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How to handle mortgage arrears

BY PATRICIA KITCHEN | patricia.kitchen@newsday.com

7:35 PM EDT, October 8, 2008

While the taxpayer-funed $700- billion bailout of financial firms does not include retroactive mortgage loan relief to help stave off foreclosures, there are actions homeowners can take to handle mortgage arrears and the legal action that can follow.

The most important step consumers can take is to talk with their mortgage servicers early in the process and get assistance from a low- or no-cost home counseling agency to help with budgeting, planning and negotiations with lenders, said Joanie LaFemina, coordinator of homeowner services in the Centereach office of the Community Development Corp. of Long Island, a HUD-certified agency.

Following are notifications that mortgage holders might receive and what they can do about them.

You're in arrears

Mortgage servicers used to wait 60 days before notifying customers they were in arrears, but some are now cranking out those letters 30 days from the date of the first missed payment, said Manny Alvarado, operations specialist in the Manhattan office of Housing and Urban Development.

At the three-month mark, customers can expect a letter saying they are in "pre-foreclosure," LaFemina said. At that point the mortgage servicer is not likely to accept just one payment, she said; customers can and should call them to explain their circumstances and ask for a "workout" - an adjustment of loan terms.

Some will be receptive, others not, Alvarado said. But, "more lenders are interested in doing workouts than a year ago," he added.

Though it may be tempting, don't avoid opening the mail. Consumers are better off facing the problem, he said, plus some servicers include toll-free numbers to counseling agencies that can help walk them through the process. For a list of area counselors and other resources, go to hud.gov/offices.

Summons
Mortgage holders who are not negotiating with their lenders could then receive a summons within 45 to 60 days, depending on their county, lender and circumstances. The document will announce the customer is being foreclosed on, Alvarado said.

A summons means "the clock is ticking" and lawyers are involved, LaFemina said.

On Long Island most of the summonses require a written response within 20 days, and LaFemina suggests consumers get legal help. While an attorney fee can range from $150 to $500, she said, most homeowners will need such expertise in responding point by point to the summons, which outlines how the loan agreement was breached and the servicer's demands.

While consumers may be able to start workout negotiations at this stage, it may be trickier, she said depending on the circumstances, the loan servicer, and how anxious attorneys representing the investor in the loan may be to proceed.

Still, she added: "There's no 'never' any more, and there's no 'always' . . . things are changing on a daily basis."

Notice of foreclosure date
Again, depending on the circumstances, this could follow a summons by some 60 to 90 days, Alvarado said. Such a certified notice would inform consumers of the date of the sale of their homes, which could be 30 to 120 days from receipt of the notice.

At this point, consumers can still try for a workout, said Bruce Dorpalen, director of housing counseling for ACORN Housing Corp. While he, too, suggests mortgage holders call earlier in the process, he points to his organization's hotline - 888-409-3557 - and counseling office in Brooklyn. With the right paper work and depending on the circumstances, he said, his organization has managed to get 11th-hour stays.

Apart from reinstatement and modification of the loan, at this point the only other option to avoid foreclosure is to file for bankruptcy protection, he said, which carries its own drawbacks, including a negative impact on your credit rating.