Mortgage companies say that the last thing they want to do is foreclose, because seizing a delinquent borrower's house costs money. It follows, then, that the key to keeping the house is to make it less expensive for the lender to work with you, rather than foreclose.

How does one go about working out a plan to keep his or her home?

Although dealing with a mortgage company after you’re payments are past due can seem difficult, when you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow these guidelines.

Respond to the mortgage company's phone calls and letters
The mortgage servicer is the company that collects monthly payments, passes along the payments to the homeowners insurance company and tax collector, and makes phone calls and sends letters when borrowers fall behind.

Research has found that, in about half of all foreclosures, the delinquent borrower never talked to the servicer.

Over the past 12-18 months, with the increase in the number of clients I work with who have fallen behind in their mortgage payments, I’ve noticed a interesting trend taking place, not only here in Atlanta, but all over the country.

The biggest challenge is getting people to respond. Fear, embarrassment and shame keep delinquent borrowers from talking to the mortgage company. To many people, the whole process is intimidating to them. They feel that if they just ignore it, it will go away.

It won't.

Delinquencies and foreclosures have been rising nationwide for more than a year. As mortgage lenders lay off loan officers, mortgage servicers hire debt collectors and loss-mitigation specialists.

"We train our collectors to have empathy," says Teresa Bratcher, director of foreclosure prevention for Ocwen Financial Corp., a large servicer of subprime mortgages in West Palm Beach, FL. "These people, for the most part, didn't choose the circumstances that they're in."

Tip # 1: Answer the phone and open your mail, but don't agree to any terms until you read the next tip.

Seek advice and negotiating help from a third party
Respond to the mortgage servicer, but don't be rushed into making a promise that you can't keep. Before making a deal with the servicer, describe your situation to an attorney, accountant or a knowledgeable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.

When you are in danger of foreclosure, "those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender," Garfinkel says.

Just this week right here in Atlanta, I had to step in for a client who’s having problems getting anywhere with her lender. Unfortunately, she’s fallen behind 2 months on her payments. Usually by the 3^rd missed payment, a mortgage company has begun foreclosure proceedings. After losing her job and going through a divorce earlier this year, she simply couldn’t afford to keep up the mortgage on the house.

I volunteered to step-in and talk to her lender directly, which is something I’m finding myself doing a lot of these days. However, the end result is that we got a 90-day extension, which will stall the foreclosure process, which will in turn give her enough time to get the home on the market and sold, rather than have to deal with the nightmare of a foreclosure.

Another place to go is a housing counseling agency or a consumer credit counseling service. A great place to start is the NeighborWorks Center for Foreclosure Solutions' Web site. NeighborWorks counselors will make referrals to local agencies.

"I urge people to get some kind of help with this process, to the extent that they can," says Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that offers mortgage counseling. "They can go out and do it on their own, but they need to be very cautious."

Very Important: Don’t wait until you’re already 2 months or more behind before you seek professional help. Because the entire foreclosure is extremely time sensitive, the longer you wait to seek help, the less anyone will be able to do. Once the bank has decided to take your home, not much can be done to salvage. Time is working against you, so start seeking help early. If you’ve missed 1 payment and already know that you anticipate problems getting caught up, seek help!

Tip# 2: Choices for guidance include consulting an attorney, a credit counselor, a housing counseling agency, or a real estate agent, such as myself that has experience in working with foreclosures and short sales.

How one family found help
I was recently able to help the William’s family keep their home in Smyrna, which is a northwest suburb of Atlanta. They bought their home in early 2003, right in the midst of the whole sub-prime market, when 100% loans and ARMs for people with less than perfect credit were the norm. Happy to get themselves into their first home, although they were in their early 40s, they really had no clue as to what type of loan they had gotten approved for.

The loan officer they were working with at the time (someone referred to them by a friend who worked with Mr. Williams, company now out of business), told them that based on their income, they qualified for up to $255,000. They were excited.

They immediately called up a friend who just so happened to also be a part-time Realtor and they all went looking at homes together.

Two months later they were closing on the home and getting the keys to their new house. It wasn’t until a year later that Mrs. Williams decided to dig up all those papers from the garage that she and her husband had signed during the closing.

Most people never actually read or give any thought to the documents they sign at a closing. Neither did they. What made her go dig them out now? She had recently gotten a letter in the mail from some company she’d never heard of, informing her that their mortgage payment was going up in a few months from $2,080 to $2,916. 

