Phoenix attorney Diane Drain, an expert in foreclosure and bankruptcy law, explains why people who are facing foreclosure need to know their rights, options, and the legal consequences of their actions.
Ted Simons: For more information about the lunar reconnaissance orbiter camera visit A.S.U.'s l-Roc website at l-roc.sese.asu.edu. People who are facing foreclosure should know their rights, options, and the legal consequences of their actions. Here to explain all that is Phoenix attorney Diane Drain, an expert in foreclosure and bankruptcy law. Good to have you on, thanks for joining us.
Diane Drain: Thank you for inviting me.
Ted Simons: The number of foreclosures overall?
Diane Drain: Well, compare '06 January Maricopa county 722, January '09, more than 10,000. So we've got a problem. And it's not going to go away anytime soon.
Ted Simons: How about from January to now, do you think it's starting to -- is your gut tell us it's stabilizing a little bit?
Diane Drain:I have a feeling it might be slowing down a wee bit. Whether that's a function of what the lenders are doing and really doesn't reflect the true defaults, I don't know.
Ted Simons: I know that we can go really far back on this to find out who to blame, why are we here, how did we get here, two aspects of it. Predatory lending practices, how much a factor?
Diane Drain: Huge factor. And even in the predatory lending let's include the borrower who knew they shouldn't have been signing that paperwork, but all the other experts involved who led the borrower in assuring them that they could refinance within the next year or two, and they all made money off the top. They never had to wait for the loan to actually perform in order to make money.
Ted Simons: And again predatory borrowing practices a factor there as well.
Diane Drain: Very definitely.
Ted Simons: Let's talk about foreclosure and how it affects your ability once you go through the process, once it hits you, how long before you can go buy a home again?
Diane Drain: Well, if you're willing to pay a high interest rate with a low budget type of lender, probably fairly quickly after foreclosure, but F.H.A. will loan at this current time five years after a foreclosure or five years after a bankruptcy. That's the stats today though. They were three years about 2 1/2 years ago, then changed to two years and went back to three years then four years, now it's five years. By the end of this year I expect they'll start coming down just because of the amount of homes that F.H.A.'s sitting on.
Ted Simons: Bankruptcy, how does that affect the ability to buy another home.
Diane Drain: Well, bankruptcy seems to actually make it easier to buy a home because you've discharged or forgiven so much of your debt and so when it comes to your debt versus your income ratios, you have a lot less debt than you had prior to bankruptcy. Now, is it a hit on your credit, very definitely, again F.H.A. five years after a bankruptcy, but I think for the most part that people should not consider avoiding bankruptcy or avoiding foreclosure just because they're thinking that they can't buy a house anytime in the future, certainly they can.
Ted Simons: Refinancing options are out there as well. Relatively briefly here, who qualifies?
Diane Drain: Under refinancing, well, the problem is getting a hold of the right entity at the lender's office in order to figure out whether you qualify or not. I recommend that everybody use a H.U.D. counselor. They shouldn't be paying these people $5,000 to have them pick up the phone and call their lender. So use a H.U.D. counselor, get your advice early on. Who can qualify? We have many programs that are slowly coming out hope for homeowners act one of them, and what they're looking at there is whether or not the individual voluntarily defaulted, did they have a loan that was one they could not pay on, and really looking at ways to help people stay in their homes. But the problem is sheer numbers, when you've got the kind of foreclosures we have nationwide and you have the lenders that are so overwhelmed, just getting a hold of the right people in the departments is a nightmare for these poor homeowners who are really losing their homes today.
Ted Simons: Alternatives to foreclosure, a short sale, how is life after a short sale?
Diane Drain: Well, you want to remember with a short sale you no longer own the house. Depending on what you did when you signed the short sale you might have still a debt you're legally responsible for. So you want to make sure you read the documents closely. If you don't have a debt you're responsible for you may have taxes you're responsible for, so you need to see a certified tax specialist to know that ahead of time.
Ted Simons: Some other aspects here, assumption by another party, what are we talking about here?
Diane Drain: Well, occasionally folks, outsiders will come in and try to pick up these properties. They would not pick them up as what's called a quitclaim deed where the owner of the property deeds their house directly to a third party, because the owner would be deeding all the respective debt with that. So instead the investor or the third party who wants to buy the house is going to go through the short sale process. Is that what you're looking for there?
Ted Simons: I think, yeah. How does that compare to deed in lieu?
Diane Drain: Ok. What a deed in lieu of foreclosure is a simple concept. It's I the borrower hereby deed to you the lender the title to my house. You the lender forgive my entire debt and that's exactly how the document should look. Now, because we lawyers draft them, that means they're 10 pages long or more. But that's as simple as it should be, I give you title, you forgive my entire debt. Now, there's some nuances on that though, I'm seeing some deeds in lieu that have actually have
leftover obligations for the borrowers and it shouldn't. That's not what a deed in lieu is. A deed in lieu should be quick, it should be cheap for the lender, and the consequences to the borrower, they're still going to have a foreclosure, as I said it's a deed in lieu of foreclosure so there's still a foreclosure. Tax consequences, not supposed to be any. So I always recommend when counseling folks about different options, a deed in lieu if they're giving up their house, a deed in lieu is the best option. But again the lenders are so overwhelmed they don't have time to work these borrowers through these options.
Ted Simons: So a lot of alternatives are out there. The best advice, and we're going to have a special program coming up after tonight's show, regarding asking mortgage experts about situations, personal situations and folks will be standing by, but from where you sit, the best advice for someone watching right now who's saying I just don't know if I'm going to be able to make it.
Diane Drain: Don't procrastinate. Don't borrow from your 401k without understanding what the consequences will be. Time after time I met with people who literally robbed themselves of every retirement account they had and paying into the black hole called their mortgage. They're now at a point of saying that's it, I had enough, I'm going to leave my house. Do get competent advice, both tax advice and legal advice about the consequences of signing these legal documents, don't pay people money for doing this. I mean, if you do, make sure that they're competent, they have good references, but don't pay them more than a couple of hundred dollars. Do use a H.U.D. counselor.
Ted Simons: All right. Very good. Diane, thanks for joining us, we appreciate it.
Diane Drain: You're welcome, sir, thank you.
Diane Drain:Phoenix attorney;