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Facing Money Problems? How to Avoid Foreclosure

Fri, 12 Dec 2008 20:59:20 GMT

Unfortunately, when facing unemployment, unexpected medical expenses, funding the care of a family member, or other financial strains, you may find yourself struggling to pay the mortgages and worry about loosing your homes in foreclosure. The good news is, you can avoid foreclosure and keep your home if you know the right steps to take. The Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development, and other government agencies, works with the mortgage industry to help you keep your home. The following tips summarize advice from these agencies, combined with common sense strategies, to help you avoid foreclosure.

1. Contact your lender as soon as possible.

Don’t wait to call your lender if you are having money problems – and definitely don’t avoid calls or letters from a lender trying to reach you! Many people avoid talking with their lenders out of fear that the lender will automatically initiate foreclosure proceedings. However, foreclosure is NOT the first step a lender will usually take. In fact, foreclosure is a long and expensive process for lenders and often results in a loss for them. Lenders much prefer you to keep your home. Also, mortgage regulations may even require lenders to work with borrowers who are facing money problems to work with borrowers to avoid foreclosure. Temporary solutions may include reduced payment plans, forbearance, and workout packages. For more serious money situations, ask your lender if you would be eligible for any kind of mortgage modification – such as changing from an adjustable mortgage rate to a fixed rate, extending your repayment term, or adjusting the balance owed to reflect missed payments. Ask your lender for more information about these options. However, the farther behind you are on payments, fewer options may be available.

2. Talk to a housing or credit counselor.

A housing counselor, or even a credit counselor, works with families to determining what options are available for their particular situations. This includes making financial budgets, learning about different workout packages which the borrower may be eligible, and sometimes includes help actually negotiating with the lender on the borrower’s behalf. Many housing counselors are affiliated with national and regional HUD approved agencies.

3. Look closely at your income and expenses.

Financial problems boil down to two basic sides of the equation - how much is coming in, and how much is going out. Look closely at your finances and figure out if you can improve either side of your equation. Can you increase your income? Perhaps you can ask for overtime at work, take on a second job, or start a side business at home. Otherwise, look to see what you can do to reduce your spending. What can you cut out? Can you pack a bag lunch instead of going out to eat during the work week? Little things might end up going a long way toward saving you the extra few hundred dollars a month that could make a big difference in your bottom line. Taking even small steps can help protect against loosing your home.

4. Pay the most important bills first.

When tightening your budget, pay for the necessities of life first – food, shelter and utilities. While failing to pay credit cable bill, or other “non-necessity” bills, can seriously affect your credit score, if you don’t make your mortgage payment, you risk loosing your home!

5. Consider selling personal property to pay off debts.

Do you have any personal property you could sell to help pay your debts? You might be able to sell that second car, for example. Also, take a look at smaller items sitting around in the garage that you could sell on websites like eBay? Those 2-year old skis? A poster collection? You might be surprised and find the money really adds up.

6. Consider borrowing money.

Taking out a loan to help pay mortgage expenses isn’t right for everyone. However, for some situations, getting a loan from a friend, family member, or a bank may be a solution, particularly if your money problems are temporary and you know you will be able to repay the loan at some specified date in the near future.

If you are facing money problems making it difficult to pay your home mortgage, try some of the tips above. Small changes could yield big rewards, perhaps even avoiding loosing your home through foreclosure. For more serious assistance, contact an attorney to determine what legal options may be available and to assist you with negotiating these options with your lender.

Ten Tips for Avoiding Foreclosure

Mon, 15 Dec 2008 01:11:26 GMT

Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them? Don't ignore the letters from your lender. Contact your lender immediately to try to work out an affordable repayment plan or some other solution to stay in your home and avoid foreclosure. Here are some tips from the U.S. Housing and Urban Development Department on how to avoid foreclosure:

1. Don't ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your lender as soon as you realize that you have a problem.

Lenders do not want your house. They have options to help borrowers through difficult financial times.

3. Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.

4. Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.

5. Understand foreclosure prevention options.

Educate yourself about what you can do to prevent foreclosure. Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet.

6. Contact a HUD-approved housing counselor.

The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.

7. Prioritize your spending.

After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.

8. Use your assets.

Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.

9. Avoid foreclosure prevention companies.

You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.

10. Don't lose your house to foreclosure recovery scams!

If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.

The Foreclosure Timeline

Mon, 15 Dec 2008 02:01:49 GMT

Though the foreclosure timeline varies by state, the U.S. Housing and Urban Development Department offers the following timeline of events involved in loosing your home:

First month missed payment – your lender will contact you by letter or phone. A housing counselor can help.

Second month missed payment – your lender is likely to begin calling you to discuss why you have not made your payments. It is important that you take their phone calls. Talk to your lender and explain your situation and what you are trying to do to resolve it. At this time, you still may be able to make one payment to prevent yourself from falling three months behind. A housing counselor can help.

Third month missed payment – after the third payment is missed, you will receive a letter from you lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current. This is called a "Demand Letter" or "Notice to Accelerate". If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings. They are unlikely to accept less than the total due without arrangements being made if you receive this letter. You still have time to work something out with your lender. A housing counselor can still help.

Fourth month missed payment – now you are nearing the end of time allowed in your Demand or Notice to Accelerate Letter. When the 30 days ends, if you have not paid the full amount or worked our arrangements you will be referred to your lender's attorneys. You will incur all attorney fees as part of your delinquency. A housing counselor can still help you.

Sheriff's or Public Trustee's Sale – the attorney will schedule a Sale. This is the actual day of foreclosure. You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper. The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months. This is not the move-out date, but the end is near. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.

