If you're a struggling homeowner in danger of falling behind in your mortgage payments, or if you've already fallen behind, you should be proactive when it comes to saving your home from foreclosure. Your lender doesn't really want your home and will potentially work with you to keep you in the property.
For your part, you need to get organized, take action as soon as possible, understand the foreclosure process, and know your options. If you do these things, you'll have a better chance of keeping your home.
Below are ten things you can do to try to prevent a foreclosure from happening.
Before you miss a mortgage payment or if you're already behind on your payments, the first thing you should do is get organized. Set up a file for the records related to your home and put important documents in that file.
You'll want to include your loan documents, like copies of the mortgage (or deed of trust) and the promissory note. You should also include:
Once you've gathered your documents, take the time to carefully read them so you know what will happen when you don't make your payments. The mortgage (or deed of trust) and the promissory note will contain important information such as:
Under federal law, in most cases, the lender can't start a foreclosure until you're over 120 days delinquent in payments.
Along with the loan documents, you should gather and organize your financial information. Collect your recent pay stubs or a profit and loss statement if you're self-employed, bank statements, federal tax return, and supporting documentation for any other income you receive, like Social Security, rental income, and alimony.
You should also figure out your total monthly income (including your monthly gross wages, overtime, self-employment income, unemployment income, Social Security, child support, and alimony, for example) and your monthly expenses (including your mortgage payments, credit card payments, car payments, student loan payments, food, entertainment, utilities, HOA/condo fees, etc.)
Your servicer will need this information to determine whether you're eligible for an alternative to foreclosure.
Now that you've figured out your income and expenses, it's a good time to review your spending habits and create a realistic budget until your circumstances improve.
Start by looking for ways to reduce your everyday expenses. For example, if you buy a cup of coffee every morning or eat lunch out every day, these costs can add up. You also probably have several optional expenses—like gym memberships, cable television, and other forms of entertainment—that you might be able to eliminate. If you have certain monthly payments you can't get rid of, such as credit card debt, you might be able to negotiate a lower monthly payment.
Think about different ways that you can cut back spending or completely eliminate certain costs so that you'll be better able to make your loan payments.
Often, borrowers have access to permanent or temporary loss mitigation options to help them avoid a foreclosure. Here are just a few possibilities:
Loan modification. A loan modification is a permanent change to your loan terms. For example, a modification might extend the amount of time you have to pay off the loan or reduce the interest rate. With a loan modification, the servicer can often add any past-due amounts to the loan balance. Depending on your circumstances, you might qualify for a Fannie Mae or Freddie Mac Flex Modification or a proprietary (in-house) loan modification.
Forbearance agreements and repayment plans. If the reason you're unable to make your monthly payments is temporary, you might be eligible for a forbearance agreement. With a forbearance agreement, the lender agrees to reduce or suspend the payments for a limited amount of time. At the end of the forbearance period, you bring the loan current by paying back the missed or reduced payments in full, through a repayment program or a modification.
Don't wait until the last minute to seek help. If possible, call your servicer as soon as you miss a payment—or think you might miss a payment—to find out if you qualify for a foreclosure alternative. The sooner you deal with the problem, the better.
It's also often a good idea to contact a free HUD-approved local counseling agency. A housing counselor can provide you with assistance in working out a way to avoid foreclosure and will be aware of special programs that could help you.
You should avoid for-profit foreclosure prevention companies that claim they can get a loan modification for you, provide debt counseling, or offer some other form of foreclosure relief for a fee. Most of these companies are scammers that provide little (if any) help for distressed homeowners.
Foreclosure laws and timelines vary from state to state. You should learn about your state's foreclosure laws so you know:
To learn about your state's foreclosure laws, do some legal research or talk to a local foreclosure lawyer.
If you've exhausted all options and aren't able to work out a deal that will allow you to keep the home, you might still be able to avoid a foreclosure by selling it or giving it to the lender.
Selling your home to avoid a foreclosure. If you have equity in the home, you can sell it and use the proceeds to pay off the mortgage loan. If you're underwater on your mortgage loan, your lender might allow you to complete a short sale. A "short sale" is when you sell your home, but the sale proceeds are less than the loan's balance.
Deed in lieu of foreclosure. With a deed in lieu of foreclosure, you voluntarily convey clear title to the property over to the lender rather than going through a foreclosure.
If you have questions about how foreclosure works in your state and what protections against foreclosure you have under federal and state laws, or you think you want to fight a foreclosure in court, consider talking to a lawyer. If you can't afford to hire a lawyer 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.