Foreclosure rates have increased nationally by more than 200% since 1980 and show no signs of abatement. More than 600,000 homes were foreclosed in 1989.

Homeowners fall behind on their mortgages for many reasons: sudden decreases in income due to the loss of a spouse; poor financial management which contributes to nonpayment of utility bills, service shutoffs and liens against  the property; failure to perform necessary repairs and maintenance which make the property uninhabitable; second mortgage scams which make impossible demands on the homeowner's limited resources.

All of these contributing factors can be addressed by skilled advocates -- if  homeowners turn to them in time.

How Foreclosures Work
Foreclosure procedures vary from state to  state. The procedures are established by state statutes, by case law, and by local practice. In about half of the states, foreclosures are court proceedings.  First the creditor files a suit in a court located near the property. Texas provides for non-judicial foreclsoure except for home equity loans which require a court proceeding.

Unless the homeowner files an answer successfully contesting the foreclosure,  a judgment is entered for the creditor. The home is then sold under court  supervision.

Other states have "non-judicial foreclosures." Creditors foreclose by simply advertising the home for sale, using a legal notice in a newspaper.
If homeowners want to contest this type of foreclosure, they must file a lawsuit  and ask the court to stop the sale. Sometimes if the homeowner wants the court to stop the foreclosure, the homeowner must file a bond to protect the creditor.  Unless the homeowner initiates a court proceeding, there is no judicial  involvement in such a foreclosure.

Some states allow both types of foreclosure, judicial and non-judicial.  Practicality and local custom usually dictate a creditor's choice of one type over the other.
 

Texas Specific:
In Texas a creditor can only conduct a foreclosure sale on the first Tuesday of each month between the hours of 10:00 a.m. and 4:00 p.m.  The Creditor must give the property owner a 21 day notice prior to the day of foreclosure by mail at the property owner’s last known address.  The Notice must be posted at the Courthouse door in the County where the property is located at least 21 days prior to sale and the property must be sold at the courthouse in the designated location. Additionally, the notice must state the earliest time that the sale will begin and the sale with be completed within three hours after that time.
If the property owner resides in the property then the creditor must give the property owner a 20 day notice of intent to accelerate prior to accelerating the debt and prior to posting the property for foreclosure.

Consumer Strategies When Foreclosure is Threatened
When a homeowner first becomes worried about meeting mortgage payments, advocates can  recommend that a series of steps be taken to reduce the risk of foreclosure:

Get Legal Advice
Because foreclosure is a harsh legal process, homeowners threatened with foreclosure should immediately obtain  legal help. A competent attorney can determine whether  there are legal defenses to a foreclosure. Too often, homeowners either postpone consulting a lawyer until after the time to assert their legal rights has passed, or walk away from their homes in frustration, leaving themselves without any equity and vulnerable to deficiency claims. For each foreclosure situation, a counselor or lawyer must carefully evaluate the homeowners' objectives and interests. Homeowners should, however, avoid "Quick Fix" attorneys who may  advertise or solicit through the mail from published foreclosure lists. Many  times these practitioners will push the homeowner to file a bankruptcy prematurely. A bankruptcy may be necessary at some point. But, as with many  things, proper timing may be critical. Additionally, be ware of firms lender that advertise that they can get you a new loan for a fee.  Many of these companies are scams that do not obtain a loan, but rather at the last minute prior to foreclosure they have an attorney file a bankruptcy for the property owner.
 

Keep Current on Home Payments
The consumer should not pay credit card debts, doctor bills or other low priority debts ahead of home mortgage payments. Skipping payments on low priority debts for several months will have little or no bad consequences, but skip one or two home mortgage payments, and  the consumer risks losing the home. Sometimes the default can usually be cured by simply paying the amount in arrears.

Apply for Income Maintenance, Tax Abatement and Public Assistance  Programs
Benefits provided by government and non-profit agencies are a key source of assistance for individuals in financial distress. These resources can help older homeowners free their income for home payments. Benefit programs to apply for can include fuel assistance and weatherization assistance, food stamps and emergency home repair programs. Most municipalities and counties also offer property tax abatements for reasons of age or hardship. For very low income  homeowners, particularly those who are recently widowed, advocates should also determine the homeowner's eligibility for Supplemental Security Income. The  process of obtaining these benefits is often slow and difficult.
 

Negotiate a Temporary Delay in Payments
One of the most important  strategies today for homeowners in financial trouble is to work out with the lender a temporary delay in payments or a period of reduced payments. More and more creditors are realizing that foreclosure is a losing proposition for the lender, and that they are better off keeping the consumer in the home making  whatever payments the household can afford. Some forms of forbearance that lenders are increasing likely to accept include:
 

• Skipping one payment (that is, letting the consumer remain "30 days down");
• Extending the grace period for making late payments;
• Skipping two to six payments for a year or two; or
• Accepting reduced payments for anywhere from one to eighteen months.
   

