Press Room

Steps consumers can take to minimize risk of foreclosure

Money Management

Monthly financial advice
from the MACPA

For release: August 2007

Mortgage delinquency rates hit an all-time high in the first quarter of 2007, according to data compiled by Equifax. The percentage of mortgages in default rose to 2.87 percent, surpassing the worst levels since the 2001 recession.

The Center for Responsible Lending (CRL) has also projected that one-fifth (19.4 percent) of sub-prime borrowers over the past two years could enter foreclosure soon, causing 2.2 million consumers to lose their homes and resulting in a loss of up to $164 billion in wealth.

CPAs are concerned about the looming housing crisis and suggest that consumers take the following steps to minimize the risk of foreclosure if they hold sub-prime mortgages.

Step 1: Make your payments on time; call your lender if you’re going to be late

If you think you're going to be late making a mortgage payment, the first thing you should do is to pick up the phone and call your lender. Often times, lenders are willing to work with you if you are upfront with them and tell them in advance when you are facing a problem. They will frown on you if you fail to pay on time and do not alert them to your current financial situation.

Step 2: Ask your lender how a foreclosure would impact your credit score

If you decide that foreclosure is the only possible solution for you, you need to understand that it will impact your overall credit score. Some experts say it could lower your score by more than 100 points. Be sure to ask your lender your credit score will be affected should you choose this option.

Step 3: Identify a decision maker at your lender; keep accurate records

Make sure you are speaking to the right person in the right department who has the authority to work out a solution with you. Be sure to take careful notes from each conversation you have, including the name of the person with whom you spoke, their contact details and the key points from the discussion.

Step 4: Talk to your lender about alternatives

When you are in this kind of situation, don’t be afraid to ask for “forbearance.” Forbearance is a request to suspend your payments or to temporarily reduce your payments for a short period of time. If you request this, be sure to have documentation that you are trying your best to pay the bills. These documents may include recent pay stubs, a letter of intent if you recently accepted a new job, and bank account statements.

Step 5: Consider the tax implications of any action you take

Factors that will influence your potential tax liability are:

Is your loan the original loan or a refinance?
Is your relationship with your lender recourse or nonrecourse?
When you no longer can afford to maintain ownership of your house, how you deal with the situation:

Short-sale (find a buyer for less than the amount owed)
Loan modification
Deed in lieu (of payment?)
Foreclosure

Are you solvent or insolvent?

There are tax implications at each step, some of which could result in additional indebtedness, and the implications should be discussed with your tax adviser.

Step 6: Watch your monthly budget and expenses

Managing your monthly budget can be difficult and frustrating, but it is nevertheless one of the ways to help you get a handle on your expenses when you are trying to figure out a solution to your mortgage situation. One of the most important aspects of controlling your budget is to determine where your money is going.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.