Tuesday, July 31

Stop Foreclosure

This question was recently posted on a debt management forum that I subscribe to. The writer has fallen behind on her mortgage loan payments after entering into a payment plan (forbearance). When she called the lender, they told her that she was "in foreclosure", and that she could "cure" the loan if she were to pay the past due payments and legal fees accrued thus far. Here are her questions;

For those of you who have been through this, what kinds of "fees" are we talking about? How much? Will the attorney's and "other fees" be several thousand dollars on top of the amount we'll have to pay to bring the mortgage current? My other question: will I have time to get the loan from my retirement plan to do this?? Will they give us a payment plan again, or did we blow it?? I'm really frightened about this and am not sure what the typical scenario is.

First, the good news. In most states, foreclosure is a very long process. It could take 6 month to a year and a half to complete. So, you have some time to get yourself back on the right track. Don't fall any further behind. Make regular payments to the lender. If they won't accept anything other than a lump sum, just keep saving the money. In most states you have a right to cure, which means that you can bring the account current and pay any fees incurred by the lender to collect the amount owed. By curring the account, you will stop the foreclosure. Because one can cure the loan, and because it takes such a long time to foreclose (usually), one should have plenty of time to borrower from a retirement plan or otherwise.

More good news; the forbearance agreement might not have an effect on the terms or the original note and mortgage. This means that a default is a default, regardless of whether or not there is a forbearance agreement. The lender isn't entitled to any special treatment and cannot speed up the process just because you've defaulted on the forbearance agreement.

Now, some bad news. If, when you signed the forbearance agreement, the foreclosure process was nearly complete, then the time that you have to cure might be less than what it would be if the process just started. In most cases you have right up until before the property is auctioned at the courthouse to cure. The costs that the lender incurs to foreclose can be high. Attorneys fees could run anywhere from $2000 and more. Court costs could run as much as $1000. These fees along with the late payments, fees and penalties can amount to a lot of money.

Did the writer "blow it"? I don't know. What I do know it that we as lenders are not at all interested in foreclosing, and would prefer to do just about anything but foreclose. I think that as long as the writer can get back on track with this, then she will probably be okay.

If a lender has to foreclose, then he must report the loan as 'non-performing' and reserve for the possible loss. To reserve means to set aside some money out of profits for potential loss(es). This reserve account is established from when the loan first goes 60 days late until the time that the property becomes OREO. No, the lender isn't making cookies! OREO means "other real estate owned".

In summary, the answers to the writers questions, at least in my opinion are:
  1. The fees could run into the thousands of dollars and will need to be remitted along with the past due payments.
  2. You should have plenty of time to bring the loan current and get it out of foreclosure.
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Sunday, July 29

Co-Signer or Co-Borrower: What's the difference

Occasionally, we bankers find ourselves looking at loan applications where the borrower isn't quite qualified on their own to borrower money. In most cases, this is because of a limited credit history or a slightly blemished credit record. When this happens, we might ask for a co-signer to help support the loan request.

The co-signer on a loan agrees to be legally obligated for the repayment of the debt. The co-signer must have an established and very good credit history. And because they will be legally obligated to repay the debt in the event that the borrower defaults, the co-signer must be able to qualify for the loans on their own merits.

This is in contrast to a co-borrower. A co-borrower credit history, income and assets are considered together with a primary borrower to qualify for a loan. Instead of qualifying individually, the primary and co-borrower are able to combine their income and assets into one in order to meet the lenders borrowing criteria.

To summarize, a co-signer is someone who is willing to take over the repayment of the loan should the borrower default. A co-borrower is someone who is borrowing money together with someone else. The co-borrower receives the proceeds of the loan while a co-signer does not.

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