How To Avoid Foreclosure
Are you facing foreclosure? More and more people are finding themselves in the difficult and unfortunate position of anticipating foreclosure of their homes. However, there may be alternatives to foreclosure. The options may vary depending upon your situation and you should contact your lender to explore those options sooner rather than later. The good news is that lenders are in the banking business, not the real estate business, and foreclosure is expensive for a lender. They don't want to take your home if there is a viable alternative. Homeowners want to avoid foreclosure as well, not only to stay in their homes, but also to avoid the impact on their credit scores. Thankfully, there are some things you can do if you are facing foreclosure.
First: Don't avoid your lender. Talk to them as soon as you start having trouble making your mortgage payments. Call or write to your lender's Loss Mitigation Department to explain your situation. They will ask you for your financial information, such as income and expenses, and the reasons underlying your inability to pay. If your situation is temporary, and you anticipate your income to increase, or your expenses to decrease, and you are confident you can resume your mortgage payments at a certain time, then the Loss Mitigation Department may be more likely to work out an arrangement with you.
Second: Contact a HUD-approved housing counseling agency. (1-800-569-4287 or TDD 1-800-877-8339.) These agencies are can help you find out about programs offered by Government agencies, or private and community organizations, that could help you. They may also be able to give you some credit counseling.
Third: Explore foreclosure alternatives allowing you to keep your home. You may qualify for a special forbearance of your mortgage payments. You may either be able to pay a reduced mortgage payment, or suspend your payments altogether, on a temporary basis. In this case, your lender will work out a repayment plan with you where you would repay the portion owed either in lump sum at a certain time in the future, or gradually over time. You may also qualify for mortgage modification and refinance your loan with different terms (either a reduced interest rate or an extended loan term) so that your payments are more manageable. Also, if you have FHA Insurance, your lender may be able to get the insurance fund to basically give you an interest free loan to bring your account current, which you will be obligated to repay when you sell the home or pay off the mortgage.
Fourth: Sell your home. You may be able to sell your home before it goes into foreclosure. Sometimes, the bank will accept the sale amount, even if it is less than what you owe on the mortgage, in a pre-foreclosure sale, sometimes referred to as a "short sale." If not, the lender may be able to get a deficiency judgment, which would obligate you to pay the "deficient" amount you still owe the bank. Some states allow lenders to sue you for the deficiency and some do not.
Fifth: Give your home "back to the bank." This is a last resort, and sometimes not even available. However, if you qualify, sometimes a bank will allow you to "give back" your property - called a deed-in-lieu of foreclosure. A deed-in-lieu of foreclosure is generally not as damaging to your credit as a foreclosure.
Please note that in these situations, if a lender accpets your home for less than you owe on it, or accepts a sale price that is lower than your outstanding mortgage, the amount of the "forgiven debt" may have tax consequences, depending on your situation. Forgiven debt is usually considered to be taxable income by the IRS. However, there are a variety of options for relieving yourself of tax liability for the forgiven debt. For instance, under the Mortgage Forgiveness Debt Relief Act, while you still have to report the forgiven debt on your personal residence to the IRS, it may be excluded for purposes of tax liability. Also, you may not have to pay taxes on the forgiven debt if you are considered "insolvent." Learn more about cancellation of debt income and tax liability from the IRS.
The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.
Additional Foreclosure and Alternatives Articles
- A Homeowner's Rights During Foreclosure
- The Mortgage Forgiveness Debt Relief Act of 2007
- Can I Use a Loan Modification Program in Order to Save my Home from Foreclosure?
- Renters Now Protected in Foreclosures
- Foreclosure & Strategic Default (Walking Away)
- What are Credit Counseling Agencies?
- Foreclosure Protection for Victims of Hurricane Sandy
- Different Types of Foreclosure
- How Can a Creditor Repossess Property?
- The Foreclosure Timeline
- Defenses to Repossession
- Understanding the Foreclosure Process
- A Plain Language Explanation of Your Options for Avoiding Foreclosure
- Alternatives to Foreclosure
- What to do About Your Mortgage When You're Facing Money Problems
- Bankruptcy or Foreclosure?
- Ten Tips for Avoiding Foreclosure
- Foreclosure Laws in Hawaii
- Foreclosure: An Overview
- How do creditors get paid when foreclosing on a house to satisfy unpaid debts?
- What is acceleration?
- I've fallen on bad times and am having trouble paying my mortgage. What should I do?
- Who is eligible for a short sale under the Making Home Affordable Foreclosure Alternatives Program?
- What can a creditor do if a debtor won't pay?
- What is the Hope for Homeowner's Act?
- What is the Truth In Lending Act?
- What Is a money judgment?
- I'm in foreclosure... can refinancing under FHASecure still help me?
- What is the FHASecure refinancing program?
- Are homeowners with interest only mortgages eligible for an FHASecure refinance?
- What are the requirements for an FHA Streamlined Mortgage Refinance?
- What kinds of streamline refinances do lenders offer?
- What is Judicial Foreclosure?
- What is a Power of Sale Foreclosure?
- What is Strict Foreclosure?
State Foreclosure and Alternatives Articles
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina