Conclusion – Avoiding Foreclosure
To avoid predatory origination, you should know your credit score, which is the starting point for all mortgage shopping. You should know exactly what you can afford to spend on a home and how much you're willing to pay for the loan to purchase it. You should not delude yourself that the loan officer is your friend. You should never let yourself be so in love with a property that you can't walk away if you discover the loan originator, or the mortgage broker is lying to you.
If possible, you should be pre-qualified, and you should have this in writing. Ask for a proposal in writing when you talk to a lender. While the single-sheet loan estimate they typically offer is nice, you'll also want to ask for the lender fees worksheet. This is where you'll find interest rates, closing costs, and other associated fees that may be a part of the package. You'll know right away to beware when a hard money lender refuses to give you any of this.
You can also ask for a mortgage rate lock and be prepared to pay for it. Many lenders offer short-term rate locks free of charge, but they typically won't get you to the closing date. Asking for a rate lock up-front fixes the terms of your loan to help you avoid bait and switch. Some lenders do charge fees or higher interest rates to lock in a loan, so be sure to check.
Never overborrow and keep as large an equity cushion as possible in your property. Don't be talked into refinancing yourself out of your equity. Know the difference between secured and unsecured debt and never get talked into refinancing and taking out equity to pay off unsecured credit card debt. A Chapter 7 Bankruptcy will not stop a foreclosure sale, but it can wipe out credit card debt, keeping your home equity intact.[1] Credit card companies cannot foreclose on you, but once this unsecured debt is refinanced and added to a secured deed of trust or mortgage, it will be subject to foreclosure.
To avoid the bait and switch during loan modification, you should never miss mortgage payments when you are trying to modify your loan. There is no foreclosure avoidance or modification program that requires you to miss payments. If you have a temporary hardship, request a forbearance in writing from your servicer that includes a deferral of three payments onto the end of your loan. Don't miss payments until you have this in writing. If you can't get this, look to do a Chapter 13 Bankruptcy as quickly as possible so that you can pay them.
If you have a loan modification that a servicer is trying to cheat you out of, act fast. If they are refusing to honor something you've already signed, that is a breach of contract, and the longer you sit on your rights, the harder it will be to make that claim in court. Don't let any time go by before you see an attorney.
At the bottom of each and every confidence trick is our desire to have a thing be true, even when every fiber of our body is crying out that it is too good to be true. We want to believe that our mortgage broker is telling us the truth, even after we catch them lying. We want to believe that the mortgage servicer just happens to sell our mortgage servicing rights to a new servicer right in the middle of our loan modification, that it isn't some nefarious plot to trick us, even though our gut tells us this cannot just be an accident. We want to believe that the V.A. rejected our loan modification or H.U.D. because that's what the nice lady on the phone is telling us.
The key to avoiding foreclosure is to have a plan and to see an attorney as soon as possible. If you're getting close to the foreclosure sale date, have a good bankruptcy attorney lined up and be prepared to file a Chapter 13 to reorganize and pay the debt. If you believe the servicer is defrauding you, keep good records and see a foreclosure litigation attorney far in advance of the foreclosure sale date.
Foreclosure occurs on a continuum. If you come to see an attorney before the sale date, there are many things that can be done to help you. If you wait until after the sale, you will need an attorney to go to court to argue that the foreclosure was wrongful, and that may not strictly be the case if the servicer has cleverly worked the loopholes. If you wait too long, you'll be trying to file a lawsuit after you are already evicted and out of possession.
Foreclosure is a business, and it generates a thriving economy not just for mortgage servicers but for everyone else involved, and the business works on lies. It doesn't work without you, but it also needs you to believe the lies and remain confused. Don't take it personally when the mortgage servicer lies to you. You can hope for the best in human nature, but you can't rely on it. Especially when lying to you is their business.
Lastly, don't be embarrassed for being tricked by a system that is designed to trick you. Get even by getting smart. Get help as soon as possible and fight back.
[1] Chapter 7 bankruptcies