If you are 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 mortgage lender doesn’t really want your home and will likely work with you to keep you in the property. For your part, you need to be 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 avoiding a foreclosure.
Below are ten things you can do 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 that relate to your home and put important documents in that file.
You’ll want to include your loan documents, such as the mortgage (or deed of trust) and the promissory note. (Learn more about the difference between a mortgage, deed of trust, and promissory note.)
You should also include:
Once you’ve gathered your mortgage documents, take the time to actually read them so you know what will happen when you don’t make your payments. The mortgage 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 (such as 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 mortgage 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 off 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, this can add up. You also probably have several optional expenses (like gym memberships, cable television, and other forms of entertainment) that you may be able to eliminate. If you have certain monthly payments you can’t eliminate, such as credit card debt, you may be able to negotiate a lower monthly payment. (Learn more in Nolo’s article Negotiating on Credit Card Debt.)
Think about different ways that you cut back or completely eliminate certain spending so that you’ll be better able to make your mortgage payments. (Learn more in How to Make a Budget.)
There are multiple (permanent and temporary) options available that could help you to avoid a foreclosure. Here are just a few:
Loan modification. A loan modification is a permanent change to your mortgage. For example, this might mean extending the amount of time you have to pay off the loan or reducing the interest rate. With a loan modification, the servicer can often add any past-due amounts to the balance of your mortgage. Depending on your circumstances, you may 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 mortgage payment is temporary, you may be eligible for a forbearance agreement. With a forbearance agreement, the lender agrees to reduce or suspend the mortgage payments for a certain period 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 through a modification (Learn more about loan modifications, forbearance agreements, and repayment plans.)
Refinancing the loan. If you’re not yet behind in payments, you may be able to refinance your loan as part of the government’s Home Affordable Refinance Program (HARP) and lower your monthly payment amount.
Do not 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 an alternative to foreclosure. The faster you deal with the problem, the better.
It is 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 may be aware of special programs that could help you. (Learn more about HUD-approved housing counselors.)
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. (Learn about foreclosure rescue scams.)
Foreclosure laws and timelines vary from state to state. You should learn about your state’s foreclosure laws so you know:
If you’ve exhausted all options and aren’t able to work out a deal that will allow you to keep the home, you may 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. If you’re underwater (you owe more than your home is worth), your lender may allow you to complete a short sale. (A short sale is when you sell your home, but the proceeds of the sale are less than the balance owed on the mortgage. Learn more about how to avoid a foreclosure with a short sale.)
Deed in lieu of foreclosure. With a deed in lieu of foreclosure, you voluntarily convey clear title to the property over to the lender in exchange for a discharge of the debt. (Learn more about how to avoid a foreclosure with a deed in lieu of foreclosure.)