- 1 DROM Housing Debt
- 1.1 HOUSING DEBT: WHY THE AMERICAN DREAM IS A DANGEROUSLY MEAN PRANK
- 1.2 A LITTLE BIT OF HISTORY
- 1.3 THE OWNERSHIP SOCIETY
- 1.4 IN THE NIGHTMARE
- 1.5 CURRENT STATISTICS
- 1.6 FORECLOSURE PREVENTION/PROTECTION
- 1.7 MERS
- 1.8 WALKING AWAY
- 1.9 WHAT ABOUT RENTING?
- 1.10 40 MILLION STRONG
- 1.11 RESOURCES
- 2 Mortgages KYD
- 2.1 Introduction
- 2.2 Mortgage Basics
- 2.3 Shopping for Mortgages
- 2.4 Servicing Shenanigans
- 2.5 Escrow/insurance shenanigans.
- 2.6 If You're in Default or Think You Might Default
- 2.7 Resisting Foreclosure
- 2.8 Second Mortgages, Reverse Mortgages, HELOCS
- 3 Tenants Rights KYD
- 3.1 Introduction
- 3.2 Basics
- 3.3 What to look out for in a lease
- 3.4 When rent goes up
- 3.5 Finding affordable housing
- 3.6 If something is wrong with your apartment
- 3.7 If your landlord is harassing you
- 3.8 If your landlord is discriminating against you
- 3.9 If you want to break your lease
- 3.10 If you can't pay rent anymore
- 3.11 Fighting eviction
DROM Housing Debt
HOUSING DEBT: WHY THE AMERICAN DREAM IS A DANGEROUSLY MEAN PRANK
If you're living in an "underwater" home (the value of your home is lower than your mortgage), you're probably thinking, "how did I get myself into this mess?" You're probably feeling like there was something you could have or should have known. But what we were told about the security of real estate was in fact never true. In reality, the rapid growth of the housing market was an artificial creation based on a secretive relationship between banks and the government.
This chapter will explain the long history that produced what we refer to as the "subprime bubble," and how the system actually operates. When the first wave of the financial crisis hit in 2006, there was no way any of us could have imagined how bad things would really get. But the crisis has exposed the dynamics of the system and produced a potential political force 40 million strong with nothing more to lose.
A LITTLE BIT OF HISTORY
You can't escape the need for shelter. But in America, this basic need is entangled with our fervent belief in the American Dream. When you hear the story, it sounds like the American Dream existed from the beginning of time, but it was really created in 1934 when the government decided to partner with the banks to create a housing market. Since then, we've been believers in a fantasy that has driven the 99% to take on more and more debt just to have a home to live in.
Before the 1930s, the vast majority of Americans did not own their homes nor have any hope of doing so. If you wanted to join the 40% of Americans who owned their homes, you would either have had to pay cash, or to have known someone who would lend you the money. The lender could be a bank, but only if you had a good relationship with your local banker. And even then, they would only allow you to borrow 50% of the property value-and you had to pay it off in three to five years.
By 1934, with household income on the rise, the need for public housing allegedly decreased. The federal government came to believe that increased homeownership was the key to unlocking credit and creating new jobs. The Housing Act of 1934 established the Federal Housing Administration (FHA) for the purpose of providing mortgage insurance for residential properties. The FHA also created the Federal National Mortgage Association (a.k.a. Fannie Mae) to provide a secondary market where banks could sell mortgages. In other words, the banks partnered with the government so that they could profit immediately rather than waiting for the mortgage to be paid in full.
This combination of insuring and buying mortgages quickly led to mortgages being offered for up to 90% of home value. Payment terms were extended to fifteen years at first, then to thirty. Of course, the creation of the modern mortgage expanded the market enormously-by the 1970s, homeownership had grown to 65%.
This partnership between the banks and government agencies continues today with the vast majority of mortgages on the books of FHA, Fannie Mae, and Freddie Mac-in other words on the backs of the taxpayers. In 2011, the federal government guaranteed more than 95% of mortgages.
THE OWNERSHIP SOCIETY
The reality of growing ownership was a shifting burden of risk from business and publicly subsidized housing to you, the individual "owner." In addition to creating a "society of homeowners," the expanding mortgage market created a society of debtors. Instead of building affordable housing, checked by the ability to pay for a home in a relatively short period of time, prices grew to accommodate the longer payment terms. Although you probably associate the "Ownership Society" with George W. Bush, the concept actually came out of Clinton-era policy. The stated goal of Clinton's "National Homeownership Strategy: Partners in the American Dream" program was to extend homeownership to 8 million low-income buyers. This policy opened the door for the subprime lending industry to develop new products, specifically targeted at low-income people of color. While the burden of public housing was lifted off of the government's shoulders, mortgage debt was coming down like a ton of bricks on unsuspecting families of color. A steady increase in foreclosures followed.
Although the FHA will allow you to put down only 3.5% of home value, they'll charge you higher interest rates and require the purchase of additional mortgage insurance. The banks designed complicated products including adjustable rate mortgages, interest-only payments, negative amortization and hybrids of all three. And the government never told you that if its agencies weren't operating as a secondary mortgage market (allowing banks to sell their risk immediately) this would never have been possible. They left you with all the risks and banks with all the gain. Oddly enough, actual levels of ownership only expanded by a couple of percentage points. Although wages have stagnated or declined, and the percentage of full-time workers has decreased, more and more of us have been getting mortgages. In some states, 65% of mortgages were originated after 2000. However, the vast majority of mortgages went to those refinancing or trading up. Very few new homeowners were actually created.
If you were under the impression that the housing market could grow perpetually, you were not alone. We were told time and time again that, in the housing market, what went up would never come down. Too bad they forgot to mention that the banks wouldn't lose if you couldn't pay. And, oops, they also forgot to mention that you would be paying as a taxpayer, even though you also lost everything as a homeowner, since the vast majority of mortgages are insured by government agencies. It's hard to believe that either the bankers or the government officials believed the market could grow forever. To the contrary, the reason they developed the laws and financial schemes they did is because they knew it could not continue to grow forever.
IN THE NIGHTMARE
The realization that "ownership" does not instantly occur when you acquire a mortgage has been exposed by the foreclosure epidemic. The reality is that the bank owns the property and you're really only purchasing an opportunity to become an owner, if all goes well for thirty years. How bad is it?
o Approximately 11% of all homes in the United States are empty. o The rate of homeownership in the United States has dropped to 1998 levels. o Between January 2007 and August 2010, mortgage lenders repossessed a total of 3 million homes. o Eight million Americans are at least one month behind on their mortgage payments, and 5 million homeowners in the United States are at least two months behind. o So far 5 million homes have been foreclosed. Last year in California, 1.2 million were foreclosed, and another million are expected to be foreclosed in California in 2012.
o Wall Street analysts predict as many as 7.4 to 9.3 million borrowers will face foreclosure. o A quarter of African American and Latino/a borrowers have lost their homes or are currently at risk of foreclosure, compared to 12% of whites. o Over 30% of all U.S. mortgages have negative equity. o Between 2005 and 2009, the typical Latino/a borrower saw their homeequity decline by 51%. o Industrial cities are turning into ghost towns. For example, in Dayton, Ohio, 18.9% of all houses are now standing empty, and 21.5% of houses in New Orleans are vacant. o U.S. home prices have already fallen further during this economic downturn (26%) than they did during the Great Depression (25.9%).
WHAT CAUSED THE MELTDOWN? The common "blame the victim" account of the subprime mortgage crisis ignores the fact that the mortgage industry developed complex financial instruments designed to tempt and confuse borrowers. The most infamous of these loans were adjustable rate mortgages (ARM) and stated income products.
ARMs are exactly what they sound like-you receive an initial interest rate that adjusts after several years. These loans frequently allow you to choose whether to pay the full monthly payment or just the interest. They are often combined with home equity lines of credit. These loans can cause the principal to increase if you make reduced payments. Even after the collapse, the predatory nature of the ARM is still being revealed-these rates are set against the LIBOR index, which we now know to have been manipulated by the major banks in a scam to line the pockets of the 1%.
Stated income loans (a.k.a. "liar" loans) allow you to simply state your income with no verification. These loans were most often used by growing masses of freelance and precarious workers, many of whom did not qualify for a traditional mortgage.
Certainly, ARMs and stated income loans have high rates of failure, but the causes for the financial collapse are much more complex and cannot be blamed on the purchasers of these complicated loans.
According to the Federal Reserve Bank of Cleveland, there are ten myths about the subprime market: 1. Subprime mortgages only went to borrowers with impaired credit. 2. Subprime mortgages promoted homeownership. 3. Declines in home values caused the crisis. 4. Declines in mortgage underwriting standards triggered the crisis. 5. Subprime mortgages failed because people used their homes as ATMs. 6. Subprime mortgages failed because of mortgage rate resets. 7. Subprime borrowers with hybrid mortgages were offered low teaser rates. 8. The subprime crisis was totally unexpected. 9. The subprime mortgage crisis was unique in its origins. 10. The subprime market was too small to cause big problems.
In reality the crisis was caused by a combination of factors that were foreseeable from the early 2000s. Predatory financial products were sold to buyers, who believed that they were entering into long-term relationships with banks. But the banks were securitizing these mortgages, most often by selling them on the secondary market created by Fannie Mae and Freddie Mac, cashing out and shifting the risk to the buyer as the taxpayer. Not surprisingly, the major banks have made enormous profits since the meltdown.
Economic hate crimes The patterns of predatory mortgage lending grew out of America's long history of committing and facilitating economic hate crimes. Starting with the retracted promise of "forty acres and a mule," African Americans have been unable to break into the white housing market. From steering to redlining to reverse redlining, the African American perception that homeownership benefits whites more than blacks reveals its truth in the actual data.
o Whereas less than 12% of white homeowners are at risk of foreclosure today, 25% of African Americans are still at risk. o So far, 25% of African American homes have been foreclosed during the crisis. o Whereas just over 5% of white borrowers received high interest loans despite good credit, over 20% of black borrowers and just under 20% of Hispanic borrowers received bad loans when much better options where available. o Over 40% of African American borrowers received high-risk loans in spite of good credit.