Redemption Period – after the sale date, you may enter a redemption period. You will be notified of your time frame on the same notice that your state uses for your Sheriff's or Public Trustee's Sale.

A Plain Language Explanation of Your Options for Avoiding Foreclosure

Mon, 15 Dec 2008 02:55:56 GMT

Whether you're in foreclosure now or worried about it in the future, understand that there may be practical ways you can avoid foreclosure. Today, lenders are more willing than perhaps they have ever been to help you stay in your home and be able to afford your payments. The most common methods used to bring loans current are described below:

Bring Your Loan Current - Reinstatement: If you've missed payments on your mortgage and are in "default," the easiest way to cure it is to pay the lender the total amount outstanding. This includes missed payments, any late fees that may have been assessed and any other fees which the lender charges as a result of your def. The reinstatement period varies from state to state. In some states, you have the legal right to reinstate your loan even up until days before your property is sold at public auction. However, do not delay - contact your lender for information as soon as possible.

Work Out a Repayment Plan with Your Lender: A repayment plan is a written agreement between you and your lender to help you make up missed payments. The repayment plan may call for you to make your regular monthly mortgage payment, plus an extra amount, each month for a period of time in order to make up the missed payments until the loan is brought up-to-date. Other options include continuing to make your monthly minimum payments and agreeing to make a lump sum payment on a certain date to repay the amount past due. Make sure you only agree to a repayment plan you can actually honor. If you fail to meet the terms of this agreement, your lender will be less likely t work with you in the future.

Loan Modification: When your lender agrees to a loan modification, the terms of your mortgage actually change. Modifications may be made to reduce the interest rate of the mortgage, change the mortgage product (from an adjustable rate to a fixed rate, for example), extend the term of the mortgage or capitalize delinquent payments (add delinquent payments to the mortgage balance). Modifications are not easily granted, but if there are strong, justifiable reasons for the request then a lender may be willing to modify your loan.

Forbearance: The lender may allow you to suspend your payments for a period of time (3 to 6 months generally) or make lower monthly payments for a period of time. To make up for the lost payments, either the term of the loan will be extended (adding the missed payments to the life of the loan) or the payments will be higher upon reinstatement to make up for the unpaid amounts.

Special Forbearance: (Applicable to FHA-insured loans only) The lender may allow partial payments for up to 18 months to allow the borrower to get back on track. The lender may also offer “partial claim”, or advance funds, to help you become current.

Refinance: This will usually not be an option if you are seriously delinquent on the current mortgage (more than 3 payments late). If you are current, however, and there is equity in the property, this might be an option. You may be able to get a new mortgage with a different interest rate, or an extended term.

Second Mortgage (Home Equity Loan): Even if you are seriously delinquent on your mortgage, if there is enough equity in your home your lender may grant you a second loan on your home. Not generally feasible when you are having trouble making first mortgage payments - a higher interest rate and another payment would only be compounding the problem. May be used to eliminate consumer debt.

Bankruptcy: While this may seem to be the most unpleasant option, it may allow you to save the property. A Chapter 13 bankruptcy may help you save your home from foreclosure if all other options have failed.

Different Types of Foreclosure

Wed, 10 Dec 2008 18:01:42 GMT

Foreclosure is an event that most homeowners want to avoid. In essence, all foreclosures involve a lender taking back property that secured a loan when the borrower has failed to make regular payments on that loan. However, not all foreclosures are the same. If you, like many Americans, are having trouble making your mortgage payments then it is important that you understand the different types of foreclosure and how they might apply to your individual situation.

Judicial Foreclosure

This is the most common type of foreclosure. It is allowed in every state and in some states it is required. It involves the sale of the mortgaged property on which the borrower has defaulted on his loan repayment obligations. The sale occurs under judicial supervision. The proceeds from the sale are used to pay the mortgage and any other lien holders in order of their legal priority to be paid. Any proceeds earned in excess of the debt are the property of the borrower.

Power of Sale

In order take advantage of this type of foreclosure, two specific elements must be present. First, your individual mortgage contract must contain foreclosure by power of sale terms. Second, the state in which the property is located must allow these types of foreclosures.

Basically, this type of foreclosure allows the mortgage holder to sell the property without judicial involvement. Once the property is sold, the money is used to pay the mortgage holder and any other lien holders in order of legal priority and any remaining funds are provided to the borrower.

Strict Foreclosure

Only a handful of states, located in New England, still allow this kind of foreclosure. In this type of proceeding, the lender goes to court and requests a foreclosure. The judge then provides the defaulting borrower with a period of time in which to make the loan payments current. If the borrower is unable to make the loan payments current then the lender gets title to the property and has no obligation to attempt to sell it and provide proceeds to the borrower. In most cases, this type of foreclosure is only available if the value of the property is less than the amount owed on the property.

The time frame that is allowed for a strict foreclosure is typically set by the judge. In some cases it might be as short as a few weeks or as long as several months. Borrowers have the option of trying to sell the property in order to pay off their mortgage obligations or they may borrow or obtain enough money to become current on their loans in another manner.

Foreclosure is a serious legal, financial and personal matter. It often involves a person, or a family, losing their home. It involves putting a significant mark on the homeowner’s credit report that could make it difficult to obtain future loans. Therefore, it is important to think about foreclosure alternatives and to consult with an attorney prior to entering foreclosure proceedings.

Understanding the Foreclosure Process

Wed, 10 Dec 2008 18:05:39 GMT

There is no question that a foreclosure can be emotionally difficult and that the reality of a foreclosure can be difficult to face. However, in order to prepare yourself and your family for the realities that a foreclosure can bring, it is important to understand what typically happens in the foreclosure process after you receive your foreclosure notice.

