News reports on the Internet and in traditional media suggest that foreclosure rates are rising nationally, especially among sub-prime borrowers.  At the same time, bankruptcy filings remain suppressed.  The slide in bankruptcy filings has been attributed to widespread misinformation about the availability of bankruptcy under the BAPCPA law, or perhaps tighter restrictions on  filing under BAPCPA .

The obvious question - where are distressed homeowners turning when they get notice of foreclosure?  Some are turning to their mortgage companies seeking a workout.  Others are falling victim to mortgage scams (see my colleague Bill McLeod's blog post entitled "Homeowners Warned of Foreclosure Scams") by predatory lenders.  Still others are turning to "foreclosure counselors," who, for a fee, will negotiate a repayment agreement with your mortgage company to stop the foreclosure and keep you out of bankruptcy.

One such company offering foreclosure counseling is called American Foreclosure Specialists - I learned about this company when they asked me to review their foreclosure prevention web site through a third party facilitator called ReviewMe.com.  The following, therefore, is a paid review.  Here is my review of the AFS web site - www.afscanhelp.com:

Foreclosure prevention companies operates under the premise that banks and mortgage companies are open to settlement proposals from homeowners who are in the foreclosure process.  The afscanhelp.com web site offers no proof of this premise, although anecdotal evidence does suggest that most mortgage companies are not anxious to add more empty houses to their inventory.   My friend Atlanta real estate agent Marc Oppenheimer works as an Atlanta  based REO (real estate owned) agent on behalf of several large mortgage lenders and he spends 100% of his time selling residential properties that have been foreclosed and are now owned by the bank or mortgage company.  Marc asserts that banks and mortgage companies would always prefer to service performing loans - despite what many homeowners in foreclosure may think, the mortgage company really does not want to own your house.

Nevertheless, I think that American Foreclosure Specialists could increase the credibility of their site by including some documentary proof from several mortgage companies that reasonable settlement offers are welcome.  Even better, it would be nice to see redacted letters on mortgage company letterhead confirming a settlement.

I suspect that for many homeowners facing foreclosure, reassurance that a foreclosure prevention vendor is reputable would be a prime concern.  American Foreclosure Specialists includes a link to the Better Business Bureau.  The Better Business Bureau report on American Foreclosure Specialists shows that the company has a "satisfactory" rating and has not had an unusual number of complaints (5 complaints in the last 3 years, all of which appear to have been resolved).  In addition to the Better Business Bureau, AFS identifies itself as a Christian run organization guided by Christian principles. 

I like how the AFS web site sets out specifics as to how it deals with mortgage problems.  The solutions listed include mediation, sale postponement, reinstatement plans, loan restructuring, and loan forbearance.  Other solutions include short sale, deed in lieu of foreclosure and pre-foreclosure sale.  I make mention of the last three options because they are not designed to preserve a  homeowner's interest.  Sometimes, it makes more sense for a homeowner to walk away from a house he cannot afford and I am glad that AFS includes these non-equity preservation options on its web site.  Each of the options presented links to a separate page where the option is explained in more detail.

Another nice detail - AFS lists the names of mortgage companies with whom it has negotiated.   This detail adds credibility to the site.  I also like their explanation and sample of a "hardship letter" that can be used to persuade a mortgage company to negotiate with you. 

AFS also offers a money back guarantee and a phone number to call, although the details of how the money back guarantee works are not shown.  AFS also does not publish its fees on its web site other than to say that its services start at $295 - it would be nice to see a range of fees or case studies including fee disclosure so a homeowner would have some idea what these services cost.   To be fair, I understand that for marketing purposes, a fee schedule might scare away people who might otherwise benefit from AFS's program.

The AFS web site also includes a blog which mostly consists of testimonials from previous customers.  Although it appears that the AFS blog has been active for several months or perhaps years, I don't see any comments or conversation threads.  This blog might serve more of a purpose if it included longer, more varied posts and was more successful in soliciting comments.

My most serious concern about the AFS web site arises from the bankruptcy information section of its web site.  Although bankruptcy laws are federal, there is significant state law interface when it comes to property that can be sheltered as exempt.  In addition, each federal judicial circuit has its own flavor and line of reasoning regarding various bankruptcy issues.  

Unfortunately the AFS discussion about bankruptcy contains a number of misstatements.   For example, the AFS site says "you may be able to exempt up to $17,425 of your home's equity" and a confusing qualification that some States have no homestead exemption while others allow debtors to protect all or most of the equity in their home.  At best, this summary of homestead exemptions is incomplete - at worst, it sets out a figure that may be wildly inaccurate, and at best, it does nothing to explain what an exemption is or how it works in bankruptcy.

Another inaccurate statement asserts that "if you are 1 day late on any trustee payment your case will be dismissed, the stay will be lifted and you will be back in Foreclosure."   This assertion is utter nonsense as any bankruptcy lawyer or trustee would well know.

Although I would agree with AFS that bankruptcy should be seen as a last resort, there are some cases where bankruptcy does make sense.  For example, as I discussed in a previous post on this blog, a deed in lieu of foreclosure or a voluntary surrender may result in a large tax bill, whereas the tax code carves out a tax savings for property surrendered in bankruptcy.  I think that the AFS site would be gain credibility by recognizing that there is a place for bankruptcy when a foreclosure is looming - in fact, I would be surprised if a certain percentage of AFS negotiated workouts did not fail, requiring a close look at bankruptcy.

Although State foreclosure laws vary, my experience has been that any effort to engage your mortgage company in negotiation should be undertaken very early on in the process.  In Georgia, foreclosures are non-judicial in nature meaning that once the mortgage company has declared a loan in default it need only advertise the foreclosure sale for four consecutive weeks in the legal newspaper for your county prior to selling your house on the courthouse steps on the first Tuesday of the subsequent month.

Should you consider non-bankruptcy alternatives to the problem of a looming foreclosure?  Absolutely.  However, if you decide to contact a foreclosure prevention consultant like American Foreclosure Specialists, you should do so immediately upon receipt of the foreclosure notice so they will have time to work for you.  If you waited until the Thursday or Friday before foreclosure Tuesday, it is unlikely that AFS or anyone other than a bankruptcy lawyer would do you much good. 

Have you had any experience with American Foreclosure Specialists or any other foreclosure prevention service?  Did they evaluate all of your non-bankruptcy options and suggest a course or course of action that could solve your mortgage delinquency problem?

Technorati Tags: non-bankruptcy options, alternatives to Chapter 13, stopping a foreclosure, American Foreclosure Specialists