It is important to contact the lender early, as soon as the homeowner begins experiencing financial difficulties. Just calling the lender on the telephone is a good way to start. Immediately follow up all phone calls with a letter to the lender confirming what has been discussed. The homeowner should keep a copy of  the letter. The homeowner should continue to press the lender for a response to  the offer, and not simply sit back awaiting a response.
 

Negotiate a Permanent Loan Restructuring
Although a temporary forbearance is easier to negotiate, for some older homeowners the financial problem is more long term. To keep the house they will have to have lower mortgage payments not just for a period of months, but perhaps as long as the mortgage has to run. And lenders are beginning to realize that permanently receiving less interest may be a better solution than foreclosing on the home.

Where a home's likely sale price at foreclosure is less than the mortgage, the lender is usually better off keeping the consumer in the home and receiving  lower mortgage payments. Moreover, more and more consumers are utilizing their rights in bankruptcy, and lenders are discovering that they are worse off if the  consumer files bankruptcy than if they negotiate a new repayment plan.  Consequently, homeowners report success in achieving the following types of  negotiated mortgage restructuring:
 

• Capitalizing delinquent payments on top of the present principal balance,  allowing the consumer to repay these delinquent payments slowly over the whole  term of the loan;
• Giving the homeowner up to four years to repay, in installments, delinquent  amounts, with no interest accruing on these back due amounts;
• Lowering the interest rate for a certain number of years or even for the remaining term of the loan, thus reducing monthly payments without lengthening  the term of the mortgage;
• Lengthening the term of the loan, thus reducing monthly payments (but  increasing the total interest payments over the term of the loan);
• Substituting some other more valuable property or asset for the home as  collateral for the mortgage, thus putting this substitute property at risk of  foreclosure, but protecting the home; or
• Some combination of the above forms of loan restructuring, such as allowing  back due payments to be paid gradually, lengthening the term of the loan, and  lowering interest.

Refinance the Home Debt
If the home was financed at one of the high interest rates that prevailed during the early 1980s, refinancing at a  lower interest rate and/or with a longer payment period can greatly reduce monthly payments and bring them within reach. Moreover, refinancing a low  interest first mortgage and high interest second mortgage into a low interest first mortgage can also reduce payments. Advocates should keep in mind, however, that many refinancing schemes are frauds. Even legitimate refinancing options that look like an improvement on closer inspection are far more costly than the existing mortgage. The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period,  the possibility of having to pay points, the additional closing costs, and  prepayment penalties on the old mortgages. The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union, or a legitimate mortgage company. Most finance companies and certain mortgage companies do not make  residential loans at reasonable rates and terms.

When foreclosure is threatened, a homeowner may wish to contact a local realtor to obtain an appraisal of the home or even list the home for sale. Doing so provides the owner with information about the home's marketability and its likely sale price, without necessarily obligating the owner to sell. Most homeowners do not want to  give up their home, and but sometimes no other solution exists. Selling the  house may be painful, but it is always a better solution than letting a bank sell the house. If they find a buyer, homeowners may sell their homes privately before a foreclosure sale takes place.
 

Consider Filing Bankruptcy
Homeowners who are about to lose their homes should carefully consider filing a petition in bankruptcy. This can stop  the foreclosure process and allow them time to regroup and try to work out a plan to keep the home. Bankruptcy may also help them cure past defaults and make  future payments. However, the bankruptcy option is complicated and it is a good idea to seek professional assistance from an attorney board certified in  bankruptcy.

Deed in Lieu of Foreclosure
Homeowners often will be tempted to turn over their deed to the creditor instead of fighting the foreclosure. This  is generally a good idea only if the borrower will receive something from the creditor in return for saving it the trouble of foreclosing. For example, if the home's value exceeds the amount of the indebtedness, the homeowner may want to ask the creditor to agree not to seek further collection remedies. By turning  over the deed to the mortgage holder, the consumer may forfeit any right to equity in the home. Similarly, the consumer may have valid claims or defenses against the creditor that would be lost by turning over the deed. If the consumer does offer the creditor a deed in lieu of foreclosure, make sure that there is a written agreement giving them sufficient time to vacate the premises in order to find alternative housing and move in an orderly fashion
 

Additional Resources on Foreclosure Prevention
Surviving Debt:  Counseling Families in Financial Trouble, National Consumer Law Center (Boston), 1992.

This page is based on information provided as a service of the National Consumer Law Center and the Federal Trade Commission.  This information is provided as a public service by the Law Office of Jim McMillen.