Credit counseling could give you breathing room
BY TERRY SAVAGE Sun-Times Columnist Aug 2, 2010
Some lenders may let you stay in your foreclosed home for a nominal "rent."
Updated: May 2, 2013 5:21PM
On a daily basis, I share the pain of so many of you
who write to me asking for help in forestalling a foreclosure or dealing
with creditors.
Today's column is dedicated to J.B., who contacted me through my blog, (www.TerrySavage.com and blogs.suntimes.com).
J.B. worked diligently with his lender to try to secure a
modification, but in the end simply didn't have the income or resources
to make it work.
Last week he had to tell his family that they must leave their home
of 25 years, which was compromised when he fell victim to a refinancing
scam. That scam was investigated by the Illinois attorney general's
office. The scamsters were found, but they themselves were in
foreclosure and bankruptcy, so no recovery was possible.
What I want to say to you, J.B., is: Don't give up your belief in the
future or in America. If you did it once -- built a home and security
-- you can do it again.
And for those of you seeking help in these tough times, here's some general advice -- but no guarantee of a successful outcome.
First steps
The first response to this serious situation is often a kind of
paralysis -- disbelief, followed by fear, followed by a sense of
inevitability. But there are steps you can take to confront the issues
-- and perhaps even delay the process, giving you some breathing room,
if only to make alternative arrangements.
First, there is helpful, trusted, individualized advice available
through the national, nonprofit Consumer Credit Counseling Services. If
you call their toll-free number, (800) 388-2227, you will automatically
be connected to the nearest local affiliated agency. They have trained
counselors, with resources to help you sort things out, or help you
create a debt repayment plan. They can even recommend bankruptcy
attorneys as a last resort.
New debt-settlement rules
Last week, the Federal Trade Commission set up new rules for
so-called debt negotiation companies, which I've written about in this
space. Under the new FTC regulations, which take effect Oct. 27, these
debt settlement companies are going to be on a much tighter leash.
A debt settlement company will only be able to earn fees when it
reaches a settlement on at least one of the consumer's debts -- an
agreement that the consumer approves in writing. Fees cannot be
collected until the consumer has made at least one payment to the
creditor as a result of the negotiated agreement.
And these debt settlement companies will be required to make certain
pre-contract disclosures, including how long it will take to get results
and how much it will cost.
But the new FTC rules do not limit the amount of fees that can be
charged, so those who enter into these agreements must still decide if
it is worth the ultimate cost -- not only in dollars, but in the hit to
their credit report when an account is reported "settled" and not paid
in full.
Remember, in order to even offer a "settlement" in negotiation, you
must have some cash. Many of these companies suggest you divert your
monthly card payments to an escrow account to build up negotiating
power. In the meantime, your credit is further ruined. Consider debt
negotiation as an alternative only if you already have a sum to offer.
Then a settlement might look attractive to the lender, or the collector,
instead of a write-off in bankruptcy. And remember that debt
negotiation is only for unsecured debts -- not for mortgages or car
loans.
Delaying foreclosure
Yes, the banks have obviously decided that loan modifications are not
working. Fewer than 300,000 modifications have been made under the
federal program -- and according to latest statistics more than half
have been abandoned.
If counseling determines that a foreclosure is inevitable, you can
either get legal help or appear in court to face your adversary.
Remember, every month you can delay the procedure is a time when you
could save on rent you would be paying elsewhere. That might give you
time to accumulate money for moving expenses and a deposit on your next
living space. That's a sad commentary on the state of our housing market
-- but someone has to be last in line for foreclosure, and you'll be
better off if it's you.
Ask the lender whether you can give up title but stay in the home and
pay a nominal "rent." They may recognize that this type of arrangement
will maintain the property and minimize chances of vandalism. But you
can make this kind of deal only if you submit an offer in writing to the
appropriate person at the bank. The lawyers they hire to manage the
process don't want to make exceptions, since the extra paperwork costs
them time and money. The company assigned to sell the property has
similar disincentives to keep you in the home, making it more difficult
to sell the property.
A final thought
You're not alone. It's estimated there could be as many as 4 million
mortgage foreclosures in America this year. And we're on track to record
1.5 million personal bankruptcies. Of course, many people hit both
categories. And there's no end in sight as unemployment remains high.
They say that misery loves company. But America was based on second
chances. We have no debtors' prisons here. Sometimes the best way out is
to simply face up to the reality, take the consequences -- and then
start thinking about what you will do differently in the future. You can start over. The only sin is giving up. And that's The Savage Truth.
Terry Savage is a registered investment adviser and a co-host of
"Monsters and Money in the Morning" on WBBM-Channel 2 from 5 to 7 a.m.
weekdays. Post questions on Terry's blog: terry savage.com and blogs. suntimes.com/savage
