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Avoiding Foreclosure Takes More Than Hope

Lender-supported workout groups don't always present all the options

By Mark Huffman
ConsumerAffairs.com

June 20, 2008

"If you look at a map, the highest rates of foreclosure are in areas where subprime lending has been the heaviest," said David Petrovich, Executive Director of the Society for the Preservation Of Continued Homeownership , a New Jersey-based non-profit group that tries to help consumers avoid foreclosure.

Petrovich formed SPOCH 10 years ago after a long career in real estate finance, where he worked in everything from appraisals to the servicing of loans.

"During that time I personally saw the devastating effect foreclosure has on a family," he said.

Petrovich says his group works with distressed homeowners to help them avoid foreclosure and stay in their homes. Since his group receives no support from banks or lenders, he says he's free to present all the options available to the homeowner.

"We bring truth to the table," he told ConsumerAffairs.com.

All the options

Homeowners, he says, don't always hear about all their options when they turn to lender-supported workout groups like HOPE NOW, which was established last year to assist homeowners in danger of foreclosure. He says HOPE NOW is not really about helping homeowners so much as it is about protecting lenders' interests.

HOPE NOW has been criticized by a number of consumer groups who say lenders should be doing more to help homeowners. Earlier this month HOPE NOW issued new guidelines that it said would make its services more helpful.

Petrovich says distressed homeowners should talk with HOPE NOW, but should understand that any help they receive will come at a cost: they'll have to waive their right to sue their lender.

"Not all loans that are in default are predatory or illegal, but many are, and in those cases homeowners need to preserve all their options, and that includes the right to take their lender to court," Petrovich said.

Petrovich has written a book, Fight Foreclosure!, which offers homeowners practical advice for keeping their homes out of foreclosure, while avoiding the many foreclosure rescue scams that prey on homeowners in trouble.

A cornerstone of that advice is to communicate directly with the lender to see what can be worked out. Another key piece of advice is to act quickly.

"Foreclosure is a time-sensitive problem. There is very little time between the first missed payment and a foreclosure filing," he said.

Perfect storm

Petrovich said he foresaw the "perfect storm" of the foreclosure crisis years ago, because of "ridiculous" loans and escalating prices that made real estate attractive to speculators. With foreclosures saturating the market with unsold houses, homeowners who need to sell can't find a buyer who will pay what they owe for the property. All too often, the unsellable house becomes another foreclosure statistic.

In years past a real estate agent might work out a "short sale," with the buyer paying less than what is owed the lender. The lender would get less than the full amount of the loan and the homeowner would avoid foreclosure, and the deal might be done in as little as 90 days, avoiding having a home sit empty for months, dragging down surrounding property values.

Petrovich says it's much harder to persuade lenders to agree to a short sale now, for a number of reasons. Many mortgages have been "securitized," meaning more parties have to agree to accept a loss. Because of lenders' huge financial losses, many people who service loans have been laid off. And the huge increase in the number of requested short sales, because of the foreclosure crisis, has led to big backlogs.

"Perhaps the most obvious obstacle is the lenders' reliance on historic comparable sale values which do not reflect current values," Petrovich said. "Lenders are fierce in their quest to maximize net recovery and seem to be willing to proceed to foreclosure auction in hopes of higher recovery, which ain't happening."

So the foreclosures continue, month after month.

Where does it end? Petrovich thinks we have a long way to go yet, with as many as three million more people losing their homes. However, he says lenders have become more proactive, seeking to help homeowners before their loans go bad. That, he says, will pay off in the future.

In the meantime, he says homeowners should educate themselves about foreclosure and their rights. Having an attorney look over your mortgage papers could be money well spent. Often legal aid services will do it at no charge, if you qualify.

And don't wait. Petrovich says time is of the essence for homeowners who want to fight foreclosure.

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