ACTION STEPS
There are steps you can take to avoid foreclosure on your home.

Prepare for job loss or unexpected expenses
We all have monthly expenses that cannot be avoided or trimmed back. After health care, keeping your house should be your first priority.
•To protect yourself and the investment in your home, experts urge you to begin saving. It is important to plan ahead and maintain a budget that accounts for all of your expenses and current income.
•Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses, such as cable TV, memberships and entertainment that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
•Even if your finances are tight, saving a small amount each week can create a buffer to help you hold onto your home in the event of a job loss or unexpected medical expense.
•One rule of thumb: Keep three to six months' worth of living expenses in an account that's readily accessible. Taking this extra step can allow you to safely make it through several months, giving you time to make the necessary changes to get back on track.
If you may not be able to make a scheduled mortgage payment:

•Call the customer service number of your lender or loan servicer immediately to make alternate arrangements and avoid having a late payment recorded on your credit report.
•Prioritize your spending. Are there areas where you can cut back, such as cable television, cell phone service or gym memberships? Can you find extra work to add income?
•Contact your credit card companies to reduce or delay payments so you can pay your mortgage first.
If you've missed one or more mortgage payments:

•Take action right away. Your lender can offer options such as loan modifications or mortgage workouts that may result in a lower payment or reduced interest rate.
•Open and respond to all mail from your lender. The notices you receive will offer advice on avoiding foreclosure. Later mail may include important notice of pending legal action.
•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.
•Prioritize your spending. After health care, 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, such as cable TV, memberships and entertainment tha you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
•Use your assets. Do you have assets such as a second car, jewelry or 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.
Make sure your mortgage fits your financial situation:
We have learned a great deal in the past few months about the things current and future homeowners should be aware of when securing a mortgage.

•Make sure you are working with a reputable lender and that the kind of mortgage you are seeking fits with your family's financial situation.
•Avoid "interest only" loans. These loans only increase your payments over time, making it difficult to maintain payments in the long run.
Talk with your mortgage lender:
If your financial situation has recently changed, or you are finding it difficult to make ends meet, don't wait to contact your lender. Communicating with them can help avoid misunderstanding and open the door to the possibility of refinancing or other options such that will allow you to navigate through the difficult times. If you do not know who your lender is, look at your monthly statement and call the number listed. They will work with you, as it is not in anyone's best interest to go through foreclosure. Contrary to popular belief, your lender loses money if you are foreclosed on and they understand the strain it places on you and your family. If your lender has already contacted you, respond to all mail or other communications at once. It's important to act before you fall further behind.

Avoid foreclosure scams:

•Watch out for questionable counseling companies who advertise that, for a minimal fee, they will hire a lawyer to defend the foreclosure in court or negotiate lender assistance on your behalf.
•You should call a HUD-approved counseling organization before you pay or sign anything.
•The Federal Reserve Board has also developed 5 Tips for Avoiding Foreclosure Scams
Know when it may be time to sell:
Although in some cases foreclosure may be unavoidable, members of the Hawai'i Association of REALTORS® agree that it is never the best outcome for homeowners, lenders or communities. Homes sold through the foreclosure process typically go for less than homes put on the market in a more conventional way. As a result, the foreclosure process may leave homeowners facing a deficiency payment to make up any difference remaining between the price the home sold for at auction and the original loan amount. In addition, foreclosures may lower the value of surrounding homes and affect an entire community.

Homeowners experiencing financial troubles may come out ahead by listing the home for sale as soon as possible, instead of waiting and sinking deeper into debt. Click here to find an experienced REALTOR® in your area.

OPTIONS
Foreclosure isn't the only option for homeowners during difficult economic times. There are other pre-foreclosure alternatives for homeowners to avoid foreclosure.

Short Sale:
Short sale is a type of pre-foreclosure sale in which the lender allows the property securing a mortgage or deed of trust loan to be sold for less than the full amount due, and accepts the proceeds from the sale as payment in full. Most lenders have a very strict hardship test that the financially distressed homeowner must meet to qualify for relief by way of a lender-approved short sale.