Normally after you purchase a home, your loan can get sold several more times to different companies, since lenders sell their loan portfolios quite often. The William’s were no different. Their loan had been sold 3 different times, since they had bought their home. They had never heard of this new lender, but were worried because being on a fixed income, they definitely couldn’t afford a $900 jump in their mortgage payment.

What did they do? First they tried to refinance the house. But, since they also bought a new car, plus financed most of the furniture in their home, their debt-to-income ratio was now way off, preventing any company from agreeing to refinance them for a fixed rate.

After getting denied by 3 different lenders, they gave up and just ignored the problem, until the notice came that their mortgage had officially gone up. This happened in January, right after the holidays, so money was already short from the holidays. Because they didn’t have the money, they didn’t send in anything.

That month, they also got a disconnect notice from Georgia Natural Gas, their gas provider. It informed them that they were behind paying the gas bill and if they didn’t send in at least $335, their gas was scheduled to be shut off the following week. Since it was the middle of winter, which was more important, the gas bill or the mortgage? They chose the gas.

On Feb. 1, Mr. Williams got notice from his employer, Delta Airlines, that he was about to be laid off due to some restructuring that took place in the midst of the company’s bankruptcy issues earlier this year. On top of that, this $2,916 mortgage payment was due again.

As the spring and summer months rolled by, it was like a snowball effect. He was laid off in the spring. Over and over again they tried to work out a repayment plan with the mortgage company, and at the same time every 30 days, the late payments were getting reported to the credit bureaus.

By the time they were referred to me it was August. They were already 2 months behind and the mortgage company was threatening to start foreclosure if they didn’t send in at least $3,700 in the next 2 weeks. They just didn’t have it, and felt they had reached the end of the line.

After getting hassled repeated by the collection reps at the mortgage company, I had them call and have me added to their account as a person authorized to speak to the mortgage company on their behalf.

It was a challenge because this company can be very strict to deal with at times (I won’t call any names, since thousands of Atlanta homeowners currently hold mortgages with them).

Within 3 days, I was able to get the mortgage company to agree to give them a 90 day hold on starting the foreclosure proceedings, which would allow enough time for me to put their home on the market to find a buyer for it, rather than just watch them move out and deal with the horrible consequences that a foreclosure can leave on your credit.

I took a look at the homes in the neighborhood, we priced it right, and within 60 days we had an offer. Last week, we closed, and the William’s were able to move into a smaller home, with a much less payment.

Mr. Williams says he lost 40 pounds during the ordeal -- "I couldn't half eat." He suffered sleeplessness and headaches. It's difficult to believe that things would have gone more smoothly without help. Also, when Delta came out of bankruptcy recently, I got my job back. Thanks for everything!”

Is your problem short-term or long-term?
Mortgage servicers offer two broad types of workouts, depending upon whether the borrower's troubles are short-term or long-term. Before negotiating with a mortgage servicer, you should know which category your problem belongs to.

Sometimes it's easy to know the difference. Let’s say for example that a homeowner is confronted with having to pay $2,000 for a new car engine. And now they've got to make a choice between paying their house note or fixing their car that provides transportation to work. This is a short-term problem because the borrower's income doesn't change, and the repair bill is a one-time hit.

Temporary disability, resulting in reduced income for a few months or weeks, is another short-term problem.

In other cases, the borrower might become permanently disabled, get divorced or become widowed. Those usually are long-term problems. Throw in a sharply higher rate on an adjustable-rate mortgage, and it can turn into a crisis.

Sometimes it's hard to know how long a problem will last. A layoff might result in a one-week job search, or a year-long hunt. An injury or illness could linger longer than expected. Regardless of the problem, it's still a good idea to get in touch with the servicer.

Tip # 3: Each situation is unique. Understand your situation and what’s best for you before agreeing to a plan.

Decide what you want and ask for it
For short-term problems, the mortgage company is likely to offer a forbearance. Most commonly, this entails adding a set amount to each month's payment. "They can just keep making payments till they get back on track. That's a forbearance plan," Bratcher says. At some companies, a forbearance plan can go as long as 36 months.