'According to the Economic Policy Institute, as of December 2009, median wealth of white households dipped 34%, to $94,600; median African American household wealth dropped 77%, to $2,100.4'
The median household net worth was nineteen times greater for whites than Blacks in 2009. Wealth disparity is far greater now than it was in 1995, when the wealth differed by a factor of seven.5 In 2009 dollars, the median household net worth for Blacks decreased from $9,885 in 1995 to $4,900 in 2009, while it increased for whites from $68,520 to $92,000 during the same timespan. This shocking statistic is in part due to long-term housing disparity. As of 2011, nearly 75% of white Americans were homeowners, compared with only about 45% of African Americans. About 90% of the subprime mortgages taken out from 1998 to 2006 were for homeowners refinancing.6 The vast majority of these mortgages were issued in lower-income communities of color, perpetuating a clear cycle of predatory debt.
From the Housing Act of 1934 onward, housing discrimination by banks was conducted through the practice of redlining. Home Owners' Loan Corporation (HOLC), a federal agency set up in 1933 by Roosevelt for the purpose of preventing foreclosures, initiated this practice of redlining when its agents were asked by the Federal Home Loan Bank Board to create maps indicating the security of real estate investment. The maps were not based on assessment of the economics of individuals in a community, but rather based on assumptions about its racial composition and consequently defined communities of color as unworthy of mortgages.
The practice of redlining shifted as the laws around housing discrimination were strengthened. Clinton's push to expand homeownership to low-income borrowers led to the current subprime market dynamics, which are based on a predatory strategy of reverse redlining. Reverse redlining occurs when a community is targeted to be marketed high interest or high-risk loans. We now know that this was a common practice across the mortgage lending industry.
Most recently Wells Fargo, the largest mortgage lender in the country, settled a reverse redlining case with the Justice Department. The bank only agreed to compensate individual borrowers for $125 million dollars worth of losses. This is a far cry from the true cost of this predatory lending and will not put the victims of this hate crime back in their homes. SunTrust Mortgage settled a similar case and Bank of America also settled a similar suit over its Countrywide Financial unit.
The result of the long history of housing discrimination is still apparent today with increasingly racially segregated communities.
Let's say you're having trouble making your mortgage payments, maybe you've gone into foreclosure, and want to stay in the home. What can you do? It is difficult to generalize since rules concerning mortgages, foreclosures and eviction differ by state. Still, some things do apply to all states.
There are many things that you can do to resist foreclosure and try to work out a better deal if you stay in the home. Banks can only remove people after a foreclosure notice has been given in an act of eviction, and this is difficult for them from a legal and physical perspective. Banks can and do reconsider mortgages that are at the eviction point, finding deals that work better for all parties. This only happens when the owner is in the home.
At this point in dealing with your mortgage, you will likely be exhausted and want to give up. That exhaustion is one of the banks' strongest weapons in taking your home, so stand strong.
If you are in trouble with a mortgage, there are three major ways of trying to deal with the situation: 1. Hire a lawyer if you can afford one. Legal aid, a bar association or any law practice might have special options if you don't have the necessary resources. In general, watch for fraud and people looking to scam you and steal your money, while promising to help you with your home. People who want a lump-sum fee upfront are the most notorious. Anyone looking to take your mortgage payment and give it to the bank is untrustworthy; you'll want to pay the bank directly.
In general, anyone who promises you a silver bullet is almost certainly lying. Even the best lawyers know, and should tell you, that this is a difficult situation with no easy answer.
2. A second group is housing counselors like the Neighborhood Association Corporation of America (NACA). The advantage of contacting them is that they have accredited housing counselors experienced negotiating with banks.
Sometimes housing counselors have a vested interest in building up their businesses and may be funded by banks; some are straight-up frauds.
3. A third option is getting involved with community-based organizations and Occupy Homes organizations. Occupying is a way of resisting the power of the banks, and saying you won't leave until a deal has been made.
Banks hate public pressure, especially around specific homeowners. As a result, when homes are occupied, there is more leverage. This can amplify some of your other legal options, like home counselors or a personal lawyer. If, at a time of eviction, fifty people are there who won't leave, the eviction people will usually walk away. Sometimes they will come back in a few hours, but often they wait another month while negotiations continue. In general, banks hate the publicity.
The fact is, banks are softer targets than you might expect because so many cases are rife with legal irregularities and outright fraud; it's not uncommon for customers to be mislead, crucial paperwork lost and documents robo-signed. While banks often refuse to negotiate with individuals, taking advantage of those who are intimidated or can't afford legal counsel, they often change their tune when threatened with serious scrutiny.
Most major metropolitan areas have hosts of community-based organizations that specialize in housing. Unions sometimes do work as well in this area. Occupy groups can also put you in touch with groups doing anti-foreclosure work. Go to occupyhomes.org for help.
Mortgage Electronic Registration Systems (MERS) is a national electronic registration and tracking system that tracks mortgage loans. MERS was conceived in the early 1990s by numerous lenders and other entities including Bank of America, Countrywide, Fannie Mae and Freddie Mac. Its stated purpose was to save mortgage purchasers money.
In the past, it was your lender that was on the deed as the beneficiary until you paid the loan in full. Your deed and loan note were recorded with the local County Recorder's office. The recording of the deed and the note created a public record for the transaction. Any ownership change had to be recorded to create a clear "chain of title," which is like a record of ownership that protects the owner from false claims to ownership.
When the banks decided they could make money by securitizing loans privately, they needed a way to manage the paperwork which involved selling of notes and deeds repeatedly. If they actually filed with the County Recorder each time, it would cost them time and money. So they figured out a way around it by cutting corners. Instead of your lender's name on the deed, you'll find MERS named instead. The problem with this is that MERS is really not the owner of your loan. How can MERS claim titles to loans they merely track, but do not own? If you find yourself in a situation where your foreclosure has been "robo-signed" by MERS, you may be able to fight back on this basis.
Of course, you can also consider walking away. The personal finance world went ballistic when Suze Orman advised homeowners who are more than 20% underwater to walk away. But if you're that far in the hole, cutting your losses may be your best option. Whole communities are finding themselves in a vicious cycle of foreclosures driving down values and reducing property taxes. This increases municipal indebtedness, decreases public services and further drives down property values. This death spiral is often impossible to escape.
Unfortunately, the government has not taken strong action to force banks to restructure mortgages. Banks make their money not on the interest over the course of the loan but on the sale of the asset-backed security. Consequently, they are incentivized to allow a foreclosure and a new mortgage instead of reduced payments. Since the government's entire housing program has been based on shifting the burden away from banks, why should banks negotiate a mortgage that cannot create a new security?
If you are considering the option of walking away, with this knowledge you can do so guilt-free. Or you can follow these steps: 1. Ask your lender to modify the loan by reducing the principal to the actual current value of the property. 2. If they say no-which is likely-then ask for a short sale. A short sale is a sale for less than the amount owed for a property, and the bank takes the loss. Most often banks will say no to this too. 3. The next step is to ask for a deed-in-lieu of foreclosure. This will allow you to transfer the property deed to the bank without going through formal foreclosure proceedings. The advantage for you is that it allows you to walk away immediately and with no attachment to the property. The advantage to the bank is that they may save money and lower the risk of borrower vandalism of the property. 4. Assuming that the bank still says no, you can now walk away with acompletely clean conscience.
But the most important thing to keep in mind is that walking away only works if you are in a state where the law prevents the bank from suing for other assets. Many states prevent buyers from strategically defaulting with laws that entitle the bank to sue you for your other assets including money in your bank account, stocks and savings of any form. It is imperative that you consult an attorney in your area to make sure that the bank cannot sue you and place a lien on your other assets.
Aside from the loss of your home, the main consequence of foreclosure is the destruction of your credit report and credit score. You can expect your score to drop by 85 to 160 points. The foreclosure stays on your report for seven years and will impact your credit for that period, although it is impossible to know how much the impact will dissipate over time since credit reporting agencies do not disclose their algorithms. Without a doubt though, it will be difficult to get another loan for quite some time.
You should certainly dispute the foreclosure with the CRA and make them validate your report. Record keeping is so poor that you should expect that they do not have accurate records-so fight, and don't give up until they show you your signature on the contract.
WHAT ABOUT RENTING?
Although rent is not considered consumer debt, owing rent is certainly a form of indebtedness. This becomes obvious if you do not pay your rent. Your landlord will eventually evict you and you will owe "back rent." The lack of distinction between owing a bank money for shelter and owing a landlord money for shelter only becomes clear when the bank threatens to take away your home. While renting requires that the tenant typically place a security deposit in interest bearing escrow to guarantee the rent, the bank keeps a down payment in the case of default.
A recent Pew study showed that young Americans have soured on buying, and are less attached to the "dream" of homeownership. The next generation of buyers has seen their families suffer with underwater properties and fear the downside of ownership more than they desire the upside.
But, if you think that renting will save you from the effects of housing debt, think again. Since the foreclosure crisis, rents have increased. In 2011, rental vacancies hit a ten-year low. Millions of foreclosed families have no choice but to rent, and since it takes seven years for a foreclosure to disappear from your credit report, many families are in it for the long haul. Of course, wages have not kept pace with rent increases. Over 25% of African American and Latino/a families spend more than half their income on housing, compared to 15% of white families.
Unfortunately, no one has been immune to the fraudulent practices that led to this mess. Unsustainable housing debt impacts us all.
