How To Avoid Foreclosure

If you're having trouble making your mortgage payment, it is best to seek assistance as soon as possible. If you're in default, you have a limited amount of time to stop foreclosure. Waiting may eliminate available options and delay help.

If your lender repossesses your home, it will negatively affect your credit score. If your home is worth less than the mortgage amount, it may result in a deficiency judgment against you (if state law permits). Below are some alternative options to help you avoid foreclosure sales.

Talk to a Foreclosure Prevention Counselor

Foreclosure prevention counselors can provide important information on how to avoid foreclosure and help the borrower create a plan. The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) are there to help.

HUD-approved housing counselors provide free advice. They can help determine whether a loan modification or refinance program applies. If eligible, the counselor may collect financial information from the borrower and send it to the lender. Visit HUD's website for a list of approved housing counselors.

Be wary of housing counseling agencies that charge a fee for advice or offer to "rescue" a borrower from foreclosure. Many scam artists prey on desperate consumers by providing fraudulent services. Depending on the scam, some offer free help, while others charge a fee.

Suppose a mortgage loan agency asks a borrower to pay for a loan modification. Or suppose it tells the borrower to send their mortgage payment to the agency instead of the lender. Here, the agency may be engaging in illegal and/or deceptive practices.

Work Out a Plan With the Lender

Many lenders are willing to work with borrowers facing foreclosure. They are sympathetic to people having trouble making their mortgage payments. As part of their loss mitigation efforts, lenders have an interest in helping homeowners avoid foreclosure. Contact your lender to discuss the following suggestions for how to avoid foreclosure:

• Forbearance: A lender may temporarily reduce or suspend a borrower's mortgage payment for a limited period of time. During the forbearance period, the borrower will have time to repay the missed payments later. This option is often available to a borrower who can demonstrate that extra money, such as a bonus or a tax refund, will be available in the future.
• Loan Modification: If your mortgage company is willing, this agreement changes the original loan terms to make the mortgage more affordable.
• Reinstatement: This plan allows a borrower to repay missed payments within a specific time. This plan is often used in conjunction with a forbearance.
• Repayment Plan: This plan allows the borrower to repay a portion of the delinquent amount with each monthly mortgage payment.
• Refinance: This option is available if market interest rates are lower than your mortgage rate. Refinancing may be helpful if there's enough equity in your home. It can be used to pay off the old mortgage, late fees, and attorney fees in one lump sum with a new mortgage. A mortgage lender will still want to see a favorable credit report before offering you lower rates.
• Deed in Lieu of Foreclosure: A lender may accept the deed to the home in exchange for the cancellation of the debt. A deed-in-lieu of foreclosure transfers the title to the lender and cancels the mortgage debt. The lender can then sell the house. This won't help you stay in your house, but it can avoid the negative credit consequences of a foreclosure.

In the end, lenders understand that homeownership can be challenging for new homebuyers. They have an interest in making your home affordable when you're facing financial hardship. Thus, a loan servicer may also offer other options to get current with your past-due payments. It is important to check with the lender to learn how you can avoid foreclosure.

File for Bankruptcy

If a lender has already initiated the foreclosure process, a borrower may temporarily delay it by filing for bankruptcy. During bankruptcy, an automatic stay stops all debt collection activities, including foreclosure proceedings. The delay may help the borrower save enough money to become current on the mortgage or will give the borrower more time to negotiate with the lender.

However, once the bankruptcy court lifts the stay — either when the bankruptcy case closes or when the lender receives permission from the court — the lender may proceed with foreclosure proceedings.

Sell the Home

When a borrower is unable to afford the home, the best option may be to sell it. If a home has increased in value since its purchase, the borrower can put it up for sale and repay the lender with the proceeds from the sale.

If the home is worth less than the amount owed on the mortgage, a borrower may request the lender accept a "short sale." In a short sale, the lender agrees to the sale of the home for less than the mortgage amount.

Still Unsure About Foreclosure?

A house is often a person's single largest investment. A lot of emotion is tied up in your home. Regardless of your circumstances, you are likely to benefit from professional real estate assistance. Foreclosure laws are complicated, and mortgage relief isn't always easy to get on your own.

If you have additional questions about how to avoid foreclosure, a real estate agent isn't suited to advising you on important state and federal laws. Instead, consider speaking with an attorney specializing in foreclosure in your area.