Foreclosure & Alternatives Law

Ten Tips for Avoiding Foreclosure

Keeping up with mortgage payments is hard if you are facing a job loss or reduced hours. Receiving a call, letter, or email from your mortgage lender asking you to contact them is a high anxiety situation.

There are tips and actions you can use to buy yourself some time and hopefully reduce your stress. The most important thing is to be honest about your financial situation and seek help when possible. You can often turn things around by communicating and using smart resources that are available to you.

1. Don't Ignore Your Lender or the Problem

The further behind you get on payments, the harder it is to catch up. Your mortgage company needs to have faith that you can make payments.

The longer you ignore them and default on payments, the more likely it is that you will lose your home. You need to contact your lender right away, even if you are embarrassed or nervous to make the call.

In most cases, a lender will understand that problems happen and that job losses are out of your control.

2. Be Honest With Your Lender

Lenders do not want your house. In fact, they want you to keep your home and avoid foreclosure since it is the best way for them to get the money and interest you owe them.

If a house goes to foreclosure, their company has to deal with selling it to a new buyer and being paid a flat rate. They would not gain any money through interest, which is how most lenders stay in business.

Mortgage lenders have options to help borrowers through difficult financial times. You can find a solution together that allows you to stay in your home and avoid foreclosure.

They will likely have an honest discussion with you. They may even propose an affordable repayment plan. For example, instead of paying $1,500 a month, they may ask you to pay $800 a month until your income changes.

It is important to be honest with them and explain the reality of how long it may take you to find a job. You should also explain your current expenses that you cannot avoid (such as child support or daily child care).

3. Read All Information From Your Lender

Your lender will start sending you email or mail about your lack of payments. The first message you get should have helpful information about preventing foreclosure.

These notices and prevention options are there to help you handle financial problems before they get worse.

If you ignore the problem, they will start to send you warnings that they will take legal action. If your case needs to go to foreclosure court, your failure to read these documents will not be an acceptable excuse for the courts.

4. Know All Your Mortgage Rights

You have rights when you take out a mortgage. First, find your original loan documents. If you didn't read them in-depth when you signed them, be sure to read them thoroughly now.

You need to know what happens if you can't make your payments. Lenders may have a choice in how they take action, or the company might have a set path you need to take.

Every state has different foreclosure laws and time frames. You can learn more about yours by contacting your state government's housing department in your state. Simply search "state government housing department [your state]" to find the correct website.

5. Understand Your Foreclosure Prevention Options

It is essential to educate yourself about preventing foreclosure, also called "loss mitigation."

We recommend starting with these resources:

Many of these explain the process and tips in understandable language. It is crucial that you really understand what is happening and how you can help yourself avoid foreclosure. There are agencies and people who can help you — you need to find the resources and avoid any too-good-to-be-true scams.

6. Get a HUD-Approved Foreclosure and Housing Counselor

The U.S. Department of Housing and Urban Development (HUD) offers free or low-cost resources for you to use. They have financial and housing counseling available to you nationwide.

These housing counselors are here to help you understand the laws in your state. They will:

  • Talk you through all your options
  • Help you understand and organize your finances
  • Represent you in negotiations with your mortgage company
  • Communicate and work with your lender

You can contact a HUD-approved housing counselor by calling (800) 569-4287 or TTY (800) 877-8339.

7. Re-prioritize Your Expenses and Spending

Keeping your home should be one of the biggest priorities you have, along with other needs of you and your family. 

If you have not already done this, you need to review your finances. In most cases, there are clear ways to cut luxuries out and reduce spending so you can make the mortgage payment.

Look for the obvious optional expenses even though they are the fun extras that most people desire. Things like having cable TV, a gym membership, or shopping at high-end grocery stores are things you can eliminate for a while.

If you have credit cards, it may be necessary to speak with your credit card company or a credit counseling agency about options for late or missed payments as well. This may mean interest costs add up, but it could give you time to catch up on mortgage payments.

8. Sell Assets to Keep Your House

You may need to sell assets that will bring in money to pay your mortgage. You can often sell things like:

  • Second or third cars
  • Motorcycles, boats, or other "toys"
  • Jewelry
  • Life insurance policies

Many of these items can be sold for cash. The extra money can help cover a month of your mortgage or help reinstate your loan.

You can also take action to show your lender that you are committed. You or someone else in your household can get a second job or do side work to bring in some extra income. While this may not be enough to cover the mortgage, it will show your lender that you are serious about keeping your home.

9. Avoid Using 'Foreclosure Prevention' Companies

There are companies out there who claim to help you prevent foreclosure. The catch is that they ask for hefty fees to provide foreclosure prevention services to you. Avoid these companies and use the money to help pay down your mortgage.

While some of these companies plans may not be a scam, they charge high fees for information that you can get for free. They might offer to negotiate with your lender for you, but you can accomplish this with a free HUD-approved counselor instead. Avoiding companies like this can often save you thousands of dollars that can be put toward your mortgage instead.

10. Avoid 'Foreclosure Recovery' Scams

Any person or business that says they can "immediately stop your foreclosure" should be a red flag. These companies will ask you to sign a document that lets them act on your behalf. Do not sign anything!

These scams can make you sign over your own house, and then force you to rent the house from them. Do not sign anything unless you read it and fully understand the document. Have an attorney look documents over if you can.

Get professional advice from an attorney, a trusted real estate professional, or a HUD-approved housing counselor before taking any actions in regards to your foreclosure and mortgage.