Dear Debt Adviser,
What is the maximum amount of payments one can be behind on (a) mortgage before a bank can foreclose? Right now, they say my sister is in pre-foreclosure, and she is three months behind. She cannot make up the nearly $7,000 in payments right now but wants to avoid foreclosure. She is making payments every month now, but the bank will not work with her to reduce the payment amount. Thanks for any advice.
— Lynn

Dear Lynn,
The last thing any bank needs right now is another foreclosed home on its books. Banks are not Realtors. They are not in the business of selling homes. One of the most frustrating things for lenders and homeowners when trying to sell a home is the way in which so many mortgages were packaged and resold to investors. The person your sister may be talking to may be a servicer who is not empowered to do anything without approval from higher-ups or until her situation becomes dire.

My advice is to get her case in front of a person who has the authority to help. This can mean a long journey up a corporate food chain that can end in frustration. So the question is: How do you get to the right party and get them to listen?

The answer: Call in the professionals. I suggest that she go to the Home Ownership Preservation Foundation’s Web site and speak to a counselor. All the counselors are from a government-approved housing counseling agency and have specific housing training. They can help her understand what solutions are available and which will work, or not work, in her particular situation. Plus, the help is free. She doesn’t have to pay the huge amounts some private firms are charging.

Also, if it makes sense, the counselor can do a conference call to the right person in the loan modification area and have all the paperwork ready that a servicer can use. Less frustration, less money and maximum help, that’s what I call a bargain. Of course, not all situations can be salvaged, but I believe your sister will have the greatest chance of success going through this mortgage assistance portal.

Some other benefits of working with a professional housing counselor include:

  • Assistance in creating a workable spending plan to determine if the current mortgage is affordable. Your plan will help you to make the decision about whether staying in your home is viable and to set aside money to pay your past due payments should the answer be yes.
  • Knowledge of important deadlines, including the foreclosure sale date. Your counselor may need to communicate with your lender before a sale date to avoid foreclosure.
  • Exact information on current payments, arrears and loan balance. Having all the correct information is critical in making decisions on how best to avoid a foreclosure.
  • An advocate for you with your lender. Your counselor will process the necessary paperwork to save your home from foreclosure. The counselor will review your situation and help you submit a workout plan to your lender that is in your best interest.

You may have heard about the Obama administration’s new initiative to help homeowners: Making Home Affordable. My sources tell me that because it is just getting started, many lenders are still gearing up to be able to participate with it. So have your sister check the program out. But for the moment, start with the Home Preservation Foundation. Don’t confuse these sites with the old Bush administration’s Hope for Homeowners. That program has not been as effective.

Time is of the essence for your sister. She needs to get in contact with a housing counselor right away. If she is already 90 days late on her mortgage, her options will decrease the longer she waits to seek help.

Good luck!