Foreclosure Stories: How do you avoid foreclosure?

May 10, 2012


This is a weekly column by Sandusky attorney Dan McGookey, devoted to telling true stories of homeowners who have been victimized by a lending system which makes it profitable to foreclose. The names used have been changed for privacy purposes. This is Lyle's Tale.


Lyle and his sister both came into our offices recently. Both in their sixties, they have lived next to each other in a modest neighborhood for more than 20 years. Unfortunately, both became entangled in predatory mortgages when they refinanced their homes several years ago. And as with so many people I see these days, because of a high-interest loan to begin with, combined with a down-turned economy causing a loss of household income, Lyle and his sister ever so slowly were falling behind on their monthly mortgage payments, even though they valiantly struggled to keep up.

Exacerbating this widespread phenomena is the fact that in the world of securitized mortgage lending, it is profitable for the banks in charge of your loan to foreclose. Therefore, the servicer, or entity whose job it is to collect your loan payments and the only party the distressed homeowner has to deal with in trying to resolve issues concerning loan repayment, is actually financially disincentivized to work with the homeowner. That is why I have told many people that the only real progress that may be made in working things out is after the foreclosure has been filed, and the court machinery meant to protect the homeowner is in place.

That was true until just very recently. Like advances in modern medicine, mortgage relief is constantly evolving and, I am glad to say, trending in the homeowner’s favor. Now there are things which can be done to help the homeowner avoid foreclosure altogether, while at the same time getting the long-term relief which will keep the homeowner in his or her home for good.

The main source of relief in this regard is a program began in Ohio about two years ago called the Hardest Hit Fund (HHF). Funded with federal dollars, HHF was originally designed to provide those who suffered a sudden drop in income due to un- or under-employment or health problems, with assistance in getting back on their feet with their mortgage by way of loan reinstatement funds. In other words, if a homeowner could demonstrate that he or she was able to resume regular payments on his or her loan, obtaining funds from HHF used to get caught up on missed payments was a possibility. The problem is, most people need a permanent break on the amount of their monthly payment, not just “catch-up” assistance.

Now, however, HHF has morphed into a program which can be a real help to people,  both those who are in, or are about to be in, foreclosure. Lyle has agreed, with our help, to submit an online application for HHF assistance. Following submission of that application, he will receive notice from a local HUD-sponsored counseling agency. At that point, he will be required to fill out financial information, and explain how his application for funds would, if granted, allow him to succeed in paying on his mortagge and save his home. Again this is a process which we will guide him through.

After that information is gathered and submitted to the local HUD agency, that agency will review it, and make a recommendation for approval or disapproval to the Ohio Housing Financing Agency, the state entity which administers the program in Columbus. I am advised that the entire process takes 6-7 weeks for those homeowners who are in foreclosure and slightly longer for those who are not. If successful, the homeowner can obtain up to $25,000 toward his or her mortgage to get back on track.

And the really good news? Participating loan servicers (which practically all are) are required to halt the foreclosure process while the HHF application is being reviewed. Therefore in Lyle’s case, while we are guiding him through the HHF application process, we are going to notify his bank of what we are doing, thereby requiring it to stop the drive toward  foreclosure. At the same time we will work with HHF officials to coordinate a consistent and workable plan to allow Lyle permanent relief on his mortgage, not just one-time assistance. In other words, we will condition payment of the funds to the bank upon the bank’s agreement to grant Lyle a loan modification –  one including a slashed interest rate and substantially reduced payments. We are extremely hopeful that all this can be accomplished before any foreclosure is ever filed. In this way Lyle and his sister will remain neighbors for years to come.

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Next week: The story of Karen, whose bank wrongfully refused to accept her offer to fully pay all missed payments making her current on her mortgage, instead electing to put her into foreclosure.

Copyright 2012 Daniel L. McGookey