Typically, a foreclosure notice, also known as a notice of default, is provided to the borrower after the mortgage has not been paid and the loan is in default for a certain amount of time. That time varies from state to state. In most cases it occurs after there is a substantial default of 3 or more missed payments on the loan. It can sometimes be avoided by making a call to your lender and explaining both the reasons why the loan payments have been late and your proposed repayment schedule.

Once the foreclosure notice has been served on the borrower, the borrower typically has a set amount of time to “redeem” the property by paying back all of the missed payments plus interest and fees. This time period varies from state to state and is known as the redemption or reinstatement period.

After the redemption or reinstatement period has expired, the homeowner will receive a Notice of Sale that sets the foreclosure sale date. The notice must be provided to the homeowner and published elsewhere as set by state law. Some states require the Notice of Sale to be published in local newspapers for a certain amount of time; other states require the notice to be posted on the property and at the place where the sale will take place.

Typically, homeowners have until 5 days before the foreclosure sale date to make all of their payments (including interest, fees and foreclosure expenses) current. If the homeowner is unable to do that or make alternative arrangements with the lender then the foreclosure sale proceeds.

Foreclosures are handled differently in different states but often the property is sold to the highest bidder at a foreclosure auction. The opening bid is typically the amount of the loan and any interest or other fees owed to the lender. The buyer is provided clean title to the property meaning that it is free from any outstanding loans, including second mortgages and other debts secured by the property.

Many states have statutory rights of redemption which allow the original homeowner to reclaim his or her property by paying the required amount of money within a certain statutory defined period of time after the foreclosure sale. The amount of time ranges from a few months to one year depending on the circumstances of the sale and the state in which the property is located.

Many lenders, especially in difficult economic times, are willing to work with borrowers to help them make their loan payments and avoid foreclosure. Sometimes, however, foreclosure is inevitable. If your property proceeds to foreclosure then it is best that you know what to expect and when to expect it so that you can prepare yourself and your family accordingly.

A Homeowners Rights During Foreclosure

Thu, 20 Nov 2008 01:49:37 GMT

Foreclosure can be an emotionally and financially difficult time in the life of a homeowner and it can affect not only the homeowner but also the homeowner’s spouse and children who live in the home being foreclosed. Therefore, it is important to be aware of your rights as a homeowner during every stage of the foreclosure procedure.

State laws vary about the time frame and procedures required for a foreclosure. However, most foreclosures follow a common trend. After a homeowner fails to make his or her monthly mortgage payments for a period of time (typically 90 days or more) the lender may decide to start foreclosure proceedings in order to take complete ownership of the property which serves as collateral on the mortgage.

If the lender decides to pursue a foreclosure then the lender must provide the homeowner with written notice of that intention. The homeowner has the right to pay back all past due amounts along with the late fees and other penalties agreed to in the mortgage contract. If the homeowner does pay all outstanding fees and past due amounts then the foreclosure process will be stopped.

In reality, it is not always possible for the homeowner to come up with all of the money that is owed to the lender at the time of the foreclosure notice. The homeowner has the right to discuss payment options with the lender and to try to work out an agreement whereby the terms of the loan are renegotiated so that the homeowner keeps the property.

The homeowner may also discuss the possibility of a private sale with the lender. Sometimes a private sale can yield a higher selling price than a foreclosure and it can pay off the existing mortgage debts while leaving the homeowner with a profit. It is important to note that the right to redemption would not attach to a private sale.

The homeowner may remain in the home during the foreclosure process. However, with that right come the responsibilities to adequately maintain the home and pay the real estate taxes and homeowners insurance. Those responsibilities attach whether or not the homeowner decides to remain in the home during foreclosure.

Redemption

If an agreement cannot be worked out prior to foreclosure, then the homeowner has the right of redemption in some states. This statutory right allows the homeowner to regain ownership of the house by buying it back after the property has been foreclosed. Approximately half of the states have this right. The redemption laws allow the homeowner to regain ownership of the home paying the foreclosure sale price and a statutory interest rate to the lender. Usually, this right must be exercised within 6-12 months of the foreclosure sale.

Throughout the foreclosure process the homeowner has the right to be treated fairly. Any money that is earned on the sale in excess of the amount owed on the mortgage, late fees, penalties and foreclosure costs should go to the homeowner.

Sometimes, foreclosure is inevitable. However, the unpleasantness of the experience can be minimized if the homeowner is aware of his or her rights.

Alternatives to Foreclosure

Thu, 20 Nov 2008 01:51:07 GMT

It can be very stressful to face a home foreclosure. Homeowners and their families who cannot afford to make their mortgage payments may feel that there is no alternative to letting their mortgage holder foreclose on the property. However, foreclosure is not a foregone conclusion and there are options available that individual homeowners and their mortgage providers can consider.

Renegotiate

In some circumstances, it might make sense to renegotiate the mortgage terms. Lenders are usually more willing to consider this option if the homeowner is facing a temporary decrease in income and has a strong likelihood of an increased income again in the near future. For those homeowners, a lender might be willing to lower the interest rate on the mortgage or extend the length of the mortgage in order to lower the monthly payments.

In extreme circumstances, a lender may agree to a temporary reduction or suspension of payments if a specific schedule is set for the homeowner to pay the difference over a certain amount of time.

Refinance

Depending on your financial circumstances, you might be able to refinance your home. If you have equity in your house you might be able to borrow money from that equity in order to pay past due mortgage amounts. The interest rate on the new loan might be lower than your original mortgage rate and you might end up with smaller monthly payments going forward.

