Avoiding Mortgage Foreclosure
If you own a home, one of your biggest concerns is making sure you can make your mortgage payment each month. If you fall behind on payments, whether it's because of a loss of income or unexpected expense, you could risk foreclosure. You may be surprised to learn that lenders are willing to work with borrowers to help keep their homes-as long as you keep the lines of communication open and are willing to ask for help. There are some steps you should take as soon as you realize that making your mortgage payment could be a problem.
Prioritize your bills and budget
The first thing you should do is see if you can free up any money in your current budget. Write down your monthly bills including the name, amount, and due date. Use this information to prioritize what to pay and when. Your mortgage and car loans should come first, as well as any other secured debt you may have. Investigate these options below to help free up funds in your budget prior to contacting your mortgage lender:
- Join a debt management program to lower your unsecured debt payments
- Contact the utility company and inquire about hardship or budget programs they may
- Contact your phone and cable companies and ask about cheaper packages
- If you have a student loan, contact the lender and see if deferment is an option
- Inquire about borrowing against a retirement account
- Cancel any unneeded subscriptions, cell phones, cable or satellite services, club
memberships, or other expense items that are not absolutely necessary
Contact your mortgage lender
This is an important step if you have already fallen behind on your mortgage payments or anticipate falling behind. Do not postpone contacting them. In many instances the lender may have some internal programs designed to assist troubled borrowers. Listed below are some typical programs that lenders may offer.
Short Term Solutions:
- Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time and then agree to another option to bring your loan current. A forbearance option is often combined with a reinstatement at a later date when you know you will have enough money to bring the account current. The money might come from a hiring bonus, investment, insurance settlement, or tax refund.
- Repayment plan: You may be able to get an agreement to resume making your regular monthly payments, plus a portion of the past due payments each month until you are caught up.
- Mortgage modification: Depending upon your situation, your lender may consider modifying the existing loan by refinancing or extending the term of your mortgage to help lower the payment and bring your account current.
- Partial Claim (FHA INSURED MORTGAGES ONLY): This program will bring the account current and will result in an additional lien being placed on the home with payment being due when the house is refinanced or sold. It can be used in conjunction with forbearance, or a repayment plan, or on its own.
- Disaster Relief Area and Military Personnel: Once an area or event is declared a major disaster by the President, HUD issues a 90-day moratorium on foreclosures and forbearance of foreclosure of FHA-insured home mortgages. Special programs may also be available for veterans or active duty military personnel. Contact the VA, FHA, or a HUD-certified counselor to learn more about the availability of these programs.
Long Term Solutions:
- Sell your home: Depending upon the real estate market in your area, you may be able to sell the home, even if only for the amount owed to stop the foreclosure. Work with a reputable real estate agent to expedite the process.
- Rent Your home: You may be able to rent your home out for an amount to cover the mortgage payments, and move to less expensive accommodations.
- Short sale: This is the equivalent of debt settlement. By working with your mortgage lender, they may approve the sale of the home at a lesser amount than what is currently owed on it.
- Bankruptcy: Speak with an attorney about the possibility of filing bankruptcy. Recent changes to laws have made this process more difficult and expensive and you should certainly consult with an attorney before making any decision.
Contact HUD and FHA (If applicable)
- Speak to a HUD-approved housing counselor at 1-800-569-4287: A housing counselor may be able to help you review your financial situation, discuss some possible workout options, and give you information on services and programs in your area.
- Home Ownership Preservation Foundation 1-888-995-HOPE: This independent, non-profit organization provides HUD-approved housing counselors.
- FHA Insured Loan: If your lender is not cooperative and your mortgage is FHA-insured, call FHA's national servicing center at 1-888-297-8685.
Beware of quick fixes, predatory lending, and scams
- Avoid foreclosure prevention companies.
- Do not sign over a title or deed without first consulting with an attorney.
- Contact the better business bureau and your local attorney general to check for complaints before agreeing to work with any company to help resolve your situation.
Your home is probably your most important asset. Protect your investment by taking action as soon as you realize there could be a problem making your mortgage payment. Doing nothing could force your lender to initiate foreclosure action, but the sooner you contact them, the more options may be available to work out an acceptable solution that allows you to keep your home. Ignoring the problem and hoping your situation will change on its own will only make matters worse.
For more information, you can investigate these resources below:
Resource Contact List:
Federal Housing Administration:
Housing and Urban Development:
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