Considering the complexity of the short sale process, you must be educated. If you are considering a short sale, make sure that you discuss your situation with a competent REALTOR®, lawyer and accountant. The more educated you are on the process, the easier the transaction will be, and the better the impression you will make on the lender.

Refinancing:
Refinancing is the paying off an existing loan with the proceeds from a new loan, usually of the same size, and using the same property as collateral. In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with refinancing. The difficult part of this calculation is predicting how much the up-front money would be worth when the savings are received.

Talk to your lender about refinancing your current mortgage. You should also look at other lending institutions to find the best deal for your situation. Consider getting references from family members, co-workers, REALTORS® and other people you trust, especially those who've recently refinanced.

Loan Modification:
A loan modification is an alternative to foreclosure for thousands of struggling homeowners. There are several types of loan modification programs, so if you are considering applying for a loan modification, it is important that you understand the different types of loan modifications to help you in your negotiation process. For homeowners who face losing their home, a loan modification is often the most effective way to avoid foreclosure.

Loan modification options may include: adding all the missed payments to the loan amount and changing the monthly payment to cover the larger loan; giving you more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan, to lower your monthly payment; switching from an adjustable rate mortgage (ARM) to a fixed rate mortgage; or requiring amounts for taxes and insurance to be included with your monthly mortgage payment, so you avoid big bills in addition to your mortgage.

Call your mortgage lender and let them know about your financial situation. Just be honest and explain whether or not you'll be able to make your payments. If they agree, you may qualify for a loan modification. Banks have different criteria, so there is no way to know ahead of time if you'll qualify for loan modification. If you present a snapshot of your financial situation, the bank can make a decision on your mortgage modification.

Deed in Lieu of Foreclosure

Deed in Lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from borrowers who can financially make their mortgage payments.

The lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair market value of the property. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender.

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases the borrower from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does.

This will not save your home, but it will help you with your chances of getting another mortgage loan in the future and it will help you avoid the lengthy legal process of foreclosure. Although it is a negative strike on your credit rating, it is less harmful than a mortgage foreclosure.

MAKING HOME AFFORDABLE PROGRAM

If you are struggling to make your mortgage payments or can't take advantage of lower interest rates because your home has dropped in value, you may be eligible for the Making Home Affordable Program, which is intended to help responsible homeowners and strengthen the housing market.

This Federal Program has two key components:

Home Affordable Refinance
Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today's lower mortgage rates, perhaps due to a decrease in the value of their home. The Home Affordable Refinance may help borrowers, whose loans are held by Fannie Mae or Freddie Mac, refinance into a more affordable mortgage.

Home Affordable Modification
Many homeowners are struggling to make their monthly mortgage payments either because their interest rate has increased or they have less income. The Home Affordable Modification may provide them with mortgage payments they can afford.

In just a few simple steps, you'll be on your way to contacting your mortgage company with confidence.

Use this checklist to ensure you have all the information you will need when you speak to your mortgage company or homeownership counselor:

•Mortgage information, such as your monthly mortgage statement
•Information about a second mortgage or home equity line of credit
•Account balances and minimum monthly payments on all of your credit cards and any other debts such as student loans and car loans
•Most recent income tax return
•Amount of savings and other assets
•Monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources
•It may also be helpful to have a letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.), if applicable
Are you Eligible?
Go to Making Home Affordable or call 1-888-995-HOPE (4673) to find out if you're eligible. If you are delinquent on you loan payments and need immediate assistance call the Homeowner's HOPE Hotline at 1-888-995-HOPE (4673).