Seek Assistance

The federal or state government might be able to provide you with assistance if you wish to stay in your home and you qualify for their programs. If you have an FHA insured loan, for example, your lender may be able to get a one a time payment from the FHA insurance fund that will bring your mortgage payments up to date. Similarly, some states have homeowners’ mortgage assistance programs that can provide assistance to homeowners who wish to remain in their home and avoid foreclosure.

Sell or Transfer Ownership

If you do not wish to remain in the home and you are facing foreclosure then you have a few options available to you. All of these options are less likely to affect your credit rating to the same degree that a foreclosure would affect it. For example, you could try to sell your home. Depending on the amount of your mortgage, you might receive enough from the sale to pay off your existing debt and have some profit.

If a quick and profitable sale is unlikely then you might decide to sign your property over to another person. While you will not profit financially from this type of relationship, you will no longer be responsible for the mortgage payments and your credit rating will not reflect a foreclosure.

Finally, if neither of the options above are feasible then you might decide to pursue a deed in lieu of foreclosure. This means that you give ownership of the property to the lender without a foreclosure sale.

It can be financially and emotionally overwhelming to face a possible foreclosure. However, a foreclosure can have a long lasting impact on your credit rating and future ability to obtain a loan. Therefore, it is important to consider all of the options available to you if you are unable to make your mortgage payments and are facing foreclosure.

Bankruptcy or Foreclosure?

Thu, 11 Dec 2008 01:03:17 GMT

Tough times require people to make difficult choices. The loss of a job, an economy that is in recession, rising fuel prices, an illness or an injury can all cause people to have a difficult time paying their bills. Sadly, some hardworking and well meaning people are forced to make the choice between having their home foreclosed or filing bankruptcy. There is no easy answer and no clear choice between foreclosure and bankruptcy. However, there are some things that you should consider before you proceed with either option:

Are There Alternatives? Is your mortgage holder willing to negotiate with you to change the terms of your mortgage or allow you to make back payments? It is important to make sure that you speak with your lender and negotiate to the greatest degree possible before entering either foreclosure or bankruptcy.
How Long Will My Credit be Affected? A foreclosure remains on your credit record for 7 years and a bankruptcy for 10 years. Both are looked upon unfavorably by any potential future creditors.
Do You Want to Continue to Live in Your Current Home? If you are not committed to remaining in your current home then you may be able to negotiate with your lender to allow you to sell the home. The proceeds from the sale will first go to pay your mortgage holder and other creditors. Any leftover proceeds will be yours. If you do want to continue to live in your current home and were not able to work out an agreement with your mortgage holder then bankruptcy might be your only alternative. Bankruptcy will in no way guarantee that you can remain in your current home indefinitely. However, it will stay the foreclosure if a formal foreclosure notice has not been issued at the time that you file for bankruptcy. That can buy you a period of months in which you will continue to live in your home while the bankruptcy is completed. Further, if you file for bankruptcy under Chapter 13, the court may allow you to pay your past due amounts over the course of your repayment period. That amount would be in addition to your regular monthly payments.
Do You Have Other Assets that You Want to Protect? Foreclosure, unlike bankruptcy, only affects your home. If your home is foreclosed then the home is sold and the proceeds pay off your mortgage. The rest of your assets are not affected by the proceeding. Bankruptcy, on the other hand, can affect all of your assets and obligations.

While there are many negative things associated with bankruptcies and foreclosures, such as the potential loss of your home and the effect on your credit rating, sometimes foreclosures and bankruptcies are necessary. They can relieve you of overwhelming debt and allow you to start over and live your life without the constant stress and worry created by not being able to pay your bills.

So, if you, like many Americans, are facing tough economic times, it is important to consider all of your financial options before making a decision about how to proceed.

The Mortgage Forgiveness Debt Relief Act of 2007

Thu, 20 Nov 2008 01:41:25 GMT

In December 2007, the federal government enacted the Mortgage Forgiveness Debt Relief Act. The Act was meant to provide tax relief to taxpayers who had debt forgiven on their primary residence and to help struggling homeowners.

The Purpose of the Mortgage Forgiveness Debt Relief Act

The idea behind the law was to help homeowners avoid foreclosures by not taxing them when they refinanced their mortgages. The law was designed to be an incentive for homeowners and lenders to work together to renegotiate adjustable rate mortgages that were rapidly rising at a time when home values were decreasing and to allow more homeowners to remain in their homes while lenders were paid on the outstanding debt.

The Details of the Mortgage Forgiveness Debt Relief Act

The law applies to debt that is forgiven on primary residences in 2007, 2008 or 2009. The general rule is that income that is realized as a result of a mortgage relief measure is considered income for federal income tax purposes. However, the Mortgage Forgiveness Debt Relief Act changes that rule if the mortgage relief, such as a restructuring or foreclosure sale, is done for a primary residence and happens in 2007-2009. In order to qualify, the debt must have been used to buy, build or substantially improve that primary residence and must have been secured by the residence. It does not apply to second homes, credit card debt, car loans or any other type of debt. The provision applies in full as long as the dollar amount of the loan was less than 2 million dollars.

While the majority of people who take advantage of this provision are doing so as a result of a mortgage restructuring or foreclosure sale there is no requirement that the mortgage forgiveness be provided in those ways. Other forms of mortgage forgiveness such as short sales and deeds in lieu of foreclosure also qualify.

One of the biggest criticisms of the Act is that it is providing too little relief too late for the many homeowners who have been suffering. President Bush made clear when he signed the legislation that it was only one step in the necessary process of helping homeowners who have been hurt by the decline in the housing market.

