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Springfield Business Journal Articles
Sarah Delano Pavlik and Tom Pavlik write a monthly column on legal and business issues for the Springfield Business Journal.


Their columns will be added here each month after publication.
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01
If you read or listen to the news, you can't help but notice that foreclosures are at a record high. Although perhaps this trend hasn't hit Springfield as hard as some other areas, we can safely assume that there will be increased foreclosures that affect those in our community. Perhaps you bought more house than you could afford or you opted for a short-term note and are having problems getting it refinanced. Or perhaps you bought investment property – residential or commercial – and can't find a buyer or a renter. If the situation has deteriorated such that you are faced with foreclosure, what are your options?

Your best option is to do everything in your power to avoid foreclosure in the first place. I'm not referring to things that may be out of your control – such as the economy's downturn or the loss of a job. Rather, there are steps within your power you can take that may lessen the chances of being faced with foreclosure. First, don't ignore calls or mail from your lender. Sticking your head in the sand and hoping things will get better is a sure recipe for disaster. Instead, maintain communication with the lender. Keep the lender apprised of your efforts to fix the problem – if you are trying to sell or lease the property describe your (of your broker's) efforts in that regard. Cooperation with your lender is going to be crucial.

Second, think outside the proverbial box. If it's investment property that you are having problems selling, consider leasing it or selling it "contract for deed." Ask your lender for an accommodation, such as going interest only for a short period of time. Ask for a "forbearance" in which you pay less than the full amount of the mortgage or skip a few payments. Or ask about a "repayment plan" that allows you to make additional payments each month until the amount past due is paid. Of course, to get a positive response you will likely need to show the lender a feasible plan to get out of your financial situation. In addition, you will have to provide detailed financial information about your situation. Your worst case scenario is that that bank says no.

Contact a HUD-certified counselor who is trained to help and provide information on foreclosure prevention options, 1-888-569-4287 or the Neighborhood Works America Center for Foreclosure Solutions at 1-888-995-HOPE (4673). A word of caution: beware of foreclosure relief scams. In many cases the assistance being offered (usually at a hefty price) is nothing that you can't do yourself. Don't let desperation override your common sense. You should be safe with a "HUD Certified" counselor.

If you believe all hope is lost, see if your lender will accept a "deed in lieu of foreclosure." In this option, you deed the property back to the bank and the bank relieves you of any further liability. The bank wins because it gets the property back without the expense of foreclosure, and you win in that your credit won't show a foreclosure. This option can be attractive when it's impossible to sell your property for enough money to satisfy taxes, liens and mortgage debt.

If none of the above options work and you are actually sued, do not ignore the litigation. Illinois offers property owners – especially owners of residential or agricultural real estate – with certain rights. Hire a lawyer so that you can take maximum advantage of all those rights rather than letting them expire. In addition, and in a worst case scenario, hiring your own lawyer may actually save you money in that it might reduce the bank's own legal fees – which in that worst case scenario are included in the foreclosure judgment.

Toward that end, you should know that once foreclosure has started many owners have the right of "reinstatement." This means that you can force the lender to allow you to "come current" on the debt – which by this point will include foreclosure fees and expenses. Of course, this option only works if you have somehow raised enough money (from family and friends, perhaps) to make that payment. In a similar vein, even after a judgment is entered, many owners have a very similar right called "redemption." Generally speaking, neither of these options is available to owners of commercial or investment property. Also, keep in mind that if you move out of your house that you will likely lose some of your rights.

In a worst case scenario, it may be necessary to contemplate filing bankruptcy. Although outside the scope of this article, the protection afforded by the bankruptcy laws may allow you to work out of your financial distress. Keep in mind, however, that threatening your lender with a bankruptcy filing will likely get you nowhere – so it's not really effective as a negotiating ploy.

Keep yourself apprised of new laws that may be passed in the near future as a result of the recent economic turmoil. For example, for mortgages purchased by the Treasury Department pursuant to the bailout, the Treasury Secretary is required to (1) implement a plan that seeks to maximize assistance for homeowners, and (2) encourage lenders to take advantage of the HOPE for Homeowners Program of the National Housing Act or other available programs to minimize foreclosures. Furthermore, the Secretary is allowed to use loan guarantees and credit enhancements to "encourage" loan modifications to avert foreclosure.

The foreclosure process can take six to nine months. Put that time to use. Cooperate with your lender. Don't stick your head in the sand. Do whatever you legally can to raise money. In short, act now. Do not delay in getting the help you need. If you do nothing, you will lose your property and your good credit.

by Thomas C. Pavlik, Jr.
Posted in: November, 2008
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