification.

Many people are struggling to convince their lender to modify their current loan, to negotiate a lower interest rate with their credit card company. The following haggling tips may be useful in a successful modification.

Be patient and be nice- You are dealing with an overworked loan officer whose phone is ringing constantly and who is receiving more letters than Santa Claus. Following up patiently yet persistently will help the situation, while demands will likely send your hardship letter to the bottom of the pile.

Set your standards- If you want to keep your house, you still have to pay your lender. If you want to lower your payment by reducing the amount of interest, your lender will probably want to extend the length of your mortgage. Be prepared to accept some sacrifices to achieve your overall goal of keeping your home.

Ask for freebies- When haggling for an item, you may offer to pay more and ask for another item to be thrown in for free. You’re not going to do that with your mortgage. But there are other ways to sweeten the deal. For example, prior to your asking for loan modification, you didn’t pay your mortgage at all or didn’t pay on time. Your non payment resulted in late fees being added to your mortgage and your late payment was reported to the credit bureau. Both of those items may be removed as part of your mortgage modification.

Accept the offer when the price is right- Your lender is not going to make life easy for you. If your lender believes that you are able to pay your mortgage with some sacrifice, your lender will want you to do so. Be prepared to cut items out of your budget in order to make a monthly payment. Make sure your payment reflects that.

Florida foreclosures remain at high level

There is a law school urban legend (which may be true at some schools) that, during orientation, students are told, look to your left, look to your right, one of you will fail and won't make it through the semester. Looking at recent data concerning foreclosures, I can't help but think that the same visual applies in many neighborhoods in Miami-Dade and Broward County.

In a recent report by RealtyTrac, it was reported that Florida retains one of the highest foreclosure rates in the nation. This is hardly news as it has been reported in numerous forms. But the newly released data is still troubling. The Miami-Fort Lauderdale area ranked 14th nationally, with one in every 28 homes -- 3.54 percent -- in foreclosure. Florida's west coast, one of the most hard hit areas, is faring even worse. One in every 14 homes, or 7.2 percent of total housing units, was in some stage of the foreclosure process in the Cape Coral area.

This data was published almost simultaneously with President Obama's report that the economy has stabilized. This might be the case, but even Obama admitted that it would take a while for the economic recovery (which has yet to happen) to filter down to the individual level.

Avoid foreclosure? Move into a smaller house

In what appears to be a not so novel idea, Professor Michael Zelin of Kent State University posed the following as a method to avoid the foreclosure crisis: trade down. Literally.

Zelin's theory is that borrowers who cannot afford their payments move into a smaller home owned by, you guessed it, another borrower who cannot afford the payments, who then, you get the idea. This seems almost a reverse pyramid, but, as Zelin puts it, this is what people are doing anyway in this current climate. Just not in this orderly fashion. Most people who lose their homes to foreclosure either rent a smaller place or move in with family and friends. Trading rent for a mortgage payment is simply a means of paying less per month. If Zelin's idea takes off (and its hard to imagine the bank's endorsing this or assisting with the procedure of moving homeowners in an orderly fashion), homeowners are trading a too high payment for one that is within their budget.

It is estimated that there will be 3 million foreclosures nationwide. Buying a house will not be an option for any of them with their post foreclosure credit scores. Most will live with family and friends. Some will be able to rent. But many will be what is being referred to as the "floating homeless". The banks, in their slower than molasses approach to loan modification, aren't doing enough to reduce these numbers. Perhaps its time to start thinking outside the box.