How to Take Advantage of the Mortgage Forgiveness Debt Relief Act

It is important to note that while income earned in the manner described above will not be taxed for 2007-2009, it still must be reported to the IRS on Form 982. Your mortgage lender will send you a form 1099-C Cancellation of Debt that should be used when completing Form 982 and your tax returns. Like all other tax forms, Form 982 is available from the IRS or from your accountant.

The Mortgage Forgiveness Debt Relief Act of 2007 is one action by the federal government to try to help struggling homeowners achieve mortgage debt relief without incurring the penalty of higher income taxes and it is important to understand the details of the Act if you find yourself in a situation requiring debt relief.

Wage Garnishment Orders Cannot Garnish It All

Wed, 18 Jun 2008 22:18:35 GMT

A wage garnishment order is an order by a court to automatically take a set amount of money from a person’s paycheck and send that money directly to another party. The person whose wages are being garnished never sees the money and is thus not able to prevent the transfer to the other party. A garnishment order is normally applied for after a defendant in a prior court case has been found liable for damages or for a support order and has failed to pay on that order.

Due Process

The law makes it possible to garnish someone’s wages but the law also offers some protections for those who are having money taken from them. Because a garnishment is the taking of property from someone, the person who is subject to the order must have due process before the order is entered. At the minimum, due process must consist of prior notice and a hearing. At the hearing the defendant must have the opportunity to be heard and present a defense.

Laws that Protect

The federal government and every state also have statutes regarding wage garnishments: when a garnishment is allowed, when a garnishment is not allowed, how much money may be taken per pay period and any income that may be exempt from a garnishment order. Federal law also requires that the formula used to establish the amount must be based only on the defendant’s “disposable income.”

Disposable income usually means the income left after taxes and eligible deductions such as retirement accounts are deducted. Current federal law sets the maximum that may be taken per pay period at 25% of the person’s disposable income, in cases of child or spousal support the court may order up to 50%. If a garnishment action is brought because child or spousal support order payments are delinquent 60% of the defendant’s disposable income may be taken.

Because a garnishment order is served on the employer, the employer is legally obligated to commence garnishing your wages. Some employers may find that firing the employee is easier than going through the administrative steps that a garnishment requires. The federal Consumer Credit Protection Act forbids employers from terminating employees who are subject to a single garnishment order. There are no protections however for those who have more than one garnishment order.

What you can do

There are several options for stopping a wage garnishment. One, you can quit your job. Your creditor won’t get your money, but neither will you. Two, you can pay the debt in full. Three, you can file for bankruptcy protection. Filing for bankruptcy may provide an immediate temporary stay to any debt collections, including court ordered garnishments. However, garnishment orders may not be dischargeable in bankruptcy. Bankruptcy may not be as good as an option though because it may only allow a temporary reprieve but it will stay on your credit report for up to 10 years.

If you are subject to a garnishment order you do have options. If you have a good faith hardship because of the garnishment order the court may reduce the amount. A good faith hardship may consist of having a child, losing a job or incurring a major illness or injury. Consult an attorney for specifics in your state.

For more information about wage garnishment, contact a collections attorney today.

The Truth About the Truth in Lending Act

Thu, 06 Nov 2008 20:48:34 GMT

Since 1968, American consumers have been entitled to clear disclosure of credit terms and costs in lending agreements. It was in 1968 that Congress passed the Truth in Lending Act. The law applies to many types of personal credit including credit card debt and residential mortgages. It applies to personal consumers who are seeking or applying for credit but it does not apply to business or government borrowers.

The stated purpose of the act is to stabilize the economy and encourage competition amongst financial institutions by having consumers be informed about the terms and conditions of the credit for which they are applying and accepting. At the application stage, disclosure of terms and conditions will allow the consumer to compare credit offers from different financial institutions. At the acceptance stage, full disclosure of terms and conditions will allow the consumer to adequately predict how much the credit arrangement will cost him and whether it is a good financial move.

What Terms are Regulated by the Truth in Lending Act?

Two of the most important terms that are regulated by this Act include finance charges and the annual percentage rate. Both of these terms can be hard for the lay person to understand, can vary widely from lender to lender and, can greatly impact a consumer’s personal finances. The Act explains that the amounts of both the finance charges and the annual percentage rates need to be disclosed and may not vary significantly from the disclosed values. This is important to a consumer’s understanding of the credit terms and ultimate repayment amount.

The Three Day Waiting Period

In an effort to protect consumers from being pressured or coerced into credit arrangements that affect their home, the Truth in Lending Act provides consumers with a three day waiting period when they sign a home equity loan. That means that if consumer is taking a loan against his primary residence, he or she has three business days to rescind that agreement after agreeing to it in writing. The funds are not dispersed until the end of the three day waiting period. However, if there is an emergency for which the homeowner needs the fund sooner than three business days from the time of execution of the agreement, the three day period may be waived.

Violations of the Truth in Lending Act

There are both civil and criminal penalties that are possible for different violations of the Act. Creditors can be liable for violating the disclosure terms of the Act even if the consumer was not hurt by the violation unless the creditor fixes the error within 60 days of notification or proves that the error was made unintentionally.

If a creditor does not comply with the requirements of the Act then the consumer can file a lawsuit within one year of the alleged violation. The court may award the consumer actual damages, attorney’s fees, court costs, statutory damages and more.

Willful violations of the Act could result in criminal charges being brought and sentences of fines and prison time being imposed.

The credit market is an important part of the American economy. Therefore, it is important that consumers understand their individual terms of credit and that creditors are truthful in their disclosures.