40 MILLION STRONG
What does all this add up to? American homeowners have been victims of a bank scheme to profit by creating a bubble that could only blow up in individual homeowners' faces. Since we are all affected by the housing crisis, the potential for collective action is enormous.
There are an estimated 40 million residents of underwater homes today, greater than the entire population of California. In fact, according to the real estate website Zillow, there's 1.15 trillion dollars in just the underwater portion of mortgages, and 4.8 trillion in total estimated property value of underwater homes.7 Given these numbers, it's easy to see the potential for homeowners to unite under the threat of strategic default. However, although there is a lengthy history of "rent strikes" to gain repairs and other concessions from landlords, there is little history of mortgage refusal. There are many reasons property owners might be unwilling to strike-from the glorified perception of ownership to the taboo against failing to pay debts, to the fear of bad credit, to the belief that the market will improve. Yet as more and more victims of the housing market understand the complicated details of the game our government played with the banks at our expense, the potential for collective action grows.
Housing is a Human Right (housingisahumanright.org) Occupy Our Homes (occupyhomes.org) Take Back the Land (takebacktheland.org) Chicago Anti-Eviction Campaign (chicagoantieviction.org)
John Atlas, "The Conservative Origins of the Sub-Prime Mortgage Crisis," American Prospect, December 17, 2007 (tinyurl.com/DROMAtlas). Barbara Ehrenreich and Dedrick Muhammad, "The Recession's Racial Divide," New York Times, September 12, 2009 (tinyurl.com/DROMEhrenreich). Ylan Q. Mui, "For Black Americans, Financial Damage from Subprime Implosion is Likely to Last," Washington Post, July 8, 2012 (tinyurl.com/DROMMui). Michael Powell and Gretchen Morgenson, "MERS? It May Have Swallowed Your Loan," New York Times, March 5, 2011 (tinyurl.com/DROMPowell2). Maura Reynolds, "Refinancing Spurred Sub-Prime Crisis," Los Angeles Times, July 5, 2008 (tinyurl.com/DROMReynolds). "The Rotten Heart of Finance," The Economist, July 7, 2012 (tinyurl.com/DROMEconomist).
1. Josh Griffith, "The $5 Trillion Question: What Should We Do With Fannie Mae and Freddie Mac?" Center for American Progress, August 2, 2012 (tinyurl.com/ DROMGriffith). 2. Katie Curnutte, "Home Value Declines Surpass Those of Great Depression," Zillow, January 11, 2011 (tinyurl.com/DROMCurnutte). 3. Yuliya Demyanyk, "Ten Myths about Subprime Mortgages," Federal Reserve Bank of Cleveland, July 23, 2009 (tinyurl.com/DROMDemyanyk). 4. Michael Powell, "Blacks in Memphis Lose Decades of Economic Gains," New York Times, May 30, 2010 (tinyurl.com/DROMPowell). 5. Jeanette Wicks-Lim, "The Great Recession in Black Wealth," Dollars and Sense, February 2012 (tinyurl.com/DROMWicks). 6. Maura Reynolds, "Refinancing Spurred Sub-Prime Crisis," Los Angeles Times, July 5, 2008 (tinyurl.com/DROMReynolds). 7. Stan Humphries and Svenja Gudell, "Zillow Negative Equity Report (Q2)," Zillow, June 2012 (tinyurl.com/DROMHumphries).
Mortgages account for most of the household debt in the United States, by far. There is $8.5 trillion in mortgage debt outstanding. That's six times the amount of student loan debt. It's more than twice as much as all other types of household debt combined.
Borrowing money to own a home has such an outsize role in the so-called "American Dream" that it is easy to think of mortgages as an eternal aspect of US society. But widespread mortgage debt is a modern invention-a direct result of government policy distorted by the real estate and finance lobbies. The U.S. government literally created the modern mortgage market. Emphasizing homeownership funded through debt has had wide reaching consequences. Take racial segregation, for example. Another part of the 1940s laws that created the modern mortgage market wrote racial segregation into the law. Federal guidelines basically prohibited issuing mortgage loans to predominantly Black areas (this is called "redlining" because these neighborhoods were literally colored in red on government-issued maps). Here's an example from Pittsburgh:
As well, by making getting a home depend on tapping the private wealth of for-profit creditors rather than public wealth, we turned over a huge amount of power to Wall Street to determine who get access to shelter and on what terms. Aside from how much this has reinforced inequality, it has created instability. The housing market is one the largest sectors of the economy, so it's a place for a lot of speculation and shenanigans that can and have caused financial crises. Banks fight against the regulations that prevent crises from happening, because they make more money without them. As a result, there was a mortgage bubble that popped in the late 1980s (called the "Savings and Loan Crisis"). But apparently nobody learned any lessons. Because, as you might remember, a mortgage bubble crashed the global economy in 2007. The banks that caused these crashes are always back in business and making huge profits. The rest of us are left to deal with the impact of their speculation. Indeed, millions of us remain in default on our mortgages
A mortgage is commonly referred to as taking out a loan "on your house". What that turn of phrase refers to is the fact that a mortgage loans is a secured loan that uses a house as collateral (also sometimes called "security"). When you agree to have your house (or any other asset) serve as collateral for a loan, you give a creditor a "lien" on/"security interest" in your house, which basically means the right to take possession of your house if you fail to pay. This process of taking a house is called "foreclosure". See GLOSSARY. Technically the term "mortgage" refers not to the loan itself but to the security-the right of a creditor to foreclose upon default. So mortgage loans actually require two different sorts of documents. The note is the contract that contains the loan terms (a promissory note/contract just like any other loan). The mortgage (also sometimes called a "deed of trust") secures the loan by giving the creditor a "security interest" in the house. This technical distinction can become important if creditors fail to get their paperwork straight. Here's a diagram to help sort this out visually:
You can take out a mortgage on your house to pay for a bunch of different things, but the traditional and most common version of a mortgage is called a "purchase money mortgage". As the name implies, this is a loan you take out to pay for a house, using the house you pay for as collateral. Most of this section is about purchase money mortgages, but see SECOND MORTGAGES, REVERSE MORTGAGES, AND HELOCS to learn about other types of mortgages. As you pay back a mortgage, you build up "equity" on your house. What is equity? It's a word finance types use to refer to the value of the portion of your house that you own. Equity is the value of your house minus the remaining principal of your mortgage. Estimating how much equity you have in your house can be important in multiple situations when dealing with your mortgage. This diagram might be helpful in explaining what equity is and how it relates to your mortgage:
At their simplest, mortgages involve two parties: a debtor/homebuyer and a creditor/bank (in the background are government actors: regulators, guarantors, courts, etc.). The creditor gives the debtor money in exchange for a note (promise to pay) and a mortgage (security interest on the debtor's house). Over the next 20 or so years, the debtor pays the creditor once a month. You can break this simple arrangement into pieces. See DEBT BASICS for more on the stages of a loan. First the creditor and the debtor find each other. Then the creditor, after evaluating the debtors "creditworthiness", originates the loan-getting the money and giving it to the debtor. Once the loan is issued, the creditor services the loan by collecting payments from the debtor, sending monthly bills, answering the debtor's questions, etc. If something goes wrong, the creditor reverts to increasingly aggressive collection tactics and might even initiate foreclosure proceedings. In many modern mortgages, different agents handle the different pieces of a mortgage arrangement.
A mortgage broker matches debtors with creditors.
A mortgage originator deals with the debtor until the note and mortgage are signed (they check the debtor's credit, handle the application, etc.) and hands the money over to the debtor. Some mortgage originators-usually banks-use their own money, but some-mortgage brokers, for instance-act as middlemen between debtors and financial markets. That means that the mortgage originator is not always the same as the original lender. A mortgage servicer deals with the debtor during repayment. Sometimes mortgage servicers also buy the loan from the original lender, but more often they work for the owner of the loan rather than owning the loan themselves. They're contractors, in other words. A mortgage servicer is the company you deal with most directly-it sends you the bills, it collects your money, and it runs the phone lines you call when you have a question or complaint. Plus it usually handles the foreclosure proceedings if things come to that. To add to the confusion, your mortgage servicer can change over the course of repayment. Nowadays they are legally required to tell you if your servicer changes.
But where do the payments to the servicer goes if not into the servicer's own bank account? In the modern world, the owner of the mortgage can be hard to identify. That is because mortgages-the right to receive your payments-are bought and sold (and resold and resold) frequently. Servicers are required to notify debtors when there is a new owner of their mortgage.
It's important to note that mortgage brokers are not (necessarily) the same as real estate brokers/real estate agents/realtors (all of which refer to the same thing). Sometimes a real estate broker is also a mortgage broker, but usually real estate brokers are the individuals that help you find and purchase a house, not the individuals that set you up with financing for that house. Generally it's good to avoid all-in-one deals or at least shop around to make sure their prices are competitive.
Side Note on Securitization
There's added complication to many mortgages, a complication that played a major role in turning the mortgage market into a powder keg that exploded in 2007. It's called securitization. Securitized mortages, after they are originated, they are broken into pieces and sold. Then resold. And resold. And resold. What does it mean to say a mortgage is "broken into pieces"? Basically, whenever you pay on your mortgage, your servicer takes that money and deposits it into a trust that pools your payments on your mortgages with the payments of millions of others. This trust usually goes by the name "MERS", and may be listed on your loan documents as the "holder". Then investors buy (and sell and rebuy and resell) the right to portions of the money that goes into that trust.
Securitization was actually created by the federal government in the 1960s when it created the government agency "Freddie Mac" to perform an early version of it. In the 1980s, the investment bank Salomon Brothers (which-coincidentally?-collapsed during the financial crisis in 2007) created a private version of securitization. They exist side by side nowadays. Securitization provided a way for international investors to buy a piece of the U.S. mortgage market-a piece of our debt payments. Doing so opened up the floodgates for a lot of money to slosh in. If a mortgage originator knows it can sell off a mortgage to a German investment bank or a Chinese financier as soon as it originates the mortgage, that originator will have more money to work with and will be more able to issue mortgages.
