by Andrew Pizor

Foreclosure is something no homeowner wants to think about.  The best way to avoid foreclosure is to start with a loan you can afford.  Shop around with different banks or brokers and let them know they are competing for your business.  When a lender says you have good credit and approves you for a loan, remember that you must still decide for yourself whether the payments will fit your budget.  Getting approved only means the bank will lend you money—it does not necessarily mean you can afford the payments.

After your mortgage closing is scheduled, insist on seeing the final “Truth in Lending Disclosure Statement” and the “Settlement Statement” (often called form “HUD-1”) at least a day in advance.  Doing so will give you time to discover last minute changes or problems.  Read the loan papers before you sign them.  If the loan is different from what the broker promised, speak up!  You should not sign for the loan if you believe the loan terms are wrong.  When you sign a mortgage, you put your house on the line.  Do not sign until you understand the loan terms, and know that you can afford to make the loan payments. 

If you do sign and regret it the next day, remember that many loans include a three-day right to cancel.  Your loan papers will include instructions for canceling the mortgage but you must do so quickly.

Unfortunately some homeowners do everything right but still fall behind on their payments through no fault of their own.  Samantha and the Enfields are two examples.  Samantha and her husband owned a wonderful home, but when the couple divorced Samantha could no longer afford the payments.  The Enfields never had trouble making their payments until Mr. Enfield was injured at work and lost his income for two months.  If you find yourself in a situation like this, or if you are having trouble making your payments, there are a number of things you should keep in mind:

- Understand the mortgage industry’s language.  If you fall behind on your payments, you will be “in default.”  If you remain in default, you will be at risk of “foreclosure.”  Foreclosure is the legal process that a mortgage company must follow to take your house.  In Connecticut, the foreclosure process officially begins when the mortgage company files a foreclosure “complaint” in a court near your home. 

- Look at your budget and prioritize.  Which is more important, an expensive health club membership or a roof over your head?

- Talk to your mortgage servicer as soon as you realize you will miss a payment.  Ask to speak with the “loss mitigation” department.  They are trained to help you keep your home—but you must act early—before you are too far behind.

- If you have a temporary set-back, like the Enfields, ask the mortgage company if they will accept lower payments for a few months.  But, remember that you will need to pay extra later to catch up.

- If your income has permanently declined, and you have been paying your mortgage for a number of years, you can also ask the mortgage company to permanently lower your payments and “re-amortize” your loan.  For example, if you only have 18 years left on your 30-year loan, the mortgage company might consider extending your loan back to 30 years, but for a lower monthly payment.

- In some situations, you may decide that your house is simply too expensive to keep.  Samantha, for example, decided that modifying the mortgage terms was not enough.  Instead, she sold her house and bought a more affordable one nearby.

- If the mortgage company stops accepting partial payments, put your payments in a savings account.  The money you save will put you in a better negotiating position later when you get back on your feet.

- Don’t hide from your mail.  Ignoring important letters from the mortgage company can also leave you in the dark about whether they plan to foreclose.

- Be careful about letters from other companies that offer to help.  “Foreclosure rescue” scams say they will save your home but sometimes steal your deed and your equity.

- Refinancing could dig you deeper into debt.  You may receive many offers to refinance your mortgage, but read these offers carefully.  When you refinance, the amount of your new loan will be higher because of the closing costs, and might be harder to afford than your last loan. 

- Take immediate action if you receive court papers.  A foreclosure complaint is serious.  If you do not respond in time, you will lose your house without a chance to defend yourself.  The court clerk can answer some of your questions, but you may need to hire a lawyer to defend you.

If you are having financial problems and trouble paying your mortgage, keep these points in mind so you can protect yourself and your home.  Foreclosure is serious, but it is not inevitable.  Careful borrowing and tackling problems early can help you to keep your home--even when money is tight.

Andrew Pizor is an attorney and an associate at Consumer Law Group, LLC, a law firm in Rocky Hill, CT.  For more information, please contact him at 860-571-0408 or by email at apizor@consumerlawgroup.com