No word strikes greater fear in a homeowner’s heart than foreclosure. Every day, the media trumpets new figures showing a continuing increase in foreclosures. This book is about how to think about foreclosure and provides a number of pathways and options that you can choose according to your individual circumstances and where you live. 


If you want to keep your home, your best option is to work something out with your mortgage lender that will satisfy both of you. If, on the other hand, you are ready and willing to leave your home, there are ways to follow that path that will leave you relatively flush rather than destitute. 


Most people I talk to in my practice want to stay in their home but need to change some aspect of their mortgage—the amount of principal, the interest rate, the monthly payment. Chapter 4 of this book explains the different ways to make this happen. However, several new government programs are radically changing the foreclosure prevention landscape. Mortgage servicers and lenders can negotiate their own deals with you, but a huge influx of federal dollars makes it clear that the government programs will likely be the only real game in town. 


The Hope for Homeowners Act, passed in July 2008, dedicated hundreds of billions of federal dollars to a program under which homeowners underwater on a mortgage could refinance and come away with a 15- or 30-year fixed-rate, FHA‑insured mortgage for a little less than the current value of the home.


Great idea. Unfortunately, the process became snagged. Most lenders, who had little or nothing to gain, refused to go along. Lenders also feared being sued by the mortgage owners, mainly international investors in mortgage pools and trusts. Nearly a year after the law became effective, only one mortgage had been refinanced under its terms, according to press reports. 


The Making Home Affordable program, announced in February 2009, attempts to address these problems. It has two parts: 


• a refinance program for people whose mortgages are owned or controlled by the two giant federal housing entities, Freddie Mac and Fannie Mae (about 50% of all mortgages), and

• a program that would reduce monthly mortgage pay­ments (including taxes and insurance) to 31% of a homeowner’s gross monthly income. 


These two distinct programs, described in detail in Ch. 4, promise to work much better than has the Hope for Home­owners Act, for a variety of reasons. However, they can’t help you if you are seriously underwater on your mortgage.


The Obama administration has also worked to provide monetary incentives for first- and second-mortgage holders, and mortgage servicers, to encourage them to go along with the other programs.


In addition to discussing these new ways to work things out with your lender, this book explains: 


• the ins and outs of foreclosure procedures, with state-by-state information 

• how to decide whether or not you should try to keep your house

• how you can get free help negotiating a deal with your lender to keep your house

• how filing for bankruptcy can help you keep your house, and

• how to avoid foreclosure “rescue” scams.


The book also explains how to make the most of your situation if your income and mortgage payments preclude keeping your house. It explains:


• how long you’ll be able to stay in your house—and save up money—if the foreclosure goes ahead

• how to do a short sale or deed in lieu of foreclosure if either strategy would be useful in your situation

• how to use bankruptcy to put a temporary wrench in the foreclosure gears, and

• how bankruptcy can eliminate debts and tax liabilities typically associated with foreclosure.


In my law practice, I advise people who feel swamped with debt and are considering filing for bankruptcy. As far as possible, the book mirrors the process I go through with my clients. For some of them it makes absolutely no sense to keep pouring money into a house they are destined to lose. For others, it’s completely sensible to do everything they can to keep ownership. Sometimes the reasons for these decisions are personal; sometimes they are economic. 


You must make this decision for yourself—and I hope to provide some useful guidance in helping you decide, and then help you make a success of whichever strategy you decide to follow. If it’s not in the cards for you to keep your house, I can show you how to derive the greatest possible benefit from the situation—how to make really good lemonade from the lemons life has handed you, if you will.


I also hope to provide some perspective on home ownership. To sum it up, your house is not your home. (I was reminded of that fact recently by someone who’d been raised as an “army brat” who talked about her mother’s ability to recreate their home in whatever new quarters they occupied every couple of years.)


Owning the house where you live may feel like the American dream, and losing it might seem like the end of that dream. Believe me when I say that it’s not. If you are eventually forced to give up the house you are living in, painful as it may be, it’s a loss that you will recover from over time, both emotionally and financially.


But meanwhile, there is a lot you can do to restore your financial health and take control of the situation. Good luck!