The economic meltdown has affected homeowners severely. Job losses have really hit hard, and loss of income sometimes results in loss of one’s home—one’s castle! Lenders are also foreclosing on properties in record numbers.
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower or owner defaults on loan payments (usually mortgage payments), and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end in one of the following ways:
1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law.
2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure, or by buying back the property at the public auction.
Consumers must be aware of their legal rights in the event of an imminent foreclosure. First of all, all debtors/borrowers have rights under the Fair Debt Collection Practices Act (also known as the Consumer Credit Protection Act) to avoid or stop abusive, repetitive, and unfair debt collection practices. Creditors can only call you at certain hours, and they have to identify the name of an actual investor, among other things. All you have to do is to ask and assert your rights under the Act.
Furthermore, you might also be entitled to a loan modification based on a change in financial situation. Loan modification is a change in the terms of a current loan, which could vary from interest rate reduction to principal amount reduction. Income stability and job stability are the most important factors here.
Unfortunately, there are no clear governmental guidelines for lenders to enforce such modification; however, most lenders are willing to work something out with the borrower.
You also have the right to sue the lender for predatory lending practices. My opinion is that most of the current problems stem from bad loan underwriting lending practices. Many lenders ignored sound financial rules and made loans for financial profit (aka greed!). The majority of loan documents reviewed by an attorney will openly and clearly reveal violations of lending laws, state laws (e.g. Civil Codes, Business and Professions Codes) and federal laws (e.g. Truth-in-Lending Act, RESPA). If a lender has made such violations, they can end up paying for your damages, your out-of-pocket expenses, and legal fees, as well as punitive and exemplary damages.
Madan Ahluwalia, an attorney, has been helping several homeowners with loan modification and issues related to predatory lending and foreclosures. He can be reached at 650-331-1968 or visit www.takeourhelp.com