HOW REALTORS® CAN HELP

REALTORS® are in the business of helping people become homeowners and want to do everything they can to make sure you can afford to stay in your home. Here are some tips from the Hawai'i Association of REALTORS®:

•The best and least expensive option will often be working with the current lender (or the "loan servicer" hired by the lender to oversee your loan). Read more about your options in the brochure information.
•If your current lender isn't willing or able to help, you may be able to refinance your current mortgage with another lender. REALTORS® can help you find responsible lenders that make fair and affordable loans.
•To address the growing foreclosure problem, especially with subprime loans, some state and local governments and nonprofit organizations are offering financial assistance. Ask your REALTOR® or counselor about who to call.
•HUD approved counseling agencies are in the business of helping borrowers like you. Click here to find counselors in Hawai'i.
•Remember, you should shop just as carefully for a mortgage as you do for a car or anything else you buy. Getting the lowest possible rate and fees can save you many thousands of dollars over the life of the loan.
•Sometimes the only option is selling the home. Of course, no one is better at helping a seller than a REALTOR®. It is better to sell than go through foreclosure because it will be easier to qualify for credit in the future and buy another home.
 

TIMELINE

Foreclosure timelines vary depending on lender, location, and situation. There is always the possibility of postponing foreclosure, such as when the property owner lists the property for sale as a short sale, receives an offer or offers and forwards the offer(s) subject to lender approval.

A timeline from late mortgage payment to foreclosure may look like this:

•DAY 1: The borrower misses the payment.
•DAY 16-30: A late charge is assessed. The mortgage servicer contacts borrower to find out why the payment is late. File is sent to the Collection Department.
•DAY 45-60: The servicer sends a "demand" or "breach" letter to the borrower who has 30 days to resolve the situation by paying the delinquent amount.
•DAY 90 Notice of Default: Foreclosure proceedings start with a Notice of Default (NOD). The document is recorded at the request of the lender by the trustee and is recorded in the county in which the property is located. The borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current. This period is referred to as the Reinstatement Period.
•DAY 180 Notice of Trustee Sale: If the borrower does not reinstate their account within the 90-day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
•DAY 196 5 Business Days Before the Sale Date: Right to Reinstate expires.
•DAY 201: After 21 days of the recording of the Notice of Trustee Sale, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount.

HAWAI'I'S FORECLOSURE LAW
In Hawai'i, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

1.The notice of intent to foreclose must be published once a week for three (3) successive weeks, the last publication to be not less than fourteen (14) days before the day of sale, in a newspaper having a general circulation in the county in which the mortgaged property is located.

Copies of the notice must be mailed or delivered to the mortgagor, the borrower, any prior or junior creditors, the state director of taxation and any other person entitled to receive notice. Additionally, the notice must be posted on the premises not less than twenty-one (21) days before the day of sale.

Said notice must state: 1) The date, time, and place of the public sale; 2) The dates and times of the two (2) open houses of the mortgaged property, or if there will not to be any open houses, the public notice shall so state; 3) The unpaid balance of the moneys owed to the mortgagee under the mortgage agreement; 4) A description of the mortgaged property, including the address or description of the location of the mortgaged property, and the tax map key number of the mortgaged property; 5) The name of the mortgagor and the borrower; 6) the name of the lender; 7) The name of any prior or junior creditors having a recorded lien on the mortgaged property before the recordation of the notice of default; 8) The name, the address in the State, and the telephone number in the State of the person in the State conducting the public sale; and 9) The terms and conditions of the public sale.

Additional wording, as required by the State of Hawai'i, may be found here.

2.Up until three (3) days before the sale, the borrower may cure the default and stop the sale by paying the lien debt, costs and reasonable attorney's fees, unless otherwise agreed to between the lender and the borrower.

3.The sale, which may be held no earlier than fourteen (14) days after the last ad is published, is to be made at auction to the highest bidder.

4.Any sale, in which notice has been given, may be postponed from time to time by public announcement made by the lender or their representative.

There are no rights of redemption in Hawai'i.

HAWAI'I'S DISTRESSED PROPERTY LAW

What is a Distressed Property?

