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Avoiding Foreclosure when you have Financial Struggles

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Foreclosures don't take borrowers by surprise. The bank can only begin foreclosure proceedings if you fail to make your monthly, and you will know whether you have stopped making payments.

If you expect to miss a payment, or when the bank tells you that you missed one, however, stay in the house and contact your lender immediately (ideally before you miss a payment) to discuss your options. It will be impressive if you demonstrate knowledge of your loan and income. If you expect to be able to catch up your payments in a few months, express that to your lender; they want you to have a plan. At the same time, however, be humble and don't be afraid to ask for help or suggestions.

If at all possible, find one specific person with whom you can consistently work; you don't want to be lost in the bureaucracy. That person will likely discuss some of these options with you:
• Reinstatement: With this option, you pay a lump sum to catch up on your monthly payments. It is the simplest option, but it is difficult for borrowers who have a consistent income.
• Forbearance Plan: Largely out of the goodness of their hear, lenders will allow you to simply delay payments (perhaps with some monetary penalties) through a forbearance plan.
• Repayment Plan: If you've already missed payments, the lender can declare the loan entirely due, but more likely, they will allow you to gradually catch up on your payments through a repayment plan. You simply increase your monthly payments to cover the amounts you missed, plus penalties.
• Mortgage Modification: A mortgage modification restructures your loan to make your payments more affordable.
• Pre-Foreclosure Sale: You may need to cut your losses and move to a smaller home. In this case, you should protect your credit by selling your home to a third party in order to repay your loan, and then taking out a new loan for your smaller home.
• Deed in Lieu: A deed in lieu of foreclosure gives the property back to the lender, and in turn the lender will forgive your debt. You still lose your home, but you protect your credit rating somewhat.

Finally, consider contacting someone other than your lender for help in repaying your loan. The Department of Housing and Urban Development (http://www.hud.gov) has tips for avoiding help and you may be eligible for an FHA insurance claim that can get you back on track. In addition, HUD also has a list of reputable credit counseling agencies, which can help you reduce your debt and restructure your finances so that you can begin to repay your loan. This type of plan will likely convince your lender to give you some time, and you will avoid foreclosure as long as you stick to the plan.

Next Page: Last-Minute Options for Avoiding Foreclosure

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