FTC Brochure: Foreclosure Rescue Scams: Another Potential Stress for Homeowners in Distress

Freddie Mac: Avoiding Mortgage Fraud

U.S. Treasury: Consumer Tips for Avoiding
Mortgage Modification Scams and Foreclosure Rescue Scams

The Federal Reserve Board: Five Tips for Avoiding Foreclosure Scams

Wisconsin: Foreclosure Prevention Brochure

Prevention Kit: Frequently Asked Questions

We understand that you probably have many questions about the foreclosure process if you are at risk for a foreclosure in Wisconsin. We have developed this section of our Resource Center to try to address as many of these questions as possible.

For a list of commonly used foreclosure words and terms, see the Glossary.

Q: What happens in a foreclosure?

A: A foreclosure occurs when payments have not been made on a mortgaged property. The lender can legally redeem or take the property away from the owner. Lenders typically begin the foreclosure process after three months of defaulted payments. Homeowners receive a letter from their lender notifying them of the lender’s intentions.

Q: I’m worried about falling behind on my payments. What should I do?

A: Talk to your lender and share your concerns. This demonstrates your good faith and may open the door to a refinance or “workout’’ arrangement to reschedule loan payments or modify terms by extending the original maturity. If you are unsure about how to contact your lender, check your monthly mortgage coupons or billing statements.

Q: What should I do to prepare for a conversation with my lender?

A: It may take several conversations with your lender before settling on a course of action. To prepare for the dialogue, experts urge that you organize your financial documents including records that show your recent income.

Lenders also will want to see a list of household expenses. As you review your family’s budget, ask yourself whether there are discretionary expenditures such as health club memberships, cable TV or dining and entertainment expenses that can be cut. Lenders will not expect you to shortchange health care or insurance coverage and appreciate a record of steady savings.

Q: If my financial situation isn’t likely to improve soon, should I try to sell my house?

A: If your financial circumstances will not permit continued monthly payments or a workout agreement, selling your home before foreclosure proceedings start may be your best option. Although your home may no longer be worth the price you paid for it, homes sold during the foreclosure process or through a sheriff’s auction often sell for substantially less.

Q: If I file for bankruptcy, will it help me escape foreclosure?

A: No, these are separate proceedings.

However, filing for bankruptcy may result in the discharge of debts that are preventing you from making your mortgage payments. A bankruptcy judge may reduce or eliminate debts related to medical expenses or credit card payments. Your responsibility for any deficiency payment also may be discharged through bankruptcy.

A better solution than bankruptcy may be to negotiate reduced payments to credit card companies or medical providers. A consumer debt counselor may be able to provide you with this assistance.

Q: How does a short sale work?

A: In a short sale, the lender accepts a discounted payoff because proceeds from the sale of the home do not fully cover the value of an existing loan. Although the lender may be left with a loss, many are willing to work with borrowers and accept a discounted payoff on a mortgage.

From a lender’s perspective, short sales limit the time and costly paperwork associated with the foreclosure process. From the borrower’s perspective, although you will lose any equity in the home, the lender covers virtually all sales costs including commissions, escrow and title fees, and repair costs. Your loan is paid off, the damage to your credit rating may be less than that of a completed foreclosure and you are able to move on more quickly.

Q: There are lots of organizations offering foreclosure help and debt relief on the Internet. How can I tell whether they are offering real help or will just make things worse for me?

A: Homeowners and other consumers facing financial problems are vulnerable to scams offering what appear to be easy solutions. Beware of organizations that do not have a physical presence in your community or that offer to help you eliminate your debt for a fee. 

The Wisconsin REALTORS® Association developed this Web site to help educate homeowners about their rights and identify reputable organizations that can offer help at little or no cost. The lenders, legal advisers, credit counselors and real estate experts found on this site have all been reviewed or certified by trusted agencies and organizations including the U.S. Department of Housing and Urban Development, the Wisconsin Housing and Economic Development Authority and the Wisconsin REALTORS® Association.

Saving for a "rainy day."

With Manager of the Consumer Credit Counseling Service of Greater Milwaukee Kathryn Crumpton.

Documents to have ready before meeting the lender.

With Wisconsin attorney David Sayas

The biggest mistake most homeowners make with foreclosure.

With Wisconsin Bankers Association President & CEO Rose Oswald Poels

Seeking options early.

With Wisconsin attorney David Sayas

The information contained herein is of a general nature and should not be considered as advice on a particular fact situation. Individuals should consult with their lender, legal counsel or financial counselor with specific questions or for current developments.