Mending mortgages: an attorney's perspective
July 14, 2010 - Special to The Citizen
At any given time, James Porritt, a Lake Orion graduate and local attorney for nearly four decades, says his office has about a dozen or so clients going through short sales or foreclosures. He says demand for one office supply in particular increases dramatically with these clients – tissues.
Troubled mortgages can be troubling on the mind, and many folks going through financial difficulty are too embarrassed to seek help in saving their house and their sanity, said Porritt.
And, though many end up with forgiven mortgage debt, they've ruined the chance for a new start because they've depleted or totally drained money stashed away in savings.
"Many folks wait to do anything," he said, "but it's happening to so many people. The biggest obstacle right now is to meet with folks to get them to understand their options."
And there are options, whether property owners want to stay in their home or they want to leave it.
The desire to stay or leave really dictates the first step in a sometimes complicated and winding path to mortgage relief, says Porritt, who notes there's no obvious path for one group of people. Mortgage relief programs should be chosen by an individual's set of individual circumstances. Just don't expect to walk away from a house, Porritt said.
"Michigan is different than other states in that the lender does have the freedom to chase them for the remaining balance. California, for instance, is a non-recourse state, so the articles people read about being able to 'walk away' may be applicable in other states but it's not true here in Michigan. We do have to figure out a way of dealing with a deficiency," he said.
Forbearances and modifications
Getting a forbearance from a lender means reduced mortgage payments for several months at a time. The principal loan isn't reduced. Rather, money saved during the grace period gets tacked onto the end of the loan in a lump sum. Payments are just made easier for a short time. This option allows property owners to stay in their home.
A modification either extends the loan repayment date, which lower payments, or reduces the interest rate, or reduces the principal balance. This option also allows property owners to stay in their home. Porritt strongly advises anyone taking this path to talk to a certified mortgage counselor "who will act as an advocate for (property owners) and try to negotiate the modification, free of charge."
Again, it's free of charge. Counselors are provided by three agencies in Oakland County: Lighthouse Oakland, Oakland-Livingston Human Services and Green Path. Don't ever pay for a mort-gage counselor – it's a scam, said Porritt.
Counselors provide a variety of services and can tell you exactly what lenders are looking for in say, a hardship letter, to help borrowers get what they need.
Deed in lieu of foreclosure and short sales
In a deed in lieu of foreclosure, the property owner gives the deed back to the lender in exchange for discharge of the debt.
"Sometimes it will be complete discharge, other times it will be a partial discharge. One of the frequent complications we run into is people having more than one mortgage on the property (from different lenders)," said Porritt, like borrowing 80 percent from one lender and 20 percent from another through a mortgage broker. In this option, property owners leave the home and the lender is responsible in finding a buyer.
Porritt says banks are not approving this option for many people these days.
"Banks don't want the property back and don't want to take your situation over. While you're still there and trying to sell the property, you're still there paying utilities, paying taxes, paying the insurance and maintaining it. If they take the property back, now they have to do it," he said.
For short sales, property owners also leave the home, but they are also responsible for finding a buyer, not the bank. Those seeking a short sale may be required to go through a modification process only to be turned down.
A quick search of the Web produces a whole list of Lake Orion homes in foreclosure.
"In my mind, that doesn't make sense," said Porritt. "People who are looking for a loan modification are people who want to stay. People who are looking to move out of state to find employment are nonetheless going to go through the loan modification program in order to qualify for a short sale. We're constantly finding well-intentioned legislative programs that screw things up."
Any of these programs – modifications, forbearances, short sales, deed in lieu of foreclosure – depend on the lender deciding "you're worth it," said Porritt. In applying for the programs, expect lots of paperwork, changing financial systems and the potential for delays. And keep a close watch on the application.
"It's a very frustrating experience," for many clients, he said.
Reporter, Lake Orion Review