Once investors started to make a lot of money buying securitized mortgages, even more money sloshed in. Seeing the potential to make huge amounts of money reselling mortgages to international investors that knew nothing about the U.S. mortgage market, mortgage originators were practically begging Americans to take out mortgages. Mortgage brokers pushing the rest of us to buy houses increased demand for houses, which meant that prices kept going up. That meant that even if you couldn't afford a house, it might be worth taking out debt to buy it because the value of the house would go up so much that you would earn enough money to pay off the debt. And of course that meant that international investors were even more excited to buy a piece of the mortgage market, which meant that mortgage brokers were even more excited to get the rest of us to buy houses, which meant that the prices were going up even faster which meant…that it was a self-fulfilling circle of speculation.
And then it turned into a bubble. When people are buying homes just because they think they'll go up in value in the future (because that's what the mortgage originators tell them because the international investors won't make as much money otherwise), then the value of the mortgages depends on the value continuing to rise. But that can't happen forever. And once a big portion of people weren't able to make payments on their mortgages in 2006, people started to look around and realize that they were in a bubble. And that's how bubbles pop.
Shopping for Mortgages
For almost everybody who takes out a mortgage, it will be the biggest purchase or financial transaction we ever enter into. Creditors also have much to gain from mortgages (an $8 trillion market!). So they have every reason to take you for as much as you have. Even though the mortgage market is regulated, not everybody follows the regulations and there are loopholes they can use to screw you over.
If only for that reason, it is important to do your due diligence. Shop around. Apply for mortgages with a few different banks/originators and compare what they give you. Ask friends and family who have experience with mortgages what their interest rates are and which creditors they have had good/bad experiences with.
If you want to talk to an expert who's not out to screw you, you should know about housing counselors. A federal regulator, Department of Housing and Urban Development (commonly called "HUD"), certifies housing counselors. Here is HUD's website to help you find a legitimate housing counselor in your area.
Also, after you apply for a mortgage, a lender is required to send you this guide from the CFPB on shopping for mortgages.
Whether you use a counselor or not, you should always check the terms of the mortgage you are being offered for red flags. Some things to look out for: High interest rates. Under federal law, the note should clearly state the interest rate as an "APR"-an annual percentage rate. If your lender presents your interest rate as a monthly rate, you should be immediately suspicious and insist on seeing the APR. Interest rates depend on your credit score, income, and the Treasury rate (the interest rate the Federal Reserve sets), so whether the interest rate you're seeing is high is relative. That's one reason it's important to compare interest rates from different creditors.
Most mortgages charge the same interest rate over the course of a loan. But some-often called "ARMs", meaning "adjustable rate mortgages"-charge different interest rates depending on the circumstances. ARMs are more commonly offered to less wealthy "subprime" debtors. Generally it is better not to get an ARM, since variable interest rates can mean that your payments suddenly go up beyond what you can pay for reasons totally beyond your control. Particular versions of ARMs to avoid are mortgages with "teaser rates"-very low, even 0%, interest rates for a limited period of time. Mortgages with teaser rates tend to actually be more expensive over time and may suddenly become very expensive when the interest rates pop up after the teaser period.
Creditors love to charge fees for everything they can get away with. Some of these fees are unavoidable in today's market, but you should be alert to any fees in the mortgage contract and check with your housing counselor about them. Particular fees to be wary of are prepayment penalties, which charge you a lot of money if you pay too much on your mortgage too early; late fees, which are unavoidable but can be really steep or punitive and you can sometimes negotiate down.
Low payments. Low payments aren't bad in themselves, but they can indicate that your loan will be more expensive in the long term. Check out DEBT BASICS to see how this works. Extra insurance. You have to buy property insurance, and, if you put down less than 20% up front, you have to buy credit insurance. However, you don't have to buy either of those things from the company your mortgage originator points you to. If they offer you other types of insurance, it's generally better to ask yourself if you really need it, shop around for prices, and/or ask a housing counselor about it.
Anything that sounds too good to be true. Don't let them talk you into things that sound like you're getting something for nothing. Be wary and ask around.
A mortgage originator is legally required to provide you with a Closing Disclosure at least three days before you close the deal that contains information about the cost of the loan. It should help you determine whether any of these red flags are present. If they are, you should ask your originator what's up and, if they persist, refuse to take out the loan. Here is more information on the Closing Disclosure.
Do not agree to a mortgage that has: " Interest-only payments. This will blow up in your face unless you've carefully planned your finances and calculated payments over time. " Negative amortization. That means your payments don't even cover interest. If you can't cover interest, you shouldn't be taking out the loan. " Balloon payment. That's small payments early on and then one big payment at the end. Again, it will blow up in your face unless you've really plotted it out
Getting Your Documents Together
As with any debt, it's crucial to get and save all your documentation. That includes taking dated notes every time you talk with a servicer or any other agent. Store them all in a safe place. Don't throw them out unless you've paid off your mortgage (and even then, it's not a terrible idea to keep them).
If you don't have your loan documentation, you can request it from your servicer (you can also request other information). Servicers are required to respond to requests for information promptly: acknowledging your request within 5 business days and responding within 30 business days (unless they inform you that they need an extension of 15 business days).
" Some important documents to have (you should keep originals wherever possible): " The promissory note. This should be 4 to 5 pages, and will have all of the terms of the loan in it. It may also have "riders" that have additional terms. " The mortgage/deed of trust. This gives the creditor a security interest in your house. If they don't have this, they may be prevented from foreclosing. See FENDING OFF FORECLOSURE. " Closing Disclosures (if from before 2013: Good Faith Estimate and HUD-1 Settlement Statement). These are summaries of the costs of the loan in the promissory note. " Loan applications. There are usually at least two versions: one from the original application and one from closing. " Bills and other communications from your servicer. This should include notices of transfer of ownership and/or servicing (as discussed in SERVICING SHENANIGANS). " Notes from calls with your originator or servicer.
Servicers can get up to all kinds of nonsense. Things can get especially complicated when you miss a payment, pay late, or don't have the full payment.
If you think a servicer has applied your payments wrong, charged you too much, or otherwise screwed up (or screwed you), you have a right to dispute. Federal law requires servicers to promptly respond to and to promptly resolve disputes. Servicers much acknowledge the dispute within 5 days and respond within 30 days (with a potential 15 day extension). Your dispute does not have to take any particular form, although it must be in writing. In fact, federal law specifically requires servicers to treat any written communication that articulates an error as a dispute and to treat it accordingly.
Some common servicing shenanigans include:
" Not properly processing payments when servicers change. Many problems can occur here. You are supposed to be notified when servicers change and you have a 60-day window in which your payments must be credited even if you send them to your old servicer. " Not crediting payments you have made. This happens most commonly when your payment has been less than the full amount due. Sometimes servicers return a partial payment. Sometimes they place it in a special "suspense account" and only apply it to your loan once there's enough in the account to cover a full payment. Whether they have a right to do either of these things depends on your particular mortgage (look at your promissory note!), but you should always dispute when they do it. " Crediting payments in a way that violates the loan agreement. Sometimes servicers apply payments to fees or interest when the loan agreement makes clear that they should be allocated to principal. Other shenanigans are possible. Check your promissory note and compare it to your statements from the servicer. " Charging fees in excess of what the loan agreement allows.
Escrow, Taxes, and Insurance, Oh My!
Monthly payments on a mortgage generally include a portion to cover property taxes and insurance (usually property insurance, sometimes other types as well). Servicers are required to set up a separate escrow account in which they must put these portions of your monthly payment, so that they are clearly separated from the rest of your payment. Then they are required to use the money in that account to pay property taxes and insurance premiums when those bills come due.
Servicers are required to provide you information about your escrow account, including account statements. They are also required to refund you money if the amount in the escrow account exceeds tax and insurance bills. If that refund is large (i.e. multiple hundreds of dollars or more), likely the servicer is calculating escrow payments incorrectly and you should dispute. On the other hand, if the escrow account does not have enough money to pay the bills, the servicer still has to cover the costs. But they can require you reimburse them through higher escrow payments in the next year.
If you do not have an escrow account, you still have to pay taxes and insurance. All mortgages require you to take out property insurance, and mortgages in which you put down less than 20% in principle generally require credit insurance as well. If you do not take out (or pay the premiums on) the insurance your mortgage requires, your servicer can take out insurance in your name and charge you for it. This is called force placed insurance. Because creditors are leeches, the insurance they buy is usually more expensive and less protective than insurance you could get on your own. If you get your own insurance, though, the servicer is required to drop the force placed insurance.
Also, if you were required to take out credit insurance you should know that once you have paid down principal (i.e. built up equity) of 20% of the original value of the house or more, you do not have to pay for credit insurance anymore. Your servicer is required to drop it. If you think you've been discriminated against
If you think you're getting a worse deal or worse treatment or being denied a mortgage or being steered away from looking at houses in particular neighborhoods because of your race, color, national origin, religion, sex, familial status, or disability, you have recourse. The federal Fair Housing Act and the Equal Credit Opportunity Act both prohibit these types of discrimination.
Asserting your rights under these acts is easier with a lawyer. But you can do it yourself by using this HUD site for a housing discrimination complaint and/or this CFPB site for a credit discrimination complaint.
No matter how you go about complaining about discrimination, legal action is likely to come too late to actually remedy the situation. You might eventually get the lender or real estate agent in trouble and you might eventually get some money, but it's not like you will get a police officer to immediately come and force a real estate agent to stop being racist. Changing something more quickly would probably require taking direct action, with friends, family, and allies helping out: protesting and shaming the person/entity that discriminated against you.
If You're in Default or Think You Might Default
If your monthly mortgage payments have become too much or seem like they will become too much in the near future, you have a number of options to try to keep your house. The best way forward depends on the details of your situation and the type of mortgage you have.
There are basically four possible outcomes:
If you can get back on track with mortgage payments-whether by cutting down on other expenses, modifying/renegotiating your mortgage payments, or refinancing your mortgage-you should be able to go back to roughly where you were before mortgage payments became a problem. You can keep your house. For more on this, see MODIFYING YOUR PAYMENT PLAN. If you are insolvent (all of your debt payments, including your mortgage, are higher than your income) or facing a lot of financial problems at once, it might make sense to declare bankruptcy. Depending on the details of your situation, doing so could allow you to keep the house and make your mortgage payments more manageable. At the least, doing so should temporarily halt foreclosure proceedings. For more on this, see BANKRUPTCY [section to be created].
If you won't be able to afford mortgage payments even on a modified payment plan (for example, if you got laid off and it doesn't look like you'll find a new source of income any time soon), you are facing foreclosure. It might make sense to sell your house to avoid foreclosure and make a little money. It might also make sense to abandon your house and your mortgage and find some place cheaper. If neither of these make sense, you can fight it out-challenging every step of the foreclosure process and physically resisting eviction if it comes to that. We will support you if it does. For more on this, see RESISTING FORECLOSURE.
If the mortgage originator or servicer violated the law (or doesn't have the documentation or otherwise would have legal trouble foreclosing), you might be able to avoid foreclosure or even defend against repaying some or all of the mortgage loan. For more on this, see RESISTING FORECLOSURE.
With collective action, we can create a fifth option: join with other mortgage debtors and refuse to pay until we get better terms. You may be able to do this if many of your neighbors are facing the prospect of losing their homes at the same time. Or you can join with debtors from other parts of the country who have the same mortgage lender or servicer, using our FORUMS. We'd be glad to support you when you're ready to take action!
Obviously being faced with the prospect of losing your home is stressful as hell. Depending on how you deal with stress, you might feel like you want to avoid dealing with the situation altogether. You should resist that urge. Whatever the best option turns out to be for you, it always makes sense to make a plan and get going on it as soon as you possibly can.
The first thing you should do is set aside some time to take stock of your situation.
" Gather together your mortgage documents, information on your financial situation, and any family or friends who will be involved in figuring out what to do with you. " Contact your servicer and ask (politely-you can get confrontational later) for your payment history and scheduled payments over the next year (and any documents you don't have from the GETTING YOUR DOCUMENTS TOGETHER section). " Figure out what you can afford to set aside each month for the next year or so for mortgage payments, and see how that matches against what the servicer expects you pay. " If you know how, compare the servicer's calculation of monthly payments with the terms in your promissory note and/or Closing Disclosure/HUD-1A form (if you took out a mortgage before 2013, it will likely be the HUD-1A). " Ask yourself if your mortgage originator or servicer lied or misled to you about anything or otherwise engaged in shady practices that might be illegal.
After doing an initial assessment, it's best to have a professional to work with. That could be an attorney, if you can find one you can afford who will take your case. You might start here: http://www.consumeradvocates.org/find-an-attorney. It could also be a housing counselor, some of whom specialize in foreclosure advice: https://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
A lawyer or housing counselor can guide you through your options. The following few sections will outline what different options look like.
Modifying Your Payment Plan
There are two different ways to modify your payment plan to get out of default (or avoid default) and remain in good standing. You should consider them in order.
But before you consider any of them, if you are in the military or are a veteran, contact a Regional Loan Center, which will help you navigate your mortgage situation.
Loan Modification Programs: HAMP and HARP
In 2009, the Federal government passed the "Making Homes Affordable" act, creating the HAMP and HARP programs. Compared to all the free money the government gave the banks that caused the financial crisis, this gesture towards the rest of us is pathetic. It's basically just a plan to force some servicers to refinance loans in a way that keeps the loans profitable for them. Just because it's a pittance doesn't mean you shouldn't take advantage of it if you're eligible, though. It can be helpful in getting you back on track on paying the ransom to your servicer to keep your house.
If you took out your mortgage before 2009, you're likely eligible-even if you already used the program before. Your servicer may have even notified you of your eligibility.
HAMP and HARP plans operate on a common framework. Generally you will be offered one of the following possibilities (the details of which vary depending on your situation): " Reinstatement: this is where you pay your arrears (i.e. the amount of payments you've missed) and the servicer agrees to put you back in good standing moving forward so long as you pay in full and on time. " Repayment plan: this is where a piece of your arrears is added to your monthly payments moving forward (rather than paying it back all at once) and you negotiate a monthly repayment amount that works for both you and your servicer. " Forbearance: this is a broad term that refers to any sort of plan that lowers your payments in the short term due to some sort of hardship or emergency that you will likely find your way out of soon (rather than a permanent hardship that will make it impossible to ever pay your mortgage). Usually forbearance then turns into a repayment plan after the shorter-term hardship has ended. " Assumption: this is when somebody else (a family member or friend) agrees to help out with your mortgage payment and co-signs your note. Assumption is risky as it can put serious strain on close relationships that you might want to preserve more than you want to save your house. " Short sale: this is when you sell your house through a realtor to avoid going through foreclosure when you know you won't be able to pay your loan even with a modified payment plan. Generally if this is done under HAMP or HARP the creditor will be required to accept the sale as payment in full even if the house doesn't sell for enough to cover the full amount outstanding on your mortgage (this is called "waiving the deficiency"). " Mortgage release/deed in lieu: this is a last resort. It is when you hand over the property to the creditor rather than going through foreclosure. You should get up to three months to remain in your house. Under HAMP/HARP, creditors generally will pay for your moving expenses up to $3,000 if you do this. A deed in lieu is a bad idea if you have significant equity in your house.
As you can see, these plans are mostly oriented towards helping you deal with a temporary setback to get back to paying your mortgage as you were or to help you get out of your mortgage (and your house) without having to go through foreclosure. If you got screwed over in the mortgage crisis and the Great Recession it caused in a way that leaves you in long-term financial trouble, the "recovery" programs the creditor-controlled government put together aren't for you.
The way HAMP and HARP programs work are complicated and depend on many details about your mortgage loan that you likely know nothing about. However, your mortgage servicer is generally obligated to review your loan for eligibility for these programs and to provide you the best offer they can. As we know, just because a servicer is legally required to do something does not mean they will do it. That is why it is useful to have a housing counselor and/or attorney in your corner to help you navigate these programs (https://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm).
If you don't have access to a housing counselor or want to dig into the details on your own, check out the National Consumer Law Center's excellent book: Guide to Surviving Debt.
For any of these programs, you will be evaluated on your "NPV" ("net present value"-basically whether it will be profitable for a servicer to help you refinance your loan). Here is the site created by the federal government to help you calculate your NPV.
If you have a private loan (not held by Fannie Mae or Freddie Mac or the VA or the RHS), you can get help at HUD's website.
If you have a loan with Fannie or Freddie (your servicer will know and it should say on your bills), check out Freddie Mac's site on it or Fannie Mae's.
If you are a veteran or a military member, you've got the hookup
Why wouldn't they just coordinate and have the same site? Because creditors run the world and they don't really care about the rest of us unless it makes them money.
If you don't quality for a HAMP/HARP modification, you might still be able to negotiate a way to stay in your house while making payments that don't ruin you. If these negotiations are successful, the result is generally referred to as a "workout".
If your loan is held by the FHA, the VA, or RHS (Rural Housing Service), you are likely eligible for workout options similar to the HAMP/HARP options discussed in the previous subsection. Talk to a housing counselor and your servicer about these options.
If your loan is held by a private creditor, there's no special process and no requirements for them to listen to you. It's a matter of bargaining with the creditor (usually through your servicer). Somebody at your servicer's office might be sympathetic if you're facing hardship, but for them the bottom line will always be whether it's more profitable to agree to a workout that would keep you paying or to foreclose on your house when you can't pay. Thus, if you're at a stage where you think you'll be able to pay on the loan and keep your house as long as you work out a modification in your payments but not otherwise, you should emphasize that you want to pay and you can pay-just not under the present circumstances. Make it clear that agreeing to a workout is best for their bottom line.
Negotiating a workout is much easier to do with a housing counselor or attorney on your team . As well, you may wish to draw from a more detailed guidebook like NCLC's Guide to Surviving Debt (https://library.nclc.org/node/184511).
If you want to negotiate a workout, you should:
" Start preparing ASAP. The longer you put off dealing with a debt you cannot pay, the less likely you are to successfully negotiate and the more likely you are to start negotiating too late in the foreclosure process. " Determine if you have any defenses to repayment (if the creditor or servicer misled you, doesn't have relevant documentation, or otherwise violated the law). If you do, you should consider how to get out of paying rather than negotiating a new payment plan. See RESISTING FORECLOSURE. " Get your documents together (see GETTING YOUR DOCUMENTS TOGETHER) and assess your financial situation. Your documents should allow you to figure out how much you have in arrears and what your mortgage payments will be over the next year under your current plan. Put together a monthly budget for the next year summarizing all your income and expenses (including this mortgage). Play with it to see what happens when you cut back on this or that expense or find this or that source of income. This will help you figure out what you can afford to pay on your mortgage. Here is a useful guide for making a budget spreadsheet: http://www.wikihow.com/Create-a-Budget-Spreadsheet. Here is a basic guide on budgets from the FTC: https://www.consumer.gov/sites/www.consumer.gov/files/pdf-1020-make-budget-worksheet_form.pdf. " Figure out how much your property is worth. One of the best ways to do this is to see what similar homes in your area have sold for recently (check out https://www.zillow.com/, for example). " Determine what you need in a workout. Do you need to lower your monthly payments for the long term or do you just need temporary relief? Do you need a way to get current by paying off your arrears? Can you pay any of your arrears in lump sum or will you need to pay them off as part of your monthly payments? Do you need somebody else to help with monthly payments? Once you answer these and other questions that relate to your situation (a housing counselor and/or a more detailed guide will help you work through all the different issues), you can come up with a proposed workout plan. " Write down what your bottom lines are, a proposed workout plan, and, if you want, a "hardship" letter describing how you got into your financial circumstances in a way that makes the servicer sees you as a human being rather than just another body to pump money out of. " Contact your servicer, propose the plan, and take notes. Bargain with them and see how far you can get. o If bargaining doesn't go well, you can try to appeal to a supervisor. You can also see if you can get another mortgage lender to refinance your house with more affordable payments. But that will only work if the value of the house is more than the amount you owe on your mortgage (since the new loan from the new lender will have to cover the amount you owe and it will be based on the value of the house).
