Foreclosure and Loss Mitigation - What You Should Know About FHA and VA

Almost everyone gets into financial trouble at some point in life. The reasons can be many, but when it comes to your mortgage payment, we learned that lenders do not care about the reasons - the ONLY organization that cared about our situation was the one that GUARANTEED our loan: The United States Veterans Administration. Yes, it's true. In fact, there are numerous foreclosure prevention options available through The Federal Housing Administration (FHA) and The Veterans Administration (VA) guaranteed home loan programs that were not offered through our lender until the VA intervened in the loss mitigation process. We saved our home from foreclosure with help from the VA office. Below is our story and resource information that will hopefully save you money in the end.

START WITH THE PEOPLE WHO REALLY CARE

Millions of homeowners have loans that are guaranteed by FHA or VA. FHA became part of the Department of Housing and Urban Development (HUD) in 1965. If you are not sure whether you have a guaranteed loan program, check the folder you received from your title company when you purchased your home or ask a realtor to look at the papers. Even if your mortgage is not guaranteed, HUD, FHA, and VA resources have housing counseling agencies, legitimate refinancing agencies who do not engage in unlawful predatory lending practices, debt relief scams, and information about consumer rights for lending. You may even be eligible for relief from natural disasters or if you are or your spouse is active duty military.

In addition to contacting your mortgage lender, please contact a HUD Counselor or the FHA or the VA as soon as you know you are in trouble. Don't wait until the bank contacts them with threats of foreclosure - you might save the $4000 we were charged in extra interest and penalties while waiting for our bank to help.

CRY ME A RIVER

Here is my experience with loss mitigation - in the end, I realized all the bank cared about was the extra money they could make off me while trying to settle. I hope the resources provided in this article will save you from paying thousands of dollars of extra interest and penalties while trying to catch up on payments.

In our case, we had a business that got in trouble when a supplier went bankrupt. We tried for two years to save it - we borrowed money from relatives, we got small bank loans, and we wrote all our creditors to ask for temporary relief. My husband found a job to help cover our personal expenses and keep from going under while I continued to work at the business. It was the American Dream gone bad! We had no legal recourse against the supplier while the bankruptcy courts were sorting out their reorganization. What we did have was legal responsibility to maintain regulatory requirements and maintenance of THEIR equipment located on our property. After three years, their bankruptcy was still in the courts, our bank accounts were sucked dry, we borrowed all we could, and we were in trouble!

IF YOU WASTE YOUR TIME, THEY WILL WASTE YOUR MONEY

I began writing my home mortgage company 6 months prior to missing any payments. I explained the financial difficulties we were having and pleaded for reduced interest rates, interest-only payments, refinancing, an equity loan, or any option that would help us from losing our home until we could get back on our feet. After three months of no response, we decided to sell our house and rent to help get out from under all the expenses of home maintenance, insurance, and high utility bills. I wrote again explaining that we were selling our home and asked for help until we could sell.

Here are some obstacles we faced with the very large national bank that bought our mortgage note (they were not the original lender):

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Nobody responded to my phone calls, emails, or certified letters until we missed 3 mortgage payments - but they continued to add hundreds of dollars of interest and penalties each month.
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When they did call us - we asked where to send a partial payment that we had saved. We were told that it was against the bank policy to accept partial payments - but they continued to add penalties and extra interest on the unpaid balance.
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The loss mitigation representative wanted us to short sell our house - they would send an appraiser right over. She said this would stop foreclosure. Good for the bank - bad for us: if we short sold for less than we owed, we would owe the difference to the VA and I would lose any further VA home loan benefit for defaulting. This is a very risky option for the homeowner - if your lender suggests this, please do some research or get legal assistance to determine if this is best for you. It may sound great, but can still leave you with a high debt and a bad credit report.
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We asked for a repayment plan to catch up on payments. They said they would mail one out - after two weeks, I never received it. I left repeated messages to the loan mitigation specialist to inquire about the plan and I wrote another certified letter. She never responded. This went on for another month - and they continued to add hundreds of dollars of interest and penalties to the balance of the loan.
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The lender reported us late to all the credit reporting agencies after 30 days, 60 days, and 90 days, despite our communications explaining our situation and our intention to get current.

After months of trying to resolve this with the loss mitigation department of the bank, we received a phone call from a VA officer who said our lender reported us as delinquent and the bank was getting ready to foreclose! I spent almost an hour explaining everything I had done to try to save the house from foreclosure. He very politely replied that they have several more options available to save the loan and they would contact the bank after we decided on an option that was good for us. Within two days, I had an loan repayment agreement letter from our bank with the terms that the VA presented.

We were able to sell our home and our businesses and move on. While the lesson was costly, we learned from it and want to encourage everyone else to seek help from the VA, the FHA, or HUD early in your loss mitigation process.