The Mortgage Rescue Fraud Prevention Act ("MRFPA") was passed by the Hawai'i State Legislature as Act 137 during the 2008 legislative session. The Act's intent is to protect homeowners who are in financial difficulty from unscrupulous persons who essentially "steal their equity" under the guise of rescuing them from foreclosure.

Under the Act, a "Distressed Property" is defined as:

Any residential real property that:

(1) Is in foreclosure or at risk of foreclosure because payment of any loan that is secured by the residential real property is more than sixty days delinquent;

(2) Had a lien or encumbrance charged against it because of nonpayment of any taxes, lease assessments, association fees, or maintenance fees;

(3) Is at risk of having a lien or encumbrance charged against it because the payments of any taxes, lease assessments, association fees, or maintenance fees are more than ninety days delinquent;

(4) Secures a loan for which a notice of default has been given; or

(5) Secures a loan that has been accelerated.

What Does It Mean to Me?

In very general terms, the Act protects Distressed Property homeowners by requiring that whenever a residential real estate transaction involves a Distressed Property, as defined by the Act, any person providing any of the services described with respect to assisting the owner with any foreclosure, liens or encumbrances on the property will be considered to be a Distressed Property Consultant, which carries specific disclosures, requirements, and rescission protection.

Persons exempt as a Distressed Property Consultant include REALTORS®, accountants, attorneys, non-profit counseling organizations, and those authorized by HUD

FREQUENTLY ASKED QUESTIONS

What happens in a foreclosure?
A foreclosure occurs when payments have not been made on a mortgaged property. The lender can legally redeem or take the property away from the owner. Lenders typically begin the foreclosure process after three months of defaulted payments. Homeowners receive a letter from their lender notifying them of the lender's intentions.

What is a deficiency payment?
A deficiency payment is required from the borrower when a home sold through the foreclosure process fails to recoup enough to cover the loan balance. A court will enter a deficiency judgment against the former homeowner at the conclusion of the foreclosure sale process.

What is a forbearance?
Forbearance is an agreement to temporarily let you pay less than the full amount of your mortgage payment, or pay nothing at all, during the forbearance period. Mortgage companies may consider forbearance when you can show that funds from a bonus, tax refund, or other source will let you bring the mortgage current at a specific time in the future.

What is a loan modification?
A loan modification is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your mortgage to make the payments more affordable. Common loan modifications include:
Adding missed payments to the existing loan balance
Making an adjustable-rate mortgage into a fixed-rate mortgage
Extending the number of years you have to repay

How does a short sale work?
In a short sale, the lender accepts a discounted payoff because proceeds from the sale of the home do not fully cover the value of an existing loan. Although the lender may be left with a loss, many are willing to work with borrowers and accept a discounted payoff on a mortgage.

From a lender's perspective, short sales limit the time and costly paperwork associated with the foreclosure process. From the borrower's perspective, although you will lose any equity in the home, the lender covers virtually all sales costs including commissions, escrow and title fees, and repair costs. Your loan is paid off, the damage to your credit rating may be less than that of a completed foreclosure and you are able to move on more quickly.

What is a Foreclosure Consultant?
If a property owner's home is in foreclosure, he or she may want help in understanding the foreclosure process and his or her options. Some may contact real estate agents or foreclosure attorneys for assistance, but some may be attracted to mortgage foreclosure consultants. Unfortunately there are many so-called foreclosure consultants who are nothing but scam artists looking for easy profits. These scam artists have made it difficult for homeowners to distinguish them from legitimate foreclosure consultants or loss mitigation specialists.

Basically, a mortgage foreclosure consultant is any person who offers to help homeowners resolve their foreclosure problems by stopping or postponing the foreclosure sale, obtaining a forbearance of mortgage obligations, helping the owner obtain a loan or an advance of funds, avoiding any impairment of the owner's credit resulting from the foreclosure or saving the home from foreclosure.

Are there any tax implications as a result of the debt that is forgiven?
The Mortgage Forgiveness Debt Relief Act of 2007 allows borrowers to exclude debt forgiven in the sale of a principal residence from taxable income.

 

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