If you do not think you will be able to afford your mortgage-whether that's because your servicer isn't negotiating or you just know based on your financial situation-you can also avoid foreclosure by getting rid of your home without foreclosure.
A short sale is where you get a service to agree to let you sell your home using a realtor and to not collect on the amount you still owe on your debt even after you've sold your house.
A deed in lieu is where you transfer the house to the servicer/creditor without a foreclosure process in exchange for them not collecting on any amount you still owe on the loan. They might even pay your moving expenses.
Always always always get any arrangement you make in writing with the creditor's signature.
Foreclosure is the process by which a mortgage lender uses the legal system to put a delinquent debtor's house up for auction. The lender then uses the money they make to cover as much of the remaining amount left to be paid on the mortgage as it can. In most states, if the amount the house is sold for does not cover the amount left on the mortgage, the creditor can go after you for the "deficiency" (see the chart of state laws here: http://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html). On the other hand, if the creditor sells the house for more than what is left on the loan, you are supposed to get a check for that amount.
You are supposed to get a notice from your servicer if a creditor is going to foreclose on your house. In fact, you should get at least two notices: one to let you know about your default and one called a "notice of acceleration". Creditors end out notices of acceleration when the loan has been in default long enough (how long is enough depends on the loan terms in your note) that the creditor is accelerating the loan-making it all due at once. This is the last step before foreclosure.
Many states do not require servicers to take you to court to foreclose, but some do. You should receive notice about court proceedings. If you do not receive notice of court proceedings but you received a notice of acceleration, foreclosure may happen without giving you a chance to defend yourself. In that case, if you were going to defend yourself legally you would have to sue the servicer/creditor. This is much easier to do with a lawyer (http://www.consumeradvocates.org/find-an-attorney).
If you are facing foreclosure, you have five basic options:
" Defend. If the servicer or creditor has violated a law, you can use that as a defense to repayment of some or all of the loan. " Pay. If you can put together the money to pay the arrears, you can likely pull the loan out of foreclosure. If you can find the money to pay the entire remaining principal, you can end foreclosure proceedings and all relations with your creditor (unless you suddenly became rich you would need to take out a different mortgage to do this, thus refinancing your loan). " Delay. By insisting that the servicer follow procedures and asking for more time where possible, you can drag out the process. This is best combined with other options. " Resist. You can make things as hard as possible for the servicer, wearing down their will to come after you. " Walk away. If you know you don't have the money and you're prepared to leave your house behind, you have no reason to keep dealing with the servicer. They may still come after you for some money, but they might not.
(Bankruptcy is another option, but that is for another section: BANKRUPTCY [site in progess]).
Defenses Against Repayment
It is difficult to assert defenses against repaying your loan without the help of an attorney or at least a housing counselor. But even if you cannot find a professional who can help you, it is worth raising defenses as best you can. Some defenses come from special protections for loans insured by the FHA, the VA, or RHS. If your loans fit these categories (your servicer will know and your loan documents should indicate), you should definitely contact a housing counselor. If you are a veteran, you have the additional resource of a Regional Loan Center.
No matter what type of mortgage you have, you have defenses against repayment if the originator or servicer of the loan violated certain laws. Generally these laws are concerned with fraud/misrepresentation. So, if you didn't sign the promissory note for your mortgage or if the originator lied to you to get you to sign or a servicer charged you the wrong amount or something along those lines, you probably have at least a partial defense. There may also be other violations that are hard to spot without some legal experience.
If you think you have a defense and you don't have a lawyer helping you, you have two basic options. First, if your lender sues you in order to foreclose, you can respond to the suit by asserting your defense in writing, in person at the hearing, or both.
Second, if your lender does not sue you (and you live in a non-judicial foreclosure state), you probably have to sue the lender.
Paying to Get Out of Foreclosure
There are four chances you have to pay to stop foreclosure.
First, if you have enough money to pay the arrears (not the whole loan-just the unpaid bills) before the foreclosure sale takes place, you can reinstate the loan. Many states require creditors to reinstate the loan if you pay arrears. Even in those that do not, courts often put pressure on creditors to do so. And creditors/servicers often would prefer to collect arrears and keep taking your money than go through the expense of foreclosure. If you have the money and want to pay it, you should immediately tell the servicer in writing that you wish to reinstate the loan.
Second, if you have enough money to pay the deficiency (i.e. the entire amount of the loan you haven't paid down yet) before the foreclosure sale, you can redeem the loan. You have this right in every state. Even if you don't have the money yourself, you can redeem a loan through refinancing. Doing so requires finding another creditor willing to give you a loan for the remaining principal on your existing mortgage (usually this is a mortgage loan that replaces your existing mortgage). Generally, it is only worth refinancing if the terms on the new loan are as good or better as the terms on the old loan.
Third, when the foreclosure sale takes place, you might be able to buy your house back. Maybe even for less money than you owe on the loan. Foreclosure sales are auctions that almost nobody attends. Likely it would just be you and a representative from your creditor. You might be able to make a bid on your house that is less than the market would pay for it. Obviously this is a risky move, since you might lose the bid and with it your house. And even if you do win the bid, if the amount you pay is less than the amount left on the loan you might have to pay the difference if you live in a "deficiency" state (see this chart: http://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html).
Fourth, if you have enough money to pay down the amount left on your loan-whether out of pocket or from a loan-after the foreclosure sale, in some states you can still redeem the loan. This chart shows you if yours is one of those states: http://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html.
As with asserting defenses, delaying foreclosure is much easier if you have an attorney in your corner. The best techniques for delaying involve arguing over procedural technicalities. But other techniques include asking the court for more time (nice and direct) or asking to negotiate with the servicer even if you don't intend on paying. You can also request a mediation proceeding with your servicer, which some states provide for (see http://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html). The more time you can delay, the more time you have to put together money to reinstate or redeem the loan, to develop defenses, and put together your resistance strategy.
If you can't pay and don't have any defenses, you can still resist foreclosure. It is much easier to do so if you have others-family, friends, neighbors, other Debt Collective members-to help you. The most direct form of resistance is to refuse to leave your home once the servicer gets the police to come evict you. When we join together and put our bodies in the way of the forces of eviction, we can stop it. It has been done. Occupy Our Homes stopped multiple foreclosures through eviction blockades. As have organizations like Causa Justa/Just Cause and City Life/Vida Urban. In Spain, a group called PAH has not only stopped thousands of evictions through direct action, they built the power to take on landlords and mortgage lenders at the municipal level. A former PAH member, Ada Colau, is now mayor of Barcelona. You have a right to a home. Don't let the banks take it from you. Reach out in the FORUMS for solidarity.
If you owe more on your mortgage than your house is worth, it is not worth revitalizing the mortgage unless you have absolutely nowhere else to go. You are allowed to walk away from your mortgage. In some states you will be held liable for the deficiency, but not all (see http://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html).
Second Mortgages, Reverse Mortgages, HELOCS
The most common type of mortgage is the purchase money mortgage-a mortgage used to buy the house that serves as the security for the debt. The previous sections have been focused on this type. But there are other loans you can take out that use your house as a security.
As the name suggests, a second mortgage is a loan taken out using your house as security when you already have a mortgage on your house. In a second mortgage, you borrow against the equity you have in your house (i.e. the portion of the house that you own outright-see MORTGAGE BASICS. Second mortgages can be taken out to pay for anything-commonly they are used to pay for house repairs or renovations.
Second mortgages are junior liens that are subordinated to purchase money mortgages. That means that if you go into default on your mortgages and both mortgage lenders initiate foreclosure, the second mortgage lender has to get in line behind the first mortgage lender. Because they have lower priority, second mortgages generally come with higher interest rates.
Just because second mortgages have lower priority as securities does not mean you should treat them as any less of a big deal that purchase money mortgages. Second mortgage lenders do have the power to foreclose and they can be more predatory than other mortgage lenders
Home Equity Loans and HELOCs
Like second mortgages, home equity loans and HELOCs (home equity lines of credit) allow you to borrow money against the equity of your house. In fact, most second mortgages are home equity loans or HELOCs. But you can also take out a home equity loan or HELOC even if you don't have another loan on your house-if, for example, you've already paid off your purchase money loan.
With a home equity loan, a lender gives you a lump sum in exchange for a promise to repay, usually in monthly installments, and a security interest in your house (it could be a junior lien or a senior lien). A HELOC operates more like a credit card with a lower interest rate. Rather than give you a lump sum up front, a lender allows you borrow periodically up to a credit limit (usually close to the amount of equity you have in your house). You only have to pay back what you've already borrower-plus interest and fees-and you can keep borrowing more so long as you don't exceed your limit.
Lenders can make a lot of money off of you with these types of loans, especially with HELOCs. It can be tempting to think that using your house as a credit card is a cheap way to borrow money you need, but remember that the stakes are high. And lenders love to push you to borrow as much as possible with tricky fees and billing practices (see CREDIT CARDS). With a credit card, if you stop paying you'll get collectors bugging you, dinging your credit, and maybe even suing you if you have a high enough debt. If you stop paying a HELOC you get all of these things plus you risk losing your house.
