Tips to Avoid Foreclosure
When we fail to make our mortgage payments, foreclosure may occur. Foreclosure is the legal means that a lender can use to repossess, or take over, a home. When this happens, we must move out of our home. If our property is worth less than the total amount we owe to the bank, a deficiency judgment, which is a ruling made by a court against a borrower who does not have enough funds to pay back their loan, could be pursued against us. If that happens, we not only lose our home, but we also then owe our lender additional fees. Both foreclosures and deficiency judgments could seriously affect our ability to qualify for credit in the future.
Here are some tips on how to avoid foreclosure recommended by the U.S. Department of Housing and Urban Development (HUD):
1. Don’t ignore the problem.
The further behind we are on payments, the harder it will be to reinstate our loan.
2. Contact our lender as soon as we realize that we have a problem.
It’s not in the best interest of our lenders to foreclose, and they want to avoid complications as much as we do. They have options to help borrowers who need it. The sooner we reach out to our lender, the sooner we can explore these options and choose the best path for our situation.
3. Open and respond to all mail from our lender.
It can be scary to know bad news is coming, but avoiding reading the bad news won’t make it go away. The first notices we receive will offer important information about foreclosure prevention options. Later notices may also include important notices of pending legal action against us. Our failure to open the mail may result in a judgement being filed against us for failing to appear in court, and not reading the notices cannot be used as an excuse in foreclosure court.
4. Know our mortgage rights.
We should find any documents we may have related to our loan and read them so we know what our lender might do if we can’t make our mortgage payments. We should also consider learning about the foreclosure laws and timeframes in our state, and keep in mind that the rules in each state are different. We can contact our local HUD office for this information.
5. Understand foreclosure prevention options.
Options can include:
- Repayment plans
- Mortgage modification
- Short sale, or selling our home for less than the balance remaining on our mortgage
- Deed-in-lieu of foreclosure, or transferring the ownership of our property to our mortgage lender in exchange for a release from our mortgage and monthly loan payments
For a more detailed explanation of what these options entail, explore this guide to foreclosure prevention plans.
6. Contact a HUD-approved housing counselor.
Housing counselors can help us:
- understand the law
- explore options
- organize our finances
- find representation in negotiations with our lender
We can use HUD’s locator to find a counseling agency in our area.
7. Prioritize our spending.
We can review our finances and see where we can cut spending in order to afford our mortgage payment. We should start with optional expenses such as cable TV or other forms of entertainment that can be eliminated. However, we should remember to avoid cutting back on things that are essential to us, such as food and health expenses.
8. Use our assets.
If we have assets that we can sell for cash to help reinstate our loan, we might want to consider doing so. However, we should consult with a professional before taking this step, and avoid selling what is necessary to us, such as a family car we use to commute.
9. Avoid foreclosure prevention companies.
We don’t need to pay fees for foreclosure prevention help—our lender or a HUD approved housing counselor will provide this service for free. However, many companies may contact us promising to negotiate with our lender. While some may be legitimate, they will charge a fee. HUD strongly recommends that we utilize the free services available to us, and save our money for mortgage payments.
10. Don’t fall prey to foreclosure recovery scams.
We should be wary of companies that reach out to us with claims they can stop our foreclosure immediately provided we sign a document appointing them to act on our behalf. Instead of losing our home to foreclosure, we may instead lose our homes to scammers by doing this! We should never sign a legal document without first reading and understanding all the terms. We should also seek professional advice from an attorney or a HUD-approved housing counselor before agreeing to anything with an outside party.