Facing Foreclosure

As a homeowner, one of your most important financial obligations is your monthly mortgage payment, and it's crucial that you pay your mortgage every month and on time. Late payments will cost you in charges and fees, and your credit rating could be hurt as a result of negative notes in your credit report.

If you fall behind on your mortgage payments, the lender has the legal right to foreclose on your home. A foreclosure is the legal process through which a mortgaged property may be sold when a mortgage is in default. This means the lender can force a sale of your home to pay down the loan and then evict you. If the foreclosure sale proceeds aren't enough to pay off the mortgage, you may be sued, in some states, to collect the difference, as well.

If you are facing financial hardship and are having a tough time making your mortgage payments, call your lender immediately. Many people, when facing financial troubles, have a tendency to avoid calling their creditors, but this is the wrong thing to do if you wish to keep your home. Your mortgage company can assist you in deciding about the best options for you.

What are some alternatives?

First, you may be considered for a Special Forbearance. You lender can arrange a repayment plan based on your current financial situation. In some cases they can reduce or even suspend your payments.

Another option is a Modification. You may be able to extend the term of your mortgage loan, which might allow you to catch up by reducing the monthly payments to an affordable level.

In some instances, and depending on what type of loan you have, your lender may be able to obtain a one-time payment from the FHA insurance fund to bring your mortgage current. This is called a Partial Claim. When a lender files a Partial Claim, you must execute a Promissory Note, and a lien will be placed on your property until the Note is paid in full. A pre-foreclosure sale will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage.

As a last resort, you may be able to give back your property voluntarily. This will not save your home, but it is not as damaging as a foreclosure. This is called Deed-in-Lieu of Foreclosure.

You may also attempt to change your mortgage product. For example, if you are in an adjustable-rate loan, you can speak to your lender and try to refinance to a fixed-rate mortgage. This will give you the security of a payment that stays the same over the life of the loan. A few lenders will even allow you to defer the delinquent payments until the end of the loan. The U.S. Department of Housing has more information on how to avoid foreclosure.