Drooping home prices and the use of exotic loans have contributed to surging foreclosure rates across the country.
But it is life’s unexpected misfortunes — divorce, job loss, medical bills — that most often propel homeowners to the verge of foreclosure.
Experts say, though, there are ways borrowers in financial crisis can avoid losing their homes at public auctions.
First, take action fast.
In a slow market where it can take months to sell a home, the longer an owner waits, the fewer options he has.
In Arizona, the foreclosure process takes 90 days from when a homeowner receives a notice of trustee’s sale — a document stating the date and time of a public sale.
Call your lender even before you miss that first payment, said Alan Wolf, an Irvine, Calif.-based mortgage banking attorney. In 60 percent of cases where homes are foreclosed on, owners don’t contact their lenders, he said. That’s despite repeated attempts by companies to reach borrowers via letters and phone calls.
Some have even resorted to disguising notices as wedding invitations, said Wolf, who also runs WorkItOut.com, which offers information for borrowers in default.
“People don’t trust their lenders,” he said.
But lenders aren’t in the business of owning real estate.
Mortgage companies lose an average of $40,000 to $50,000 every time they have to foreclose on a property, Wolf said. It’s in their interest to work with borrowers, and they have whole departments dedicated to it, he said.
Lenders also are being proactive, said Rick Sharga with RealtyTrac, an online marketplace for foreclosure properties. Some have outreach programs to notify owners months in advance that teaser rates on their adjustable rate mortgages are set to change and what their new monthly payments could be, Sharga said.
TALK TO AN AGENT
Lenders can sometimes tack on payments to the end of a loan or otherwise rearrange financing, but for some borrowers that isn’t enough.
“Once they missed the first mortgage payment, it’s very difficult to recover,” said Bruce Voris, owner of VIP Management Services in Phoenix.
For many, selling and starting with a clean slate is the best option, said Voris, whose investment company works with people in foreclosure.
Owners should call a real estate agent to learn how much the house is worth and what the market is like, Sharga said.
Get at least three brokers to offer estimates of the home’s value and do your own research, Wolf said.
Web sites like HomeGain. com or Zillow.com can give owners a rough idea of home values, he said.
They also need to watch for scams. Thousands of Web sites have been set up to defraud people, Wolf said.
“Scams are too good to be true,” he said. “But people want to believe. They want to know that there’s an easy solution.”
CONTROL YOUR FINANCES
Both Sharga and Wolf say controlling daily spending can help owners avoid entering default in the first place. During the boom, people were using their homes like ATMs, Sharga said. People should look at nonessential spending, Wolf said. Do you need two cars or that boat? Can you take a second job? “You need food, clothing and shelter,” he said. “Anything else you really don’t need.”