Save Your Home from Foreclosure

Thanks to fierce competition among lenders, a dizzying array of mortgage options, and government policies to encourage home buyers, more people than ever before were able to buy homes pre-recession. Unfortunately, the increase in home ownership has been accompanied by high foreclosure rates, particularly during the recession. Just a couple of missed mortgage payments can start foreclosure proceedings and before you know it, your home can be taken away from you. If you're threatened with foreclosure you may be able to prevent this scenario, but you've got to act fast.

Steps

Organizing Your Finances

1. Make your mortgage payment your top priority. Lenders can typically start the foreclosure process after three to five months of missed payments. That means you should make your monthly mortgage payment in full before you pay down unsecured debts like credit cards, hospital bills, medical bills, IRS debts, and student loan payments.
   • If you do fall behind on other bills, you may start getting phone calls from debt collectors. Falling behind on these debts can cause you to accumulate fees and can damage your credit, but the consequences are simply not as serious as falling behind on your mortgage.
2. Adjust your standard of living. Evaluate your monthly spending and look for areas where you can cut back.
   • Cut back on elective purchases, like eating out, clothing, electronics, hobbies, and entertainment.
   • Consider bringing in a roommate to offset your monthly mortgage payment.
   • If your significant other has a vehicle or you have access to good public transportation, consider selling your car.
3. Get help managing your finances. You may benefit from a credit counseling or debt management program that includes housing counseling. A counselor can help you better understand what debt assistance options are available, help you manage your obligations, and develop a personalized plan to get through rough financial times.
   • Contact your lender and ask if they have a credit counseling program.
   • The U.S. Department of Justice maintains a list of approved credit counselors by state that you can contact for help.
   • Ask your local housing authority, credit union, nonprofit organization, or extension service if they offer debt counseling.
4. Learn your rights. Check with an attorney to learn what your rights are when facing a foreclosure. There are two types of foreclosure. If you have a deed of trust then the foreclosure process will follow a particular pattern that is guided by the federal and state laws. If you have a mortgage instead of a deed of trust, the foreclosure must be a judicial foreclosure. In this case, the lender will be required to go to court to get the property back.
   • In a judicial foreclosure, you will have one year to redeem your debt. This means you will have to pay back the money owed on the house plus additional fees. If it is not a judicial foreclosure, you will not have this right.
   • Many foreclosure laws might vary by state, and some may expire. Always consult with a lawyer to understand the laws regarding your specific situation.

Changing Your Mortgage Payments

1. Get help with your mortgage payments. Check to see if your state housing finance agency maintains funds under the Hardest Hit Fund which is specifically earmarked for foreclosure prevention.
   • If your mortgage is secured by or funded by government programs such as HUD, FHA, or the Veterans Administration, you may have other options to save your home. For example, Fannie Mae and Freddie Mac administer the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) to make loans more affordable. You can find these and other types of loan modification programs at https://www.makinghomeaffordable.gov/pages/default.aspx.
2. Ask your lender for a forbearance. In a forbearance, your lender agrees to temporarily reduce or suspend your mortgage payments for a short period.
   • You're more likely to be able to get a forbearance if you can show that your financial difficulties are temporary or that you're expecting a large sum (for example, a tax refund) that will enable you to bring your account current soon.
   • Lenders generally don't want to foreclose on properties, and they'll generally be willing to work with you if you make a good-faith effort to make payments and if your inability to do so is temporary.
   • You will most likely need to provide the lender with bank statements and other financial documents so that they can review your financial situation. They may agree to extend your grace period for late payments or to allow you to skip anywhere from 1-6 payments over a 1-2 year period (a forbearance). They might also accept reduced payments for up to 18 months.
3. Restructure your loan. If your financial situation has permanently changed, temporary measures probably won't do you much good. In this case, try to negotiate to restructure the mortgage. Ask your lender if you qualify for any mortgage restructuring programs.
   • Restructuring can take many forms, but generally involves extending the term of the loan so you have longer to pay (and thus make lower monthly payments), spreading delinquent payment of several years, and/or lowering the interest rate on the loan.
   • Consider if you will be able to follow through with your end of the agreement. If you still won't be able to afford to make the payments, the agreement won't do you any good.
   • Fannie Mae administers the Home Affordable Modification Program (HAMP), which helps modify home loans to make them more affordable for struggling buyers. You can find this and other types of loan modification programs at https://www.makinghomeaffordable.gov/pages/default.aspx.
4. Get the terms of any offers in writing. If you're able to negotiate an arrangement with your creditors on the phone, ask them to send you a new contract with updated terms. You may need to write them a letter asking for confirmation.
5. Refinance your mortgage. If you can reduce your interest rate or take on a different type of mortgage you may be able to lower your payments to a manageable level.
   • Keep in mind that refinancing can be expensive. You may need to pay closing costs, points, and other fees. If you can’t afford the fees, you'll end up facing foreclosure again, with even less money this time.

Taking Drastic Measures

1. Consider bankruptcy. Because bankruptcy can damage your credit score for up to ten years, it shouldn't be taken lightly. If you file for bankruptcy, however, your lender can’t foreclose while your bankruptcy is pending. This can buy you some time to get current on your mortgage payments.
   • If you file bankruptcy and want to keep your home then you can reaffirm your loan with the lender. Reaffirmation is an agreement with the mortgage lender that states you will continue your monthly payments after bankruptcy.
2. Sell your house. Contact a Realtor experienced with short sales before foreclosure begins. Find out how much you can get for your home and how quickly. A Realtor may be able to inform you of all of your options based on your current situation.
   • If the amount for which you can sell your house isn't enough to cover the balance of your loan, the lender may agree to accept a reduced amount in a "short payoff" or "pre-foreclosure sale." A short sale allows for full discharge of debt and will affect your credit for two years. You may also be able to receive some of the money to help with your moving costs or to pay off other lien holders.
   • If you are already struggling with payments and foreclosure has already begun, it still may not be too late to take action. Your lender may delay the auction for a short time to see if you can sell the house.
   • A buyer may be able to assume your loan (take over your payments) in order to buy your house. It may be an option even if your mortgage contract says it is non-assumable. Contact a housing counselor, real estate agent, or attorney to see if this situation might work for you.
   • If you have a second mortgage on the home, you may still owe money on the balance unless you also obtain a forgiveness of loan on this lien as well.
   • If you have substantial equity in the home, you may be able to come out of the deal with some money. After selling your home, you can then buy or rent a different home that is within your budget.
3. Give the lender the home. If no other remedy is available, consider offering the lender a "deed in lieu of foreclosure." You essentially just sign the home over to the lender. While you do lose your home, this is not as damaging to your credit as a foreclosure.
   • In most cases, a seller will not get any money from a short sale. If you give the deed to the lender, however, you may be able to negotiate moving costs with them to help you move out.

Tips

• Don't move out of your home when foreclosure proceedings begin or you may lose the ability to claim certain benefits (for example, a one-time FHA mortgage insurance payment) or legal remedies.
• With any credit problem, always run towards your creditors, not away. Hiding makes it look like you don't intend to pay, and they'll use every tool at their disposal. Be open and honest, and they'll likely work with you.
• There may be tax consequences with obtaining a short sale so it is advisable to check with a tax accountant prior to accepting a short sale.

Warnings

• This article is a general guide only and is not intended to replace professional legal or financial advice.
• Choose a credit counseling agency carefully, as some agencies charge exorbitant fees that will make you even worse off.

Related Articles

• Keep Your Home and Assets in Bankruptcy
• Fight Foreclosure
• Prioritize Your Debts
• File Bankruptcy in the United States
• Sell Your Own House
• Choose a Credit Counseling Agency
• Understand Your FICO Credit Score
• Choose a Debt Management Program
• File for Chapter 7 Bankruptcy
• File for Chapter 13 Bankruptcy
• Find Homes in Foreclosure

Sources and Citations

See also

• Choose a Home Inspection Company
• Find a Property Appraiser
• Challenge an Appraisal
• Read a Land Survey
• Deal With Squatters in Your Neighborhood
• Rehab a Property in the Proper Order
• Fight Foreclosure
• Select a Realtor
• Buy a House
• Negotiate a Deed in Lieu of Foreclosure

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• Buy a House
• Prioritize Your Debts