1. Don't ignore the problem.
The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. Contact your lender as soon as you realize that you have a problem.
Lenders do not want your house. They have options to help borrowers through difficult financial times.
3. Open and respond to all mail from your lender.
The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action.
4. Know your mortgage rights.
Find your loan documents and read them so you know what your lender may do if you can't make your payments.
5. Understand foreclosure prevention options.
The most common benefit to the homeowner is the prevention of foreclosure through loss mitigation because loss mitigation works to either relieve the homeowner of the mortgage obligation or create a mortgage resolution that is financially sustainable for the homeowner. Lenders benefit by mitigating the losses they would incur through foreclosing on the homeowner. Immediate foreclosure creates a tremendous financial burden on the lender. Loss mitigation allows the lender to take a lesser loss right now in order to avoid the much greater losses caused by such foreclosures.
The following are common loss-mitigation options:
Forbearance — This is a temporary agreement allowing the homeowner to make partial or no payments for a specific period of time. This arrangement is common when a homeowner is willing to pay but is unable to do so because of a temporary and finite hardship. A forbearance agreement is typically followed by further evaluation of the loan and the homeowner's financial circumstances to determine whether there are any permanent workout options (i.e., repayment plan or modification).
Repayment Plan — This is a verbal or written agreement with the delinquent homeowner to resume making regular monthly payments in addition to a portion of the past due payments to bring the loan to current status. If the homeowner is in bankruptcy, a repayment plan must be approved by the court
Loan Modification —Modifications written and agreed to by the homeowner and the lender changing the terms of a homeowner's mortgage loan to restructure monthly payments temporarily or permanently which may involving one or more of the following conditions:
- reduction of the interest rate either temporarily or permanently;
- fixing the interest rate temporarily or permanently (on ARM loans);
- extending the term of the loan;
- deferring past due amounts;
- capitalizing past due amounts;
- deferring principal causing a balloon payment to be due at maturity or some other date:
- conditionally forgiving a portion of the debt; and
- forgiving a portion of the debt.
Partial Claim —
- HUD Partial Claim — This is an interest free second lien mortgage due and payable at the time the homeowner's loan is paid off, which is typically upon the sale or refinance of the property. This option allows up to 12 months of past due accrued mortgage payments to be included in the form of a second lien mortgage. Partial claims are available on FHA loans only.
- Advance Claim — A loan provided by primary mortgage insurers to bring an insured homeowner's mortgage current. The homeowner is obligated to repay this "advance claim" loan to the primary mortgage insurer directly or through the insurer's designated servicer. In some instances, the mortgage insurer may not require repayment of advances.
Short sale — This is a process whereby a lender accepts a payoff that is less than the principal balance of a homeowner's mortgage, in order to permit the homeowner to sell the home for the actual market value of the home. This specifically applies to homeowners that owe more on their mortgage than the property is worth. Without such a principal reduction the homeowner would not be able to sell the home.
Deed in Lieu of Foreclosure (DIL) — The transfer of title to the property from the homeowner to the servicer as an alternative to foreclosure. Commonly used after a homeowner has attempted to sell his or her property for fair market value for a period of time. Title must be clear and property must be in good condition.
Special Forbearance — This is where you will make no monthly payment or a reduced monthly payment. Sometimes, the lender will ask you to be put on a repayment plan when the forbearance has been finished to pay back what you missed, while other times they just modify your loan.
Partial Claim — Under the Partial Claim option, a mortgagee will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and subordinate mortgage payable to United States Department of Housing and Urban Development (HUD). Currently, these promissory or "Partial Claim" notes assess no interest and are not due and payable until the mortgagor either pays off the first mortgage or no longer owns the property.
6. Contact a HUD-approved housing counselor.
The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call 800/569-4287 or TTY 1-800/877-8339. You can also call 888/995- HOPE to speak with a HUD approved housing counselor 24 hours a day, seven days a week in English or in Spanish.
7. Prioritize your spending.
After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
8. Use your assets.
Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
9. Avoid foreclosure prevention companies.
You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While some of these may be legitimate businesses, they may charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.
10. Don't lose your house to foreclosure recovery scams!
If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, HUD approved housing counselor.