The Fair Debt Collection Practices Act

Thu, 06 Nov 2008 20:45:53 GMT

From time to time, many well meaning borrowers fall behind on their bill payments. It may be that the borrower has lost his or her job, has run into unexpected expenses or has simply borrowed more money than he or she can afford to repay. Whatever the reason, many borrowers who fall behind in their payments begin to receive phone calls from persistent debt collectors. Often, these calls come at inopportune times and can feel like harassment because the debt collectors can be very assertive.

The law recognizes that creditors need to be repaid the money which they are owed by borrowers and does not erase the debt. However, the law does recognize that the borrower should be treated fairly. In order to help ensure that borrowers are treated fairly, the Fair Debt Collection Practices Act was enacted.

What is Covered by the Fair Debt Collection Practices Act?

The Act applies to all personal household debts such as car loans, medical bills and, credit card bills. It does not apply to business debts.

Which Methods of Debt Collection are Regulated by the Act?

The Act allows a debt collector to contact a borrower by any method including telephone, fax, mail or in person. However, the debt collector cannot call you at inconvenient times or places. An inconvenient time is defined as before 8 am or after 9 pm. An inconvenient place could be a person’s place of employment if the debt collector knows that an employer would be unhappy with such contact.

You can also limit how a debt collector contacts you by writing the collector a letter. If you write a letter stating that you do not want the debt collector to contact you any further then the debt collector may send you one more letter acknowledging receipt of your letter and informing you of how he or she intends to proceed. For example, the letter might state that they intend to file a lawsuit against you for the money owed.

A debt collector may not discuss your debts with anyone other than you or your attorney. A collector could contact your friends or family to try and find out your whereabouts and how to contact you but a collector may not disclosure the fact that you owe money.

Most importantly, a debt collector may not harass you by threatening violence, using profanity or threatening to publicize your debt. Likewise, a debt collector may not be untruthful with you in an effort to collect money by claiming that you will be arrested or by sending you papers that appear to be from a court or government agency that are not in fact from one of those entities.

What Can You Do if You Believe the Act Has Been Violated?

You have several options available to you if you believe a debt collector has violated the law. You can report any alleged violations to your state’s Attorney General’s office or to the Federal Trade Commission. Either office can help you determine if the actions that you describe by the debt collector are against the law and will allow you to file a complaint against a debt collector.

You also have the right to sue a debt collector in court for alleged violations of the Act. You can do this individually or as part of a class action group against a particular debt collector.

It can be very stressful to owe money. Debt collectors have a legitimate role in trying to collect on a debt for a creditor who is legally entitled to the money that was lent. However, the Fair Debt Collection Practices Act makes sure that the debt collector’s actions are free from harassment, intimidation and illegal practices to protect the rights of the borrower.

What is the Fair Credit Billing Act?

Thu, 15 Jan 2009 02:05:15 GMT

At one point or another, everyone has had problems with billing on an account. Maybe you bought a new dining room table for which your credit card company billed you twice. Or maybe you returned that new dress you bought that didn’t fit, but you still were billed for it. Sound familiar? If so, you can benefit from being aware of your rights under the Fair Credit Billing Act, or the FCBA, which gives you the power to resolve these types of disputes with the credit card company or bank in question.

The FCBA applies only to open end or revolving credit accounts, like major credit cards and department store credit accounts. Keep in mind that the FCBA does not apply to loans paid in installments, like car loans or mortgages.

The FCBA also applies only to billing errors. These types of disputes include charges on your account that you did not authorize, charges on the wrong date or for the wrong amount, mathematical errors in calculating accounts, problems with credits or refunds for returned items or items that you didn’t receive, and bills that are sent to a wrong address.

You also have to take certain actions within a certain timeframe in order to use the FCBA. For example, you have to contact the creditor within sixty days of the date that you first received notice of the billing error. You also have to contact the creditor in writing, at its address for “inquiries” rather than its payment address, and provide specific information including your name, address, account number, and description of the problem. If you comply with all of these rules, then the FCBA requires the creditor to acknowledge your dispute within 30 days, and to resolve your dispute about the billing error within two billing cycles, or not more than 90 days, of the date that the creditor received notice of the problem.

While your creditor is in the process of resolving your dispute, you don’t have to pay for the charges resulting from the billing error. However, you do have to pay any other charges that are unrelated to the dispute. Similarly, during this time period, the creditor can’t take legal action against you for the billing dispute, and can’t report negative information about you on your credit report related to the dispute.

If you are right, and there really is a billing error, then the creditor has to fix it, and explain to you in writing how the problem will be fixed. If you are wrong, though, and there is no billing error, then the creditor must tell you, in writing, how much you owe and why. You are also entitled to documentation of the amount that the creditor says you owe. If you still disagree, then you need to contact the creditor within 10 days to further dispute the billing error; however, keep in mind that the creditor can start to take collection actions against you at this point if you still don’t pay the bill.

Finally, if a creditor doesn’t follow the FCBA with respect to a claimed billing error, then the creditor can be penalized by not being able to collect the amount in dispute, up to $50.00. Therefore, it is important to know your rights under the FCBA in order to properly deal with billing disputes.

Can I use a loan modification program in order to save my home from foreclosure?

Fri, 19 Dec 2008 03:13:49 GMT

With mortgage foreclosures at an all time high, major banks across the nation have begun offering loan modification programs for people who are in danger of losing their homes to foreclosure. While eligibility for loan modification programs differs from one bank to the next, the common goal of these programs is to restructure existing mortgage loans so that borrowers have lower payments. Because foreclosure is costly not only for the homeowner, but for the bank itself, the bank has a strong interest in helping people maintain their obligations under their mortgages, especially in today’s rocky economy.

