Lenders Say Early Notification Is Key When You Can’t Pay

By David McGee
Staff Writer / Bristol Herald Courier
Published: August 3, 2008

Four months is all the time it can take for someone who fails to pay their mortgage to lose their home.

If a lending institution wants to follow the letter of the law, borrowers who don’t make payments and don’t communicate with the lender can be forced onto the street quickly.

Foreclosures – when lending institutions acquire property through legal action to satisfy outstanding loans – increased by 75 percent across the nation in 2007, according to RealtyTrac.com. The online commercial real estate listing firm is a recognized authority on foreclosures and housing trends.

Many foreclosures are preceded by the loss of a job, injury that prevents employment, substantial medical bills, divorce or other life-changing circumstances. Others are the result of adjustable rate loans that raise the monthly payment.

The key to avoiding foreclosure – or being forced to file bankruptcy for excessive debt – is to make lenders aware of potential problems, said Andy Whetsel, executive vice president of Citizen’s Bank.

“Communication is very important,” Whetsel said. “It’s important for the lender to understand what the issues are and try and determine solutions that make sense. Banks don’t want real estate.”

Lenders regularly deal with customers who are delinquent or miss one or two payments. Problems arise after those payments don’t arrive and the homeowner fails to respond to letters or phone calls, Whetsel said.

Each person and situation is different and – in some cases – lenders have limited options, Whetsel said.

“If a borrower realizes there is some change in their financial situation, the first thing to do is go talk to the lender,” said Lynn Shipley, president and chief executive officer of TriSummit Bank. “The sooner a lender can be involved, the more options we have to work with the borrower.”State laws in both Virginia and Tennessee prescribe a timeline for lenders to try and communicate with borrowers.

Lenders are required to issue a series of letters and make other attempts to contact the borrower to try and set up payment arrangements.

“We have more flexibility than if they are 60-90 days behind,” Shipley said.

Callers to the Eastern Eight Community Development Corp. often wait too late to seek help, said Debbie Perry, Eastern Eight’s home ownership program coordinator.

The nonprofit organization provides consumer, debt and foreclosure counseling for low-income residents in Northeast Tennessee.

“In the past two months, I’ve spoken to about 20 people, but a lot of them waited too late to call,” Perry said. “Most were dealing with the adjustable rate mortgages where they just can’t pay the mortgage.”

Perry, who has done credit counseling for the agency for three years and foreclosure counseling for two months, said the agency has assisted with few foreclosure cases before this year.

“We work with all kinds of lenders. It’s easier to work with lenders if you’re three months behind than six months behind, but it’s not as easy as it looks on TV,” Perry said.

The Southwest Virginia Legal Aid Society, which serves four cities and 17 counties, also recently established a counseling program for those facing foreclosure.

“We’ve been helping people for years protect their home by seeking bankruptcy protection. This is more preventative,” said Development Director Buckey Boone.

“We hope people will call when they first experience a problem. Our counselors might be able to help them settle with lenders or figure out how to best pay their debts,” Boone said.

Counselors can explain options, help prioritize payments, determine goals and establish a plan of action, Boone said. 

There is no charge for the counseling service but the agency only works with those who have low incomes, Boone said. It applies to owners of mobile homes as well as traditional homes.

Other agencies – including People Incorporated of Southwest Virginia and Rural Areas Development Association – offer similar services in Virginia.

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