If you’re facing money problems, the last thing you want to think about is the possibility of losing your home. Yet foreclosure is a real – and scary – consequence for many people these days.
One of the most important actions you can take right away is to contact your lender as soon as you are, or think you might be, in financial difficulty. Don’t ignore phone calls or letters, hoping that the problem will go away or worrying that the lender will immediately foreclose on your home. For the most part, lenders want to keep you in your home, and they may have options available to help you extend or refinance your mortgage with better terms.
If your financial problems are temