A loss of a job, medical expenses and other life-altering occurrences can happen to anyone, causing us to fall behind in our loan payments. If we neglect paying our credit cards it hurts our credit rating, but if we stop paying our home loan the situation is even worse, because the lender can foreclose, taking ownership the home.
Don't Be Embarrassed
You must put your pride on hold if you're truly serious about stopping the foreclosure process. Lenders do not want to foreclose, and will usually work with you to get you back on track.
Rule #1: Contact your lender as soon as you know your payments will be late.
Rule #2: Never ignore the lender's letters or phone calls. Ignoring the problem won't make it go away.
Rule #3: Never assume your situation is hopeless.
Solutions for Temporary Problems
Reinstatement
Reinstatement might be possible when you are behind in your payments but can promise a lump sum to bring payments current by a specific date.
Forbearance
In forbearance, you are allowed to delay payments for a short period, with the understanding that another option will be used afterwards to bring the account current. Lenders sometimes combine Forbearance with Reinstatement if you know you'll have the funds to bring your account current by a specific date.
A Repayment Plan
If your account is past due, but you can now make payments, the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.
Solutions for Longer-Term Problems
Mortgage Modification
If you can make your regular payment now, but cannot catch-up the past due amount, the lender might agree to modify your mortgage. One solution is to add the past due amount into your existing loan, financing it over a long term.
Modification might also be possible if you no longer have the ability to make payments at the former level. The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments).
Selling Your Home (Short Sale)
If catching up is not a possibility, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home, even if this is for less than you owe on your mortgage. This is refered to a “Short Sale”.
Deed in Lieu of Foreclosure
When the lender allows you to give-back your property--and forgives the debt. It does have a negative impact on your credit record, but not as much as a foreclosure.
The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
For FHA Loans
The lender might be able to help you receive a one-time payment from the FHA Insurance fund. Your loan must be at least 4 months but no more than 12 months past due and you must show you are able to begin making full mortgage payments.
You must sign a promissory note which allows HUD to place a lien on your property for the amount received from the fund.
The note is interest free, but must eventually be repaid.
The note becomes due when you pay off the loan or when you sell the property.
For VA Loans
VA Regional Loan Centers offer financial counseling that's designed to help you avoid foreclosure. Call 1-800-827-1000 and ask for the phone number of the Loan Service Representative in your area.
Contact a HUD-Approved Counselor
If you don't want to talk with your lender first, contact a HUD-approved counseling agency. A counselor can help you determine which options might be available to you and negotiate with your lender to work out a repayment program. You can find an approved agency on the Web.