Use Caution When Considering Foreclosure and Debt Mitigation
Q: I’ve been sued on a credit card debt, and am also facing foreclosure on my house. I don’t want to lose a lawsuit and have my wages garnished or lose my home, but I don’t know what to do. I’ve heard about companies that say they can help people get out of debt and avoid foreclosure. They sound like a dream come true. What should I know before I contact one of these companies?
A: First, you should be especially alert, in these economically trying times, for solutions that sound too good to be true. They usually are. Second, do not engage any organization that requests an up-front deposit (typically $500 to $1,500) or charge a monthly fee to help you negotiate with your lenders, or offers to buy your house and rent it back to you with the opportunity for you to re-purchase it later. These organizations are not attorneys and cannot represent you in court. The money you advance to such an organization might be applied, instead, to reduce your debt or to hire an attorney who specializes in debtor representation.
Organizations such as the Consumer Credit Counseling Service (now nationally known as Apprisen Financial Advocates) can help you with these problems, do not require up-front money, and will suggest that you consult an attorney if and when it is determined that you need one.
If you do need to consult an attorney who represents debtors and handles bankruptcies, you may wish to contact your local bar association for an attorney referral. The attorney can negotiate with lenders and credit card companies, represent you in court if law suits have been filed, and help you determine whether your financial problems can be solved without resorting to bankruptcy filing. If bankruptcy is necessary, the attorney can handle that filing.
Q: What are some things I can do to resolve the foreclosure problem myself?
A: You can contact the loss mitigation department of your mortgage lender to discuss the possibility of modifying your loan. This may involve extending the term of the loan, lowering the interest rate, reducing monthly payments, or putting some of the missed payments at the end of the loan. To apply for loan modification, you will need to complete budget forms provided by the lender, write a hardship letter explaining your current situation, and provide any documents your mortgage lender may request – typically tax returns, bank statements and pay stubs. Your mortgage lender also may require you to pay some money to reimburse the lender for any advances that may have been made on your behalf for taxes and insurance.
Q: How might I resolve my other credit issues myself?
A: Regarding other debts, including debt related to credit cards and various types of bank loans, contact the creditor directly. You should do this as soon as you begin to experience credit problems. Ignoring the problems will not make them go away. With your creditor, you can discuss the possibilities of deferred payments, interest-only payments or lump-sum settlements, and your creditor may be receptive to one of these solutions if the alternative is having your debt discharged in a bankruptcy.
This “Law You Can Use” column was provided by the Ohio State Bar Association (OSBA). It was prepared and updated by Akron attorney Terry D. Zimmerman.