In general terms, a loan modification program is a lot like refinancing your mortgage in order to make the payments more affordable. The only difference is that instead of taking out a new mortgage to replace your old mortgage, you are simply changing the terms of your existing mortgage loan. If you are unable to make your current mortgage payments and not eligible to refinance your mortgage due to some financial hardship that you are experiencing, then you may be eligible for a loan modification program through your bank or mortgage company.

Whether you will qualify for a loan modification depends on the requirements of your bank’s loan modification program, as well as your own financial situation. While these requirements vary, the most common eligibility requirements for loan modification programs include being behind on your mortgage payments by at least three months, experiencing some sort of financial hardship that makes you unable to make your regular monthly payments, using the mortgaged home as your primary residence, and never having filed for bankruptcy.

In order to check your eligibility for a loan modification program, you must contact the bank or mortgage company that owns your mortgage. Keep in mind that with banks being bought and sold on a regular basis, especially in the current economy, you need to make sure that you are contacting the correct company about your mortgage loan, because the owner of your mortgage is the only company that can grant you a loan modification. In any case, you need to communicate with your bank about your financial situation, take any steps you can to meet your monthly mortgage payments, and cooperate with any requests for information necessary to participating in the loan modification program.

IndyMac Bank, which was taken over by the FDIC, was the first major bank to offer a broad loan modification program to its customers. Other major mortgage companies such as Fannie Mae, Freddie Mae, Bank of America, JP Morgan Chase, and Citigroup have followed IndyMac’s lead in offering widely available loan modification programs to their customers. IndyMac, for instance, is contacting some customers who are seriously delinquent on their mortgage payments directly in order to help them enter into their loan modification program. Under the IndyMac program, the interest rate and length of repayment for your mortgage loan could be lowered in order to make your mortgage payments more affordable in terms of your current income and expenses. Thus, if you are not able to afford your mortgage payments, be sure to check your eligibility for your bank’s loan modification program rather than risk losing your home.

My bank is threatening to repossess my car. Can my bank do that?

Wed, 31 Dec 2008 02:02:02 GMT

If you have failed to make your car loan payments as agreed, or, in some states, if you have failed to maintain car insurance, the bank or lender can repossess your car. Repossession means that the bank can take your car back without going to court, filing a lawsuit, or even giving you any advance warning. However, banks and other lenders do have to follow some important rules in repossessing your car, or they may have to pay certain penalties and/or damages to you.

Typically, the contract that you signed for your car loan will define what has to happen for you to “default”, or not keep up your end of the loan agreement. Most commonly, default happens when you don’t make your loan payment as you agreed. If you default, then the bank can repossess your car. Although the bank can send someone to come onto your property to repossess the car, he or she cannot “breach the peace”, the meaning of which varies from state to state. For instance, the person attempting to repossess your car cannot threaten you or physically assault you during the repossession. If he or she does “breach the peace”, then the bank might have to pay a fine or compensate you for any damages that were caused by the repossession. Likewise, you are entitled to get back any personal property that was in the car at the time it was repossessed.

Once your bank has repossessed your car, the bank can either keep the car or resell it publicly or privately. In some states, the bank may have to notify you about how the car is going to be sold; this information gives you the ability to “redeem”, or buy back your car at the sale or auction. If you cannot redeem your car, however, the bank has to sell your car in a “commercially reasonable” manner. This doesn’t necessarily mean that the bank has to sell it for the amount of your loan, or even the amount that the car is worth, but it has to be a reasonable sale.

Plus, if the bank can’t sell your car for the amount that you still owe on your car loan, then you may owe the bank the “deficiency”, or the difference between the amount that the car sold for and the amount that you owe on the car loan, plus interest and fees. If there is a deficiency, then the bank can sue you to collect that money from you. On the other hand, if the bank sells the car for an amount that is greater than what you owe on the car loan, then the bank has to give you the surplus amount.

The bottom line is that if you want to avoid having your car repossessed, you should make every effort to communicate with your bank or lender if you are having difficulty making your payments. In some situations, you may be able to work out a different payment plan or loan with the bank, which will avoid repossession. Furthermore, if you simply cannot afford the car loan payments at all, then you might be able to work out a voluntary repossession of the car, which can reduce costs for both you and the bank.

What are credit counseling agencies?

Wed, 31 Dec 2008 02:15:12 GMT

Credit counseling agencies may be able to help you if you are having trouble paying your debts. Credit counseling agencies also can be an alternative to filing bankruptcy proceedings, or, in some cases, are a required step to filing bankruptcy proceedings. These are generally non-profit organizations whose goal is to provide you with the tools necessary to managing and paying off your debt. Getting you out of debt includes not only a plan to repay your debts, but also education and counseling to prevent you from getting into debt again in the future.

Some organizations that call themselves credit counseling agencies, however, charge high fees and may not always provide you with the assistance that you need. Therefore, when choosing a credit counseling agency, you should be careful to choose an agency that is approved by the Federal Trade Commission and/or your state’s consumer protection agency. You can also check with your local Better Business Bureau to see if any complaints have been made about the credit counseling agency, and to see if the credit counseling agency is licensed as per the requirements of your state. Once you have decided to work with a particular credit counseling agency, you should make sure that you carefully read any agreements before signing them. You’ll also need to be aware of any fees that the agency is charging you up front or on a monthly basis, as well as the consequences if you are not able to make your payments as agreed. Once you know all of this information, you can better decide whether to use a particular credit counseling agency.

Typically, a credit counseling agency will help you enter into a debt management plan (DMP) with your creditors, or the people to whom you owe money. Under a DMP, you make certain payments to the credit counseling agency, which then pays the money to your creditors according to a schedule. As a part of this DMP, your creditors might charge a lower interest rate, or waive certain fees.

Once you have entered into a DMP, you should be sure to make your payments to the credit counseling agency as agreed. The credit counseling agency should provide you with a periodic statement that shows how your payments are being applied to your debts. If you are having trouble making the payments that you agreed to, then you should contact your credit counseling agency immediately.

Unfortunately, some less reputable credit counseling agencies might not make the payments to your creditors as agreed, or might even close down altogether. If the agency closes, you should notify your creditors that it has closed, and start making payments directly to your creditors again. You should also stop making payments to the credit counseling agency according to the terms of the DMP. If, on the other hand, you find that the credit counseling agency is not making the payments to your creditors as scheduled, you’ll need to contact your creditors immediately and make arrangements to pay the creditors directly.

What are my obligations if I co-sign a loan for another person?

Thu, 15 Jan 2009 02:21:39 GMT

What should you do if your twenty-something son asks you to co-sign his car loan? While you love your son, you’re not sure if he will be able to make the loan payments. What happens if you co-sign the loan, but your son doesn’t make the payments? Will you have to make the payments for your son?

These all too common questions that parents and grandparents face when their sons, granddaughters, and/or random relatives who are down on their luck come to them to co-sign loans, whether it be for a car, an engagement ring, or just some quick cash. Before you agree to co-sign another person’s loan, however, you need to be aware of your rights and responsibilities for that loan.

The bottom line is that if your son doesn’t make the loan payments as agreed, then you are responsible for making the payments due on the loan. Can you really afford to make an extra $250.00 car payment each month? If not, then you might think twice before co-signing that car loan.

Does it matter that you weren’t the one who needed the loan, or that you’re not the one driving the car? The short answer is no. You are liable for the loan. In some states, the bank or lender can come after you for the loan payments even without first going after the primary person on the loan. The bank can refer you to a collection agency, report you to the credit bureau, sue you, and have your wages garnished, just as if you had originally taken out the loan yourself. Plus, if you pledge your property, such as real estate, a car, or furniture in order to secure the loan, you could lose that property if the loan payments are not made as ordered.

Keep in mind that if your son requires a co-signer on his or her loan, it is because the bank won’t lend him money alone because it is too risky. If the bank won’t risk allowing your son to take out a loan, should you really risk trusting your son to pay the loan that you co-sign for him?

But what if you really want to help your son get back on his feet by co-signing a car loan for him? If you do decide to co-sign his loan, make sure that you take some basic steps to protect yourself. For instance, get a copy of all of the paperwork that you and your son sign so that you are clear on your rights and responsibilities under the loan, as well as the consequences if the payments are not made. Ask the bank to guarantee, in writing, that you will receive notice if your son misses a payment. This will keep you informed about the status of the loan, and help you deal with problems as quickly as possible. Also, check your state laws, which may provide you with additional rights and/or protections as a co-signer of a loan.

The Federal Reserve Boards New Credit Card Protections for the Consumer

Wed, 06 May 2009 18:29:57 GMT

Are the days of unfair credit card practices over? While the credit card companies may mourn their passing, American consumers are seeking fair credit card practices that they can understand. In an effort to protect American consumers, the Federal Reserve Board enacted new rules in December 2008 that are set to go into effect on July 1, 2010. The new rules are part of a coordinated effort with the Office of Thrift Supervision and the National Credit Union Administration. The Federal Reserve’s rules were passed after consumer testing and reviewing more than 60,000 comments.

The New Rules

According to the Federal Reserve’s press release, the new rules are designed to accomplish several major objectives including:

Limiting When Credit Card Companies Can Charge Late Fees: The new rules require credit card companies to provide consumers with a reasonable amount of time to pay their bill before they impose late fees. Late fees may be imposed if the bill is sent at least 21 days prior to its due date and the payment is not received by the due date.
Directing How Payments Will Be Applied: Credit card companies may legitimately charge different interest rates for different types of transactions. For example, the interest rate on cash advances may be significantly higher than the interest rate on point of sale purchases. However, the new rules require that payments made in excess of the minimum amount due be applied first to the amounts owed with the highest amounts of interest.
Limiting When Interest Rates Can Be Raised: All scheduled changes in interest rates that will apply in the first year should be disclosed to the consumer at the time the consumer signs up for the credit card. After the first year, interest rates may increase on new purchases as long as the consumer is provided with at least 45 days prior written notice in accordance with the rules. Interest rates can be raised if the minimum balance is not received within 30 days of the billing cycle due date. Finally, interest rates that are tied to a variable index may be raised in accordance with that index at any time.
Ending Two Cycle Billing: Currently, if a consumer pays a bill in full one month but carries a balance the following month, the credit card company can calculate interest using time from the previous cycle. This practice will be prohibited by the new rules.
Reducing High Fee / Low Credit Accounts: The new rules seek to provide some balance with regard to the fees charged for low credit limit accounts. The new rules provide that fees for the first year of the account may not exceed 50% of the available credit limit.
Making Applications Easier to Understand: Changes will be required for credit card applications and solicitations so that they are easier to understand for the consumer.

According to Federal Reserve Chairman Ben Bernanke, the rules adopted are “sweeping reforms” that are designed to allow consumers to access credit on fair and easily understandable terms. Time will tell if Chairman Bernanke’s assessment of the rules is correct and if consumers will in fact be provided with important and meaningful protections.