legal bills I had to pay,” she says. In 2002, Webster, a single mother with four children in Sayerville, New Jersey, began to miss mortgage payments as she channeled $20,000 of her income toward her relative’s legal fees. Webster contacted Chase Manhattan bank, her lender, which helped her avert foreclosure. “I explained my family issue, and they told me about several Chase programs they offer, such as their homeowner’s assistance program and their forbearance program. They told me that I could take the six months of mortgage payments that I owed and attach them to the end of my mortgage. So instead of my mortgage payments ending in June 2028, they’ll end in December 2028.”
Acting fast is key. “It is crucial to contact your lender as early as possible, after you find yourself unable to make mortgage payments,” Wade says. “Most major lenders have programs for mortgage modification, forbearance, or other remedies that are short of foreclosure. I have spoken with lenders who told me that more than half the people who go into foreclosure never respond to letters from the lenders, nor do they contact the lenders themselves. The longer you wait to contact your lender the more limited your options become.”
The option homeowners should be most aware of, says Washington, is a cure. Just before you know you may miss a payment, ask for a cure, which is a 30-day grace from your mortgage payment. It is usually only a one-time option.
However, the legal fees that haunted Webster persisted and, even though she had adjusted her loan, by late 2004 she found herself facing foreclosure again. Webster investigated Chapter 13 bankruptcy and a home equity loan before deciding to refinance at an interest rate of 11%, which was significantly higher than her original rate of 7.78%. While refinancing resulted in higher mortgage payments because of her spotty credit history, Webster did not lose her home.
For current and future homeowners, preventing foreclosure starts before the initial purchase:
Understand all the expenses that go into homeownership before you buy. Buying a home without being aware of taxes, insurance, repairs, and other expenses can produce a situation where foreclosure is imminent, says Matthew King II, president of MK Capital Resources L.L.C., a mortgage brokerage firm in New York City that also specializes in foreclosure prevention. “So many people live paycheck to paycheck, they don’t have any cash reserves. You really should have three to six months of mortgage payments in savings just in case.”
Make your first home a smaller home. King believes that less stringent income restrictions have allowed many people to realize the dream of homeownership, but relaxed restrictions may have led them to underestimate the costs of homeownership.
“If you’re paying $1,000 for rent, and you know that you are already stretching things, if you go out and get a mortgage at $1,000 a month, then lose your job and have no savings, the ramifications of missing mortgage payments are much greater in terms of your credit than the ramifications