Any forbearance agreement should be "forward-moving" -- it should be the full mortgage payment, plus a portion that pays off the arrearage over time. "You don't ever want to go onto a payment plan, particularly if you can afford it, because that involves less than a full monthly payment.  You don't want to keep adding to the amount owed.

Longer-term problems that reduce income, such as disability, are sometimes solved by loan modifications. Theoretically, any term of a mortgage may be modified: the rate, the final payoff date, even the amount owed.

Modification is designed for a homeowner who doesn't have future prospects of being able to maintain the current mortgage payment or the projected one, if they're anticipating a rate jump, over the long term. It is designed for long-term relief, so we know that their income isn't going to change much over the next 20 years.

Modifications are extreme measures. And those are measures that mortgage companies enter into thoughtfully and in a minimum of situations, because, ideally, they're trying to recover the maximum amount of principal and interest for the investor who owns the loan. So modifications are used very sparingly.

In other cases, the servicer might conclude that foreclosure will lose less of the investor's money than modification would.

Document income and expenses. Keep all correspondence (even the envelopes)
Before negotiating a deal, gather all the information you need, starting with any correspondence from the servicer. That includes anything unopened, as well. Don't throw away envelopes from the servicer -- postmarks sometimes can make the difference between being eligible or ineligible for relief, Lewis says.

·         Collect everything that relates to income and expenses.
Find your last four pay stubs. Banks want to see at least one month of income.If (income) is very sporadic, give them stuff that tells how you're getting paid so they can calculate an average over time. Gather at least two years' worth of W2s and tax returns, plus three to six months of bank statements. Find all the mortgage paperwork and add that to the file.

·          Pull together all bills, paid or not, from the times you were falling behind on the house payments until now.
Include utilities, auto payments, credit cards, student loans, child support, medical bills. Find the winter and summer heating and cooling bills.

You need to include everything that documents why they fell behind. Even if it includes an employer's notification of reduced hours or a layoff, an invoice for an auto repair or a furnace replacement, a shutoff notice from a utility.

·         Behind every mortgage delinquency, there's a story. Learn to tell it succinctly.
Sit down and write out the circumstances that led to the default. They need to determine what was the reason the payments fell behind. The better you communicate the story, the better they’ll understand.

Tip # 4: Be prepared for tough questions. At some mortgage companies, loss mitigation specialists are taught to ask tough questions tactfully. For example: "Is there a way you can reduce some of those auto expenses?"

A counselor at a housing counseling agency might be more direct: "Do you want the Escalade or the house?" Know the answers before the pointed questions are asked.

Be persistent in your quest to talk to the right people at the mortgage company
This last point could just as easily be the first: Make sure you talk to the right people at the mortgage servicing company who can help you.

A mortgage servicer has two platoons of employees who talk with delinquent borrowers. The first is the collections department, which consists of people who try to pry money out of you and get you current on the payments. That’s all they do. Regardless of what you tell them about your situation, their only interest is getting you to catch up the payment.

The second group consists of the loss mitigation specialists. These departments go by different names, depending on the servicer, including foreclosure prevention, loan resolution and delinquency customer service. We'll use the most common name for the department: loss mitigation, or loss mit.

It can be difficult to get through to the loss mitigation department if collection agents are discouraged from transferring calls. This is one of the benefits of having a helper, such as an attorney, realtor or a housing counselor. Attorneys will intimidate bill collectors and the others may have contacts within the loss mit department.

The down side is that because of the volume of calls these departments are getting nowadays, the loss mit department may not even have a direct line. You may first have to talk to people in collections who are normally act as gate keepers to the loss mit departments.

Making the call
When you finally do get through, tell your story, answer the questions about income and expenses, and request an application for forbearance or modification, and say, "I want to know all the things I'm eligible for."

Usually what they'll get back from the lender is a push to get an agreement then and there. Don't agree to anything immediately. Otherwise, you may agree to something that you cannot afford. Fill out an application and let the lender make an offer first, and then consider it for 24 hours. Talk it over with the person you’re using as your adviser. Accept the offer if it's a good one; otherwise, make a counteroffer.

Plan to arrive at an agreement, but prepare for the unwelcome news that you'll have to move out. If you turn over the deed in lieu of foreclosure, (which I usually never advise) or agree to a short sale (in which the lender lets you sell the house for less than the mortgage balance), or are forced out in a foreclosure action, you'll need to consult a lawyer and maybe an accountant.