Reverse mortgages are like running a tab on your home. They allow you to borrow money against the equity on your house-like home equity loans and HELOCs-but they don't bill you every month. Instead, they keep track of the amount you've used plus interest. You can pay it back at a later date if you want, or you can just keep the debt until you die. Then the bill comes with the house-whoever gets it after you die is on the hook.
Reverse mortgages are commonly marketed to older folks. This is because older folks are more likely to have a lot of equity in their houses, not that much income (and so a need for extra money), and are closer to death. Reverse mortgage lenders can be very predatory-they make their loans sound like an amazing deal while deemphasizing the fact that the loan will have to be paid eventually and, if not, they can take your house. It's generally a good idea to check with a housing counselor or financial adviser before taking one out.
If you have a reverse mortgage, you should make sure you know how much you owe on it and make sure your heirs know about it. If you'd rather not pass the debt onto your heirs, you should make a plan as soon as possible to figure out how to pay it off or otherwise get out of it.
Tenants Rights KYD
Around two-thirds of Americans own their homes (well, they share ownership with the banks that issued them mortgages). Those of us who cannot afford to do that rent. Renting a home isn't technically taking out a loan, but rent is type of debt. It's sort of like a landlord loans you the unit you're living in and you pay back that loan while you're living in it. Like other creditors, landlords have found a way to make money off of our basic needs. Once again, it's the rich hoarding assets and charging the rest of us for access to them.
Throughout U.S. history and abroad, tenants have had to join together to fight back against the abuses of landlords. In places where there are more renters, there tends to be more tenant power and more tenant-friendly laws. In some places during some historical moments tenants gained so much power that they kicked landlords out: either gaining collective ownership over their buildings or replacing profit-oriented private landlords with a government agency dedicated to preserving affordability.
The fight continues. And the first step is always knowing your rights.
Just as the terms of a loan are contained in a promissory note, the terms of a rental agreement are contained in a lease. Leases come in a few types.
Most common is a yearlong lease-where both you and the landlord are committing to at least one year, usually with an option to renew.
You can also get longer or shorter leases: month-to-month leases are the second most common. Unlike yearlong leases, month-to-month leases automatically renew each month. In fact, in most states if the full year of your yearlong lease has passed, you are now technically on a month-to-month lease with auto-renewal.
In some states "tenancy at will" is also a possibility. That is where either you or your landlord can cut off the agreement at any time (subject to some exceptions).
Although the lease contains most of the rules that govern your relationship with your landlord, other rules depend on where you live. Some terms in your lease may even be illegal and unenforceable.
Even more so than with other types of debt, the way landlord-tenant law works depends on the state and city you live in. This section contains some general statements about how landlord-tenant law tends to work everywhere, but you should also familiarize yourself with any local protections (or lack of protections). This is a list of landlord-tenant laws by state (if you type in the citation on this list into a search engine you are likely to find the actual text of the law). Many states and cities also have non-legalese summaries of the laws. A good ol' Googling will help: "[state/city name] landlord-tenant guide".
What to look out for in a lease
When rent goes up
Especially in big cities, rent just keeps going up. It's not because owning the same apartments is getting more expensive for landlords; it's because they know that they can charge more for the same apartments because demand is high. Why is demand up? More people are looking for rental units after millions lost their homes and money in the housing crisis, and more rich people who used to live in the suburbs are moving into cities. When more people (and people with more money) are trying to get into the same number of apartments, landlords know they can charge more. Building more apartments can divert some of that new demand away from existing tenants' apartments, but generally rich people oppose new buildings (preventing that from happening) and usually new building can't keep up with demand.
Organizing to resist rising rents can also stop rents from going up. Tenants can bargain collectively with landlords, including collectively refusing to pay rent if the landlord won't keep it reasonable: a rent strike. Rent strikes focused on affordability come with risks, but if you are truly unified with your fellow tenants those risks are lower: it is hard to evict an entire building at once.
Even if you can't convince your neighbors to work together, you have some bargaining power with your landlord. Generally landlords prefer to keep the same tenants and they definitely prefer not to evict, so if you're polite but stubborn you can likely talk down rent rises. Remember: landlords usually raise rent just because they know they could get somebody else to pay more rent (not necessarily because their costs are going up), so it's not like you're causing them to lose money when you bargain over the rent. You're just insisting that they not profit so much off of you.
Finding affordable housing
It's getting harder and harder to find reasonable rents. If you aren't making much money, you are likely eligible for one or another affordable housing program. The problem is that rich people don't like to fund these programs, so there are long waiting lists for most of them in most cities.
A good place to start for affordable housing programs in most areas of the country is your local Public Housing Agency. They usually have information on multiple affordable housing programs, not just public housing. Find yours on this (crappy) website.
It's worth noting that housing prices vary a lot geographically, so if it makes sense for you to move to a different city, that could help you save a lot on rent (even accounting for moving costs). Back to affordable housing programs. There are four basic types:
" Public housing is owned by the federal government and sets rents based on your income. It has been severely underfunded for a long time, so there's not a lot of it. Waiting lists are long. But if you get in, you don't have to deal with a private landlord and can stay for as long as you want unless you commit a crime or make a lot of money. You can apply with your local Public Housing Agency (https://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/pha/contacts). For more info, check out HUD's website (https://portal.hud.gov/hudportal/HUD?src=/topics/rental_assistance/phprog).
" Section 8/Vouchers are agreements by the federal government to pay part of your rent with a private landlord. They are also underfunded and have long waiting lists. Still, if you get a voucher you can use it with any approved landlord who will take it-you pay the rent you can afford (~30% of your income) and the federal government covers the rest. For more details see HUD's website (https://portal.hud.gov/hudportal/HUD?src=/topics/housing_choice_voucher_program_section_8).
" Rent control/stabilization is when a city or state limits the amount of rent landlords can charge to anybody living in a unit (and provides tenants extra rights to prevent landlord abuse). It used to be more widespread, but after landlords fought back it is only available where tenants are most powerful: in Washington D.C., New York, New Jersey, California, and Maryland. You don't need a special application to get into a rent stabilized apartment, but they generally are in high demand. There is no special way to find one: generally you just have to look for landlords who advertise that they are.
" Other affordable housing comes in a variety of forms depending on the federal, state, and local programs. Frequently you might found housing within your price range just advertised as regular housing without knowing that it is the result of a government subsidy.
If something is wrong with your apartment
In every state, if something is seriously wrong with your apartment that can't be attributed to your actions (an infestation, structural problems, etc.), the landlord has to fix it. You should notify your landlord as soon as possible and keep records of when you notified them and their responses.
If things are really bad, you are generally allowed to stop paying rent altogether (in a rent strike) until the problem is resolved (but check your state law, as discussed above). In most states, if the landlord fails to deal with it, you are also allowed to pay to fix the problem yourself and deduct the cost from your rent or send the landlord the bill. Not paying rent is always easier if you do it in unison with your fellow tenants. Often a landlord screwing you over will be screwing over other tenants in your building. Talk to your neighbors. Collective action makes you both more powerful.
You can also contact the local housing and/or health inspector to come look at the problem and cite the landlord for failure to keep the house up to code. This could push the landlord to doing the right thing. It is illegal everywhere for your landlord to retaliate against you for reporting a problem. If they do so, you can probably sue them (with the help of an attorney) or, if they evict you, use their retaliation as a defense (see the section on eviction).
As well, if there are problems with the apartment that the landlord has refused to fix, they can be a defense against eviction for unpaid rent (see the section on eviction).
You always have more power when you join together with your fellow tenants. Talk with your neighbors about whether they have been experiencing similar difficulties. You can decide to all withhold rent at the same time or to protest at the landlord's house or contact your local elected official to make your power felt.
If your landlord is harassing you
Landlords might harass you or lock you out of your apartment for a number of reasons. They might want to make living in your apartment unpleasant so they can push you out and get another tenant (this is especially likely if you live in a rent stabilized apartment). They might want to evict you without suing you because they know they're in the wrong. They might just be assholes.
No matter what, you have a right to your space and to not being harassed. Some states are more protective of tenants than others, but a couple general things to keep in mind:
As long as you're living in the apartment, it's your space. The landlord has some rights to enter in specific circumstances, but you have every right to keep them out if you want to and they don't have a legitimate reason. If they enter your premises illegally, you can have them removed.
In no state can your landlord legally lock you out of your apartment or shut off your utilities without a court order. If they do so, you should go find a lawyer and/or go to the cops.
All states except for Florida require the landlord to give at least 24 hours' notice before entering the premises (Florida requires only 12 hours'), unless it's an emergency. Landlords can only come in without permission in certain circumstances, which vary by state, but generally include (for more information see http://www.nolo.com/legal-encyclopedia/chart-notice-requirements-enter-rental-29033.html): " Inspecting premises " Making repairs " Showing property to prospective tenants " When you've been gone for a while Some states have additional anti-harassment laws for tenants. Enter "anti-harassment tenant law [city/state]" into your search engine to see if yours does.
Even if there aren't specific anti-tenant-harassment laws in your area, a landlord might be violating some other laws with their obnoxious behavior. For example, they might be trespassing or making noise past legal hours or stalking you or assaulting you. Just because they're your landlord doesn't make these things legal. You can file a police report and find out if a local lawyer will help you.
As with other problems with landlords, unifying with your fellow tenants will enhance your power. It's harder for a landlord to harass you, for instance, if they can't get into your neighbor's apartment or if everybody in the building files a complaint against them.
If your landlord is discriminating against you
If you've had a rental application denied or been evicted or otherwise mistreated and you suspect it was because your landlord was biased against you, you can take action.
