How to Save Your Home (without hiring “loan mod” companies or other scammers)

While it is true that most of the mortgage crisis falls squarely on the shoulders of banks, and I blog about that often, many homeowners have utterly failed to take simple steps to help themselves.

My husband I have dug ourselves out of many debts. One early example I remember was, when we were very young, being ripped off by a rental car company. Even though the car broke down and the rental car company refused any help, they charged us for all the days the car was inoperable. This was grossly unfair. We had no way to return the car to the rental car agency if it was broken down. At the same time, the rental car agency charged all the days to our credit card, and we did not want to incur interest or late fees. To make things worse, we had to spend two unplanned nights in a hotel on the road and pay a towing fee. The hotel and tow truck wiped out the extra money we had saved for travel.

My husband and I immediately stopped buying groceries. Even though we were in college and only spent about $20 per week on groceries, we pulled in even tighter. We took an inventory of what we had on hand and used those food items instead of buying more. Some of the meals we prepared were not very appealing, but we saved much of our grocery money toward the debt. When we did buy food, we ate even simpler than usual. We purchased little more than dried beans and rice that month. We rode our bikes everywhere, no matter how inconvenient, to save on gas and bus fare. Needless to say, meals out at restaurants, movies, and shopping did not happen.

As it turned out, over the course of a month and many, many hours “on hold” with everyone from the rental car company to the credit card company to the Attorney General, the problem was resolved in our favor. At the end of the month, we had accumulated almost $200.00.

Was our effort wasted due to not needing the $200.00? No. Anything we gave up buying could still be bought, and the $200.00 was a small nest egg. Had the problem not been resolved, we could have paid over half of the unexpected debt instead of accumulating interest and late fees. This will surprise many people, but if you bypass a product in the store, it doesn’t die of embarrassment. It is still there for sale when you return with cash. By living simply another month, we could have retired all the debt from the fiasco, had this been needed.

There are a few lessons here that apply to any situation:

1. Stop spending. Just stop. No one guides you by remote control to the mall. While there are necessities of life that must be addressed, much of what we buy is not necessary. To this day, with a far different budget than when I was in college, it is rare that I do not return something to the shelves before leaving the store. As I think about how an item will be used, I realize it is not worth the price–even if the price is “only” a dollar.

I once counseled a couple in foreclosure and went to their home to have papers signed. Even though they had not paid their attorney bill in months and I barely had gas money to get to their lavish suburban home, the couple had everything in their home brand-new. There wasn’t a dish towel with a small hole or bathroom towel showing wear in the home. The accessories and furniture were all of a design that was from that very season, meaning it was bought while my bill languished. The cable television was blaring on a large-screen television (my bankruptcy friend has NEVER filed a bankruptcy petition that did not include a cable bill). The family’s dinner that night was pizza that was delivered while I was in the home–no on-sale Tombstone for this crowd!

2. Cancel subscriptions. I cannot repeat the anecdote about my friend who represents people in bankruptcy often enough. While it is true the deck is stacked against consumers in our society, there are some things we can do. When the going gets tough, the tough cancel their cable, their magazine subscriptions, reduce their monthly data plan to meet business needs and no more, and find all the extra spending they can possibly stop–and stop it.

I have had many people say to me that they have to stay entertained. However, there are more free entertainment resources than one can ever use. Just taking a walk costs nothing, and my husband and I are big fans of public parks. We often spend an entire weekend day in a park with a picnic lunch. We come home too tired to worry about the fact we don’t have cable.

During our financial problem in college, my husband and I found more time to read than ever before. I found old craft supplies in my closet, brushed them off, and completed several projects that were laid back for holiday gifts. We cleaned up our house, went for walks, and generally enjoyed ourselves. It gives away our age to reveal television was free back then, but we did have television. The really happy memory from that time, though, is remembering that I confided in our friend Julia about our predicament. Julia suddenly became unable to cook the right amount for one, and needed help with leftovers at least once a week. I don’t think I would have ever appreciated her for the dear friend she was if we had not gone through this struggle.

3. When someone tries to help you, provide them what they need. I spend many hours helping people in foreclosure at low or no cost. One of the amazing things is that people will not do what is needed to solve their problem. As if it isn’t enough to take my time to explain legal issues at no cost, I am required to send many, many reminders to get the homeowner to provide simple paperwork in their possession.

I recently had someone forget to send me paperwork for over two weeks of a one-month court deadline. She then mailed it to an address with no relation to me she found on the Internet because I didn’t provide her my address. When I pointed out I had provided my address and that it was in the very email chain where she said I didn’t email my address, she said she didn’t say I didn’t email it. Once a person has decided to sabotage themselves financially, there is no statement too ludicrous for that person to believe if it hurts their chances of financial recovery.

I have provided sample pleadings for people to file in court, and had them “not have time” to go to the courthouse. Worse, they accept free help, file paperwork, and get a court date assigned, then  miss the court date.

My time is valuable. I show other people I value their time by following through with commitments. During the time I was trying to resolve our rental-car problem, I spent as much time as was needed “on hold” with everyone involved. When the attorney general needed a copy of my contract, I sent it. I rode my bike to a Kinko’s, paid my dollar, and faxed the sheet. I did it the day the contract was requested. This is how one behaves when one wants, and deserves, help at no cost.

I cannot account for people who fail to send needed items to me when they are paying for my time. There must be some masochistic pleasure in increasing one’s monthly bill by simply withholding information needed.

Whatever the excuse, it cannot be true at the same time that one is in foreclosure due to unemployment and that one does not have time to go to court or provide a pro bono attorney with needed paperwork.

4. Sell your stuff. A few years ago, I took a break from practicing law. Every month for a long time, I paid my mortgage strictly out of revenue from selling books on-line. After finding out how easy it was to sell books, I began cleaning closets and selling all of my unused items. I had several small rummage sales on my lawn–I met my neighbors, cleared out my closets, and made money.

I don’t think selling a few books will save most homes from foreclosure (though I did pay my mortgage with mine). But it amazes me when I meet someone who is unemployed and find they aren’t supplementing their income with some simple ways to earn money.

During the year or so I was off, I developed a real passion for selling off what wasn’t needed. I started baking dog treats to sell, and I enjoyed bonding with my dog. I still had some income from a few clients I kept, but I at least doubled that amount with low-stress, fun Internet selling and rummage sales.

5.  Learn to cook. My husband and I truly enjoy meals out. We like trying new cuisines. We are not big fans of cooking and cleaning up afterward. However, through all the financially-tough times in our lives, eating meals at restaurants has been one of the first luxuries to go. Cooking at home is one of the quickest ways to save several hundred dollars per month. Let me repeat that: depending on the number of mouths you feed and the cost of the restaurants, cutting out restaurant meals saves several hundred dollars per month. This includes giving up the odd practice of bringing home restaurant food (Hey! look! I paid for this, but I still get to clean up the mess!) as well as meals eaten in the restaurant.

6. Save. Many people in foreclosure right now tell me, “The bank will not accept my payments, but I can afford to pay.”

This statement is not too believable if there is not some money in the bank. If you do have your monthly payment and the bank refuses it, place the money in an interest-bearing bank account. Spend the money only on items related to the house (taxes, homeowners’ insurance, condo assessments, fees for a good attorney, and court costs). While it is tempting to pay off unsecured loans or spend freely on shopping, this is not the path to saving your home.

If you cannot afford to save your monthly house payment and earn interest on it, you cannot afford the payment. Even if you hit upon hard times, commit to saving some portion of the payment. It is very simple that it is easier to solve a problem when you have some money to offer the other side. Even if the foreclosure is not resolved, the money saved is a starter fund for a new place to live and moving expenses.

It is true that I was ripped off by the rental car company. The amount of debt was small compared to the debt homeowners assume, but it was huge given the very limited means my husband and I had at the time. We made it through because we were persistent in asking for help, provided our helpers the tools they needed, and took steps to save money to pay if we were unable to resolve the problem.