Foreclosure is the legal process a lender may use to seize real property if you fail to keep up payments and secured the promise to pay with real property (e.g., a mortgage or a deed of trust). Foreclosure can involve a court proceeding (“judicial foreclosure”), or by lender action alone and without court involvement (“non-judicial foreclosure”).
In Washington, lenders have the option of using either the judicial foreclosure process (for mortgages or deeds of trust) or the non-judicial foreclosure process (for deeds of trust only). A lender may also elect to sue on the promissory note, and not immediately pursue foreclosure.
A creditor may elect to sue on the promissory note and not immediately seek foreclosure when it appears the borrower has the means to pay, but wants to avoid payment and surrender the property in full satisfaction of the debt. According to Joshua Stendera, Vice President/Manager of Cashmere Valley Bank Mortgage, Cashmere Valley Bank has filed suit in a limited number of cases after trying other options to get the loan current, and “the borrower either failed to provide the necessary financial information showing a change in economic circumstances or ignored the Bank’s request for information.”
Shirley Reyes, assistant vice president and supervisor of Cashmere Valley Bank Mortgage, says when facing default on a loan, a borrower should contact the lender. “Your lender needs to be able to assess your current situation and map out a solution. It is much easier to look at alternatives before problems occur. There are alternatives out there that may fit the borrower’s needs. The most important advice is to stay in communication with your lender.”
The Washington State Department of Finance also offers the following suggestions for those confronted with foreclosure:
• Stay in your home to make sure you qualify for assistance.
• Contact your lender — try to assess the ability to repay debt, and consider other options with your lender.
• Call the Washington Homeownership Information Hotline at 1-877-894-HOME (4663).
• Review programs available to assist you — a number of federal and local assistance programs are available.
• Don’t sign anything you don’t understand.
The Department of Finance’s list of possible alternatives to foreclosure includes:
• Special Forbearance — Your lender may temporarily reduce or suspend your payments for a fixed period of time. At the end of that time, you must make a lump sum payment or enter into a long term repayment plan to pay back the reduced or suspended amount. Forbearance may be a good option when the cause of your default is specific and temporary.
• Repayment Plan — Your lender may arrange a simple repayment plan whereby you make your mortgage payment plus an amount of the total in default. A repayment plan may be a good option when the situation that caused your default is resolved.
• Mortgage Modification — refinance the debt and extend the term of your mortgage loan.
• Partial Claim — if you qualify, your lender may work with you to obtain an interest-free loan from HUD to bring your mortgage current.
• Pre-Foreclosure Sale — Selling your property and paying off your mortgage loan can avoid foreclosure and damage to your credit rating.
• Deed-in-lieu of Foreclosure — As a last resort, you may voluntarily “give back” your property to the lender. This won’t save your house, but may help your chances of getting another mortgage loan in the future.
Bankruptcy is another potential option.
According to Christina Davitt, of Davitt Law Group PLLC, a Wenatchee-based bankruptcy attorney who helps individuals facing foreclosure, “filing a bankruptcy will stop the foreclosure process and give borrowers a chance to evaluate their options. In a Chapter 13 bankruptcy, borrowers can get caught up on arrears over 36 to 60 months and keep their houses. And with the help of an attorney or housing counselor, borrowers facing foreclosure are beginning to use Washington’s Foreclosure Fairness Act which was enacted July 2, 2011 to mediate the terms of their loans.”
People facing foreclosure need to be wary of potential scams. The Washington Department of Finance warns of scams and provides the following tips to avoid them:
• If it sounds too good to be true, it probably is — beware of advertising that asks for an up-front fee to get you out of debt, clean up your credit, or save your home.
• Make sure you’re dealing with a licensed individual — verify the license of the individual working with you with the Washington State Department of Financial Institutions.
• Never sign a blank document or a document containing blanks — make sure everything is complete and that you agree with the terms before you sign your name.
• Never sign anything you don’t understand — read through all documentation and agreements carefully. If you don’t understand what is in writing, consult an attorney or a trusted friend or family member.
Brian A. Walker is an attorney in the Wenatchee office of Ogden Murphy Wallace. He assists lenders and others to find cost-effective and workable solutions related to distressed real estate, delinquent debt, and foreclosure.