EDITOR’S NOTE: Following is the first of a two-part series on home foreclosures. This week, experts weigh in on how homeowners can avoid foreclosure and where to turn for help. Next week: What you need to know if you’re interested in buying a foreclosed property.

The quickest way to lose your house to foreclosure is to do nothing.

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A lockbox on the door and a notice that it’s a bank-owned property is a nightmare scenario for homeowners. But experts say one of the keys to preventing foreclosure is to talk to your lender as soon as possible – when you realize you might be in trouble but before you miss a payment. Shutterstock.com image

But today — after a foreclosure crisis that has lasted some four years or more — doing nothing is harder than it used to be.

That’s thanks to new laws and programs developed during the Great Recession to help resolve foreclosures without a home being lost, and without a lender having to get into the real estate business.

At the federal level, the Obama administration created the Making Home Affordable program, a joint effort between the federal departments of Treasury and Housing and Urban Development (HUD), which offers specific help for people who qualified for federal loans and are struggling with payments or face foreclosure.

At the state and local levels, Maine has made a very active effort to help people facing foreclosure, or the possibility of it, during the past few years. In 2010, a state law created the Maine Foreclosure Diversion Program, which allows any foreclosed homeowner to ask for mediation, in which a court-appointed third party is charged with helping the homeowner and lender work out an alternative solution to foreclosure.

Maine also has several private or nonprofit efforts, such as Pine Tree Legal Assistance, which offers foreclosure assistance and prevention services, and Maine Attorneys Saving Homes, which arranges for lawyers to handle foreclosure cases for free.

In Maine, the foreclosure crisis has been leveling off. In the last quarter of 2010, 265 mortgage loans were being foreclosed upon by state-chartered banks, down from 297 the quarter before, according to the state. By the end of 2010, the number of foreclosures in Maine had dropped for three straight quarters.

But we’re not out of the woods yet. Last Monday, the Wall Street Journal reported that home values nationwide posted the biggest decline in the first quarter of 2011 since 2008 — 3 percent down from the first quarter of 2010 — mostly due to an abundance of foreclosed homes on the market.

Facing financial problems and possible foreclosure is an overwhelming proposition. The big questions are: What do I do? And how do I know when I should start?

THINK ABOUT PREVENTION

Lawyers, bankers and housing counselors say the best way to avoid foreclosure is to recognize early the warning signs that you may have trouble paying your mortgage — and then do something about it.

“If you’re constantly paying the mortgage a couple weeks late (the federally mandated grace period) and you’re always skipping other bills to pay the mortgage, those are tell-tale signs you need to begin budgeting to avoid bigger problems,” said Chris LaRoche, a HUD-certified housing counselor who is also housing director for York County Community Action Corp. in Sanford. “Usually these signs can be seen months before someone actually misses a payment. That’s the time to cut back, to start rethinking things you might think are necessities — a cell phone, cable TV, high-speed Internet — that are really luxuries.”

Other, perhaps more obvious, signs that you may have mortgage problems with a possibility of foreclosure are life-changing events such as loss of a job, a major illness or a divorce. Those are some of the major reasons people run into mortgage and foreclosure problems, said Christine Conrad, senior vice president and chief customer officer at Androscoggin Bank, based in Lewiston.

Conrad, as well as LaRoche and others who work on foreclosure prevention, say one of the first things you should do if you’re running into mortgage trouble or potential foreclosure is to talk to your lender as soon as possible.

“Communication is the key. If you come to your bank with a clear financial picture and a plan ahead of time, and say, ‘I can see where three months down the road I might have a problem,’ you’ll have a lot more options than if you wait until you miss a payment,” said Conrad. “The potential to refinance, to work out some different terms, is greater if you come in earlier.”

One thing to keep in mind is that a lender’s business is lending money. So it’s better for them if a borrower can keep paying than if the lender has to take over a property.

“No banks want to take over the property. We want the loans to perform, so foreclosure would really be the last choice,” said Chris Pinkham, president of the Maine Bankers Association. “Banks have always been willing to work out something when it makes sense. But if you wait until you can’t make payments at all, you’re not in a good position to remedy the situation.”

PREPARING FOR THE WORST

If people do find themselves delinquent — having missed a payment — or facing a foreclosure summons, they should definitely seek out a HUD-certified housing counselor, said Barbara Fields, HUD’s regional administrator for New England. They can seek one out, for free, before that as well.

Housing counselors can explain the foreclosure process in Maine, including how much time you have to answer a summons complaint and how much time you have to request a mediation (20 days).

The housing counselor can also steer a person toward free or reduced legal help, and to federal programs such as Making Home Affordable. That program helps qualified homeowners get help finding loans that better fit their circumstances. HUD runs other programs also available to people with FHA (Federal Housing Administration) or VA (Veterans Affairs) loans.

“It can help someone get a more stable loan, and even if they aren’t eligible for a (HUD-approved) loan, they are entitled to free counseling,” said Fields.

LOSS OF HOME CAN BE AVOIDED

When a person goes into default, they get a notice of default, which has to happen before foreclosure can begin. The default notice, according to the state’s Bureau of Consumer Credit Protection, tells a person that they must pay the full amount in default, plus interest and fees, in 35 days or face a foreclosure proceeding.

In Maine, anyone who gets this foreclosure summons has a right to request court-run mediation under the Maine Foreclosure Diversion Program.

During the first year of the program, 1,243 foreclosure mediations were conducted. In 21 percent of those that were concluded, a settlement was reached between the parties, according to the Maine Judicial Branch’s 2010 Annual Report. Another 98 foreclosure cases were dismissed.

When you answer the summons in a foreclosure case, there is a place on the form to check if you want mediation. The court will then appoint a mediator — a third party — to work with you and the lender to try to reach a solution that avoids foreclosure.

Once mediation is requested, a homeowner will need to do a detailed financial analysis, including a clear debt picture, said Chet Randall, an attorney and housing counselor who is coordinator for the Foreclosure Prevention Program at Pine Tree Legal Assistance in Portland.

The foreclosure proceedings are stayed, or put on hold, while mediation takes place.

A housing counselor can also help a person find reduced-priced or free legal help to prepare for foreclosure proceedings.

Once mediation sessions begin, the parties see if other remedies can be worked out, such as extending the loan out to 40 years but lowering the payments.

A homeowner may also be able to get an extension of the time he or she has to resume making payments if they can demonstrate the possibility of additional income in the future, such as someone in the family starting a new job, said Randall.

Randall added that if both a homeowner and lender come prepared with as much information as possible, the potential for a good outcome in mediation is pretty high. A mediator has no authority to make a ruling, however, and both parties have to agree to any settlement.

FORECLOSURE GOES FORWARD

If a homeowner and lender can’t work out something that allows a person to stay in the home, there are still other options short of foreclosure.

There is the possibility of a short sale — selling the house for less than what is owed.

In some cases, depending on the amount, a lender will accept the money made from a short sale and stop foreclosure.

A homeowner can also strike a “deed in lieu of foreclosure” deal with the bank, in which they basically give up the house but aren’t formally foreclosed upon.

In both those cases though, a homeowner may be liable for taxes on the exchange.

Then there is always the possibility that a homeowner can try to sell the house on their own, and either use the money to make payments or pay off the loan. Or they can try to sell the home to someone who assumes the mortgage. They can also contact a bankruptcy lawyer about whether that is something that would fit their situation.

Even if you lose a foreclosure case, you could technically keep your house by paying back the full mortgage amount, plus legal costs and fees.

“Even during the foreclosure, you can still work directly with the bank,” said LaRoche. “The main goal, for the homeowner and the bank, is for the loan to become current with the least amount of impact.”

Staff Writer Ray Routhier can be contacted at 791-6454 or at:

rrouthier@pressherald.com

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