Federal law prohibits landlords from discriminating on the basis of race, color, national origin, religion, sex, familial status, or disability. Some state and local laws also prohibit discrimination on the basis of sexual orientation or whether you're on public benefits.
You can talk to a local lawyer to help guide you through process. You can also submit a fair housing complaint to HUD, the Federal housing agency without a lawyer and they will take up your case. State and local governments might also have agencies that can help out. Search "[state/city name] fair housing agency".
No matter how you go about complaining about discrimination, legal action is likely to come too late to actually remedy the situation. The landlord might face a penalty and might have to pay you some money, which might teach them a lesson and make your life a bit better but doesn't undo the discrimination. It's possible the landlord would be forced to rent to you or put you back in the unit, but that's not likely to happen immediately.
Changing something more quickly would probably require taking direct action, with friends, family, and allies helping out. For instance, if you submit a fair housing complaint you can make noise about it and protest outside your unit or the landlord's home to put pressure on the landlord.
If you want to break your lease
If you have to move out sooner than you thought, you might have to break your lease. That's not as big a deal as it might seem.
When you leave, you should make sure you make yourself look as good as possible in case things get bad down the road: " Give your landlord as much notice as you can. That will give you time to negotiate and the landlord time to find another tenant. It may prevent any problem at all. " Leave your apartment as nice as you found it. It makes it more likely you'll get your security deposit back and more likely your landlord will be able to quickly find a new tenant. " Breaking a lease means, basically, breaking a contract. The worst-case scenario of breaking the lease depends on what's in the lease. So start by checking your lease.
Generally, the worst-case scenario is paying extra rent and losing your security deposit. Remember that the worst-case scenario usually requires the landlord to sue you. And landlords would rather not do that. So there's plenty of room to negotiate between best-case and worst-case scenarios.
If your lease is month-to-month, leaving does not mean breaking the lease. The worst that can happen is you have to pay your last month's rent, any back rent you owe, and, if you leave the apartment in disarray, lose your security deposit. If you have a yearlong lease, you might be on the hook for the rent for all months left on the lease if the landlord can't find another tenant. That sounds bad, but, again, the landlord would have to sue and would have to be totally unable to find a tenant despite providing evidence of having looked. And don't be so sure that you have a yearlong lease just because your original lease was for a year. If the first year of your lease finished and you didn't sign a new lease, you might be on a month-to-month lease or even tenancy at will, so refer to the previous paragraph.
If your landlord sues you for unpaid rent after you leave, you should show up to defend yourself. Often just showing up to court will push the landlord to negotiate. But if things get into court you can: " Ask the court for more time to drag things out, prepare yourself, and push the landlord into negotiating. " Assert defenses to paying the lease if your landlord failed to fix things, orally promised not to collect rent, regularly collected less than full rent (thus implicitly agreeing that rent should be less), or violated any terms of the lease. " Point out that you are "collections proof" if you have very little money or assets. This will make the landlord realize that even if they win in court it will be nearly impossible to collect from you unless you agree. So they will negotiate.
It's always easier to do this with a lawyer, but small claims court is often informal and you can defend yourself on your own if necessary.
On the other hand, if the landlord doesn't give you back your security deposit even though you left the apartment looking good, you can sue them. Generally this is not worth it, but you can do it.
All of that is worst case. Most likely what will happen is that you negotiate with your landlord. You know what your landlord is like. Some landlords might have no problem with you leaving early if they can find a new tenant quickly. Some landlords are money-grubbing sticklers. Obviously the first type is easier to deal with, but either way you should be able to come to an agreement before going to court.
Basically what a landlord is looking for is a tenant that will pay rent. If you can find them a new tenant-whether somebody who's willing to sublet your place, somebody who's willing to take over your lease, or somebody willing to start a new lease-most landlords will find it hard to object. Actually, they will find it hard to collect any money from you in court if they reject a perfectly good new tenant-so they'd better not object.
Regardless of whether you can find a new tenant, you should be able to negotiate an early end to your lease and even a reduced last month's rent. Landlords don't want to sue you-if you tell them that you can't afford the full last month's rent and you don't want any problems, they should accept. Unless they're just obsessed with squeezing you dry.
If you or your spouse is on active duty in the military and orders to deploy or to relocate are what caused you to break your lease, you have a right to break your lease regardless of the state you are in or what it says in your lease. This is a defense you should tell your landlord about and, if you are sued, tell the court about.
If you can't pay rent anymore
If you know you won't be able to pay your rent, it is almost always better to start trying to negotiate with your landlord early. Even thought it's stressful, don't put off dealing with it. You might be able to strike a deal with your landlord. If you can't, it's better to know early on so you can prepare for other options, including moving out or resisting eviction. Doing any of these things at the last minute makes them much more difficult.
Your basic options if you can't pay are: " Find a source of money for short-term rent help. Some local governments have funds for this. You might have family or friends willing to lend (or give) you some money. It might even make sense to borrow some money to pay rent if you have good reason to believe that you will make enough money in the near future to pay off this loan and your rent. Getting an influx of money can only help in the short term: if you have long-term cash flow problems, you will have to consider another option eventually. " Stop paying, find another place, and move out, possibly breaking your lease. " Bargain with your landlord to stay in the unit with a modified payment plan. Landlords generally would prefer not to have to deal with going to court to evict you or even to go through the process of finding a new tenant if they don't have to. If you can come up with some money to pay rent, you might be able to bargain to pay rent late or to pay a lower rent or to temporarily pay a lower rent for a few months until you get more money. " Stop paying (or pay less) and fight to stay in your unit as long as you can. If you are stubborn, you landlord will ultimately have to take you to court to evict you. Depending on how ruthless your landlord is, they may try other things before that to put pressure on you to pay (see the section on harassment). They might also offer you "key money"-essentially bribing you to leave. But they cannot legally remove you from the unit without a court order. This takes some time, so you can use the process to delay (see below) and, even if there's a court order, you can join with your friends and neighbors to camp out in your unit and refuse to leave. Eviction defense such as blockading the door has worked, although it is a high-risk strategy. Check out the fighting eviction section " Some combination of these.
No matter which of these things you do, you should prepare for the possibility of moving out.
If you get a "notice to quit" or a "notice to vacate", it does not mean you have to leave immediately. It means you are being taken to court. Landlords cannot force you out of your unit without a court order, and in order to get a court order they have to prove in court that you violated the lease (and that you don't have any defenses). So getting this notice means you should prepare to defend yourself while also making sure you have a place to stay if you have to leave.
Having a lawyer can really help. If you can find a housing lawyer in your area willing to work at an affordable rate, you will have better chances. Ask around in the forums about legal resources in your area.
Receiving a notice to quit means you have one last chance to "cure" by paying the rent you owe (or remedying the other violation of the lease the landlord is accusing you of). It's also a last change to negotiate. But if all that fails you'll either have to go to court, move out, or prepare for the sheriff to come force you out.
It's important to show up to court to defend yourself. Just doing so makes a landlord's life more difficult, so they might bargain with you. Plus, you might actually win. You will automatically lose if you don't show up. As when you're sued for a debt, the first step to defending yourself is filing an answer. You can still show up to court even if you don't do this, but you will be in a better position if you do it. If you don't have a lawyer helping you, here is an example answer for Massachusetts, which you can modify for your state.
Housing courts tend to be run informally. Landlords are often chummy with the judges. But that doesn't mean you're out of luck: some judges will hear you out and you still have legal rights. If you can't find a lawyer, have a friend or relative come with you to support you and help you remember what to do.
When you get to court, you can ask the judge for more time, especially if you have a good excuse like a family emergency.
At court, a landlord will have to show your lease and prove that you violated it. You might have one of the following defenses, however: " Your landlord didn't file the case correctly. This includes getting the exact address right, the amount of rent you owe right, providing you with proper notice, waiting too long to sue you, etc. Look for any incorrect details. Just because the landlord got these things wrong does not mean you have a complete defense, but the landlord may be unable to proceed until they correct the problem. So it could buy you some time. " Your landlord was flexible before but isn't now. If your landlord had cut you some slack in the past on late rent or whatever else they're bringing you to court for, you can point to that as a landlord "waiving" their right to on-time payment. In other words, you can say they effectively indicated that they wouldn't be strict and now it's not fair for them to suddenly be strict as long as you're not totally failing to pay your rent. " Your landlord is retaliating against you for asserting your rights. A landlord generally can't evict you to get back at you for complaining to the health inspector or talking with your neighbors about forming a tenant's union. If a landlord is using some other minor violation of the lease as a pretext to evict you, you can make that point, too. " The apartment has serious problems. You can defend against eviction by pointing out that your landlord is violating the lease/housing law by leaving the unit in terrible condition or failing to turn on the heat in the winter or making noise late at night. How bad things have to be for the court to agree that they're bad enough that it makes your violations okay depends on state law, but it's always worth asserting this defense. To prove it, you will have to provide some evidence (pictures on your phone, for instance). " Your ability to comply with the lease (including paying rent) was affected by being on active duty in the military. There are specific rules about this, but the judge will generally be sympathetic, so bring it up and they should help you through it.
If you are in federally subsidized housing or use Section 8, you may also have other rights. You should get in touch with your local PHA to make sure you know what they are: https://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/pha/contacts.
As well, if you live in a rent-subsidized unit you may have other rights. Reach out to your local housing authority and/or a local tenants attorney.
If you lose in court and the judge issues an eviction order, your landlord can then bring police officers with them to physically force you and your belongings out of your unit if necessary. You can resist them non-violently by refusing to leave and getting friends, family, and neighbors to form a wall preventing them from coming into your home. Doing this is illegal and you can be arrested (and likely just fined, but possibly imprisoned for a short period of time depending on the state and the judge). Still, eviction defense can work, as our friends at Occupy Our Homes have demonstrated. And sometimes if you have no place else to go it's worth taking big risks.