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Foreclosure Prevention
For many years, Ohio has ranked near the top of national listings for foreclosure filings. Our region has experienced this phenomenon acutely, and foreclosure rates in Cuyahoga County have dwarfed those in other areas of the state.
For too many residents of Cuyahoga County and Ohio foreclosure remains a very real fear. The resources on this page are aimed at helping residents avoid foreclosure and, where that process has begun, making sure they know their rights and the process.
Foreclosure Basics
Most commonly, foreclosure is the legal means by which a lender can take a property due to default on mortgage payments. Real estate tax collectors like the Treasurer's Office can also foreclose on a property for the nonpayment of taxes. Foreclosure processes typically take 18 months – and sometimes longer – but generally end in the owner vacating the property. The property is then sold to pay the remainder of any outstanding debts.
If the property is worth less than the debt owed, the owner may be forced to make up the difference in other ways. In some cases, the process can lead to bankruptcy.
Foreclosures damage a property owner’s credit, making it harder and more costly to borrow money later. What’s more, many landlords run credit checks on prospective tenants before renting, and a past foreclosure may adversely affect the ability to rent. In rare cases, this spiral of circumstance can lead to homelessness.
The most common factors leading to foreclosure are unexpected job losses and health crises. Foreclosures can also stem from deaths in the family, divorce, disability, or overspending. In recent years, however, the prevalence of creative home financing has been a rising factor leading to foreclosure. Products like adjustable rate, or “balloon” mortgages, interest-only loans, “3-1 buydowns” and “2/28 products” are risky, especially for borrowers who do not fully understand the terms of the agreement (or are purchasing more home than they can truly afford).
Creative Finance Products and Risks
The most common home finance products linked to elevated foreclosure risk are listed and briefly described below:
Adjustable rate mortgages
Perhaps the most common "exotic" finance product, adjustable rate mortgages (or “ARMs”) allow homeowners to purchase a home with a down payment that is typically less than that required for traditional mortgages. The interest rates on these mortgages are reviewed periodically, and may rise dramatically over time (or “balloon”). Some homeowners find that mortgage payments become unaffordable as the interest rate rises.
Interest-only loans
This product allows a homeowner to pay only the interest on a loan for a period of time (as compared to a traditional payment plan, which includes a mixture of the loan itself, or principal, and interest). In some cases, homeowners can pay for years and never get any closer to truly owning the property. If insufficient progress is made toward paying down principal, or interest payments fall behind, a foreclosure process may be instituted.
3-1 buydown
Developers of new homes may include the first few years of mortgage interest in the purchase price of a home. This practice inflates the purchase price, and the commissions paid to the developer on the sale. It can also hold down monthly payments for a period of time. The danger with this product is that payments are artificially reduced during this initial period, and then rise to their true cost after the initial payment period expires. This can lead to a homeowner’s inability to pay, and to foreclosure.
2/28 products
Similar to interest-only loans and 3-1 buydowns, 2/28 products allow a homeowner to pay interest only during the first two years of a mortgage, after which the homeowner is required to make 28 years of full payments (principal and interest). After the initial period, many homeowners discover that their budgets are unable to accommodate the true cost of their homes, and foreclosures ensue.
With each of these products, the homeowner gains the capacity to purchase a home – and, often, more home than they could otherwise afford. Buying in this way, however, can mask the true cost of home ownership and create financial instability.
Best Practices
If you are looking to buy a home, getting pre-qualified through a bank or mortgage company before beginning your search will help you determine how much house you can truly afford, and help to focus which properties you consider.
In addition to the monthly mortgage payment, it is important to consider the costs of property taxes, insurance, utilities and maintenance in building a picture of what the actual cost of home ownership will be for you.
Fortunately, many resources exist to help potential homeowners make sound decisions before buying. These programs help buyers understand mortgage options, the expectations and responsibilities that come with owning a home, and in most cases are free of charge. They also help potential buyers with general budgeting and money management, down payment assistance, home maintenance and repair, understanding real estate taxes and insurance, and other foreclosure prevention tools.
Resources
Below are links to several organizations in Cuyahoga County and Ohio that help potential homeowners make good decisions before buying, and help current homeowners avoid foreclosure. If you have any questions, please do not hesitate to contact us at 216-443-7400 Option 1.
Housing Counseling Services
Cuyahoga County is proud to provide funding for housing counseling services provided by several HUD-certified partners. These services are provided at no cost to clients. Contact information and hours of operation for each of those partners are available below.
Consumer Financial Protection Bureau
Accepts and seeks to resolve complaints about predatory lenders and mortgage servicers
855-411-2372
Foreclosure Intervention Hotline
24/7 assistance for families facing foreclosure from the Homeownership Preservation Foundation.
1-888-995-4673
State agency connecting HUD-approved housing counselors with families facing foreclosure.
1-888-404-4674
Legal Aid Society of Cleveland
Legal services for foreclosure, eviction, utility shut off and more.
1223 West Sixth St.
Cleveland, OH 44113
216-861-5500
Creating and managing household budgets, access to credit reports, debt management, etc.
705 Oakwood St. Suite 106
Ravenna, OH 44266
330-297-0080 Ext. 362
United Way 2-1-1 Greater Cleveland
Provides a host of mortgage, housing and legal assistance resources, 24/7.
216-791-8000
Monday - Friday
9am - 5pm.
216-464-0699
Monday - Friday
9am - 5pm; Saturday 9am - 2pm.
216-574-7100
Monday - Friday
9am - 5pm.
216-231-5815
Monday - Friday
8:30am - 5pm.
216-381-6100
Monday - Friday
9am - 5pm.
Reminders and Tips
- Do not ignore letters from creditors. Some foreclosures can be halted if you communicate with your lender promptly.
- Foreclosures are costly for everyone – including lenders.
- In most cases, lenders do not want your home, and would prefer to work out a payment plan with you.
- Ask your lender for their “loss mitigation” or “foreclosure prevention” departments.
- Ask your lender to send you a “work out” packet to update your financial information including income, expenses and other debts.
Be aware of scams, and avoid solutions that sound too good to be true. Phony counseling agents and services sometimes charge large fees to perform services you can do for yourself, or with assistance from the agencies listed above. Check with these trusted resources first.