Foreclosure can be an intimidating and scary experience. The stress of potentially losing your home can drive you to make mistakes, either by doing the wrong thing or failing to act at all.
Because your actions are vitally important if you want to keep your home—or at least get through the process with as little anxiety as possible—it's essential that you to learn the do's and don'ts when facing a foreclosure:
- Contact your mortgage servicer. As soon as you think you're going to have trouble making your monthly payment (or shortly after you fall behind), call your servicer. You might be able to work out a forbearance agreement or a repayment plan.
- Contact a HUD-approved housing counselor for assistance. If you want to apply for a foreclosure alternative—like a loan modification, short sale, or deed in lieu of foreclosure—a HUD-approved housing counselor can tell you more about these options, evaluate your financial situation, and help you deal with your servicer.
- Find out how foreclosure works. Depending on state law and your circumstances, your foreclosure could be judicial or nonjudicial. You should learn each step in the foreclosure process so you aren't caught off guard at any point. Also, find out about federal laws and state laws that can protect you while you're in foreclosure.
- Make a record of all your communications with your servicer. Keep track of when you call, who you spoke to, and what you talked about. You might need this information later on to help you fight the foreclosure. Also, keep a folder with all correspondence from the lender, servicer, court, or foreclosure trustee. This way, you'll have a good idea about the status of your case. And, you might have a defense to the foreclosure if you don't get certain documents.
- Participate in foreclosure mediation, if your state, county, or city, offers it. Foreclosure mediation brings the borrower and lender (or its representative) to the table, along with a neutral mediator, with the goal of working out a way to resolve the delinquency. One study showed that homeowners who participate in mediation are 1.7 times more likely to avoid foreclosure than those who don't.
- Find out if your state has a Hardest Hit Fund or another kind of homeowner-assistance program. Hardest Hit Fund and other state-specific programs offer financial assistance to homeowners. You might qualify for money to get caught up on the loan or pay future mortgage payments, for example.
- Avoid foreclosure rescue scams. Be wary of letters and phone calls from for-profit companies—especially companies offering to help you get a loan modification. While these companies' letters look official and their sales pitch might sound good, companies that offer to stop the foreclosure for a fee are often scammers. (Learn about foreclosure rescue scams to avoid.)
- Ignore phone calls or letters from your servicer. Calls and letters from your servicer will likely explain any options you have to avoid a foreclosure and how to apply for those options.
- Ignore letters from the court or a foreclosure trustee. Correspondence from the court or a trustee will contain foreclosure information, including important dates—like the sale date—and details about your rights during the foreclosure.
- Assume the servicer is always correct. Servicers are well-known for making mistakes that violate the law when processing foreclosures. Again, you should understand the specifics of both federal and state foreclosure laws and procedures. If the servicer messes up, you might have a defense to the foreclosure.
- Wait until the foreclosure is almost over to try to save your home. You'll have more options if you address the problem early on. The longer you wait and the further you fall behind in payments, the fewer options you'll have.
- Pay upfront fees (or fees for help that you can get for free). If a foreclosure rescue company asks for a hefty upfront fee from you, beware. Many states have laws prohibiting companies from collecting money before performing foreclosure services, as well as other restrictions on foreclosure rescue activities. You also shouldn't pay a fee to a private company for housing counseling. HUD-approved housing counselors will help you without charge.
- Make your mortgage payments to anyone other than your mortgage servicer. Foreclosure rescue companies sometimes say you should pay them instead of your servicer. But this is usually a really bad idea. The company might take your money, fail to stop the foreclosure (or not even try), and then you'll be even further behind on your payments.
- Move out early. If you abandon the home, you'll miss out on the chance to stay there for free during the foreclosure. Also, in order to qualify for assistance, homeowners usually have to be living in their home. Another thing to keep in mind is that you're still responsible for the property until the foreclosure ends, even if you aren't living there. You don't want to become the victim of a zombie foreclosure after moving out early. (Learn when you have to leave your home when it's in foreclosure.)
Talk to a Local Foreclosure Attorney
If you want to fight a foreclosure, consider hiring an attorney to represent you. If you can't afford to hire an attorney to represent you throughout the entire process, consider at least scheduling a consultation with one who can help you decide what to do, tell you how foreclosure works in your state, and explain your legal rights and responsibilities.