Is Foreclosure for You?

Call Early, Call Often Lots of troubled borrowers hide from their problems instead of being proactive. In contrast, O'Meally asked for a modification, and the pros give her credit for doing that. Give some credit to Chase, too, for cutting her interest rate nearly in half. It's an example of why it pays to be proactive. "Whenever a borrower has a problem, they should call," says Chase media relations staffer Tom Kelly. Chase has already modified 17 percent of its subprime ARMs that were due to reset in the next nine months, suggesting some degree of flexibility.

Revisit That Closing Every professional who looked at the numbers guesses that O'Meally got fleeced by someone—perhaps a mortgage broker—when she took out her loan. "It sounds likely she was really ripped off terribly at the beginning," says Ray Hooper, education and housing director at the Consumer Credit Counseling Service of Dallas. What can she do about it now? The Department of Housing and Urban Development offers forms for homeowners to file a predatory lending complaint without an attorney. While this won't solve her immediate problems, it might eventually help her get back some of the upfront cash she put into the condo.

Examine Your Budget Housing counselors aren't just interested in your mortgage. They also want to look at car loans, credit card debt, cell phone and cable bills. By cutting back in other areas, they figure, you might find a way to make your mortgage. Some counselors may suggest taking on a second job or finding a roommate to pay rent. "The best-case scenario is you're able to increase your income by $500 a month, you get back on track, and everybody is happy," says Josh Fuhrman, director of counseling at the ++Homeownership Preservation Foundation. While O'Meally sees no hope of this, Chase says that before it modifies a loan like hers it typically scrutinizes a borrower's finances to ensure that she's able to make her new payments. Says Kelly, the Chase spokesman, "We'll only do a modification if we think it's going to work for the longer term." So there may be wrinkle in her financial picture a pro can see that she can't.

Walking Away Isn't Easy O'Meally has already talked with three real-estate agents about doing a "short sale," in which the lender agrees to allow someone to buy the property for less than the outstanding mortgage, waiving the shortfall. The realtors were unenthusiastic; the glut of nearby listings would make it hard to sell, they said, and they were worried about who would pay their commission. It doesn't help that O'Meally estimates that her home is now worth $175,000, more than $50,000 less than she paid for it. Even if a buyer did emerge, lenders caution that getting the green light on a short sale can take lots of time and paperwork.

That's also true for a "deed in lieu," in which the bank ends up owning the home. Unless the buyer is truly on the brink of foreclosure, the bank isn't likely to agree to this, the pros say. With O'Meally less than 30 days behind on her payments, she seems an unlikely candidate for this option—at least for now.

So what does RESIDENT EXPERT think O'Meally should do? In this case I'm going to defer to a housing counselor. She can find one by calling 888-995-HOPE, which is the referral line for the Homeownership Preservation Foundation. They'll send her to a no-cost local counselor who will dissect her monthly budget in search of wiggle room. Together they can also decide whether it's worth filing a predatory lending complaint to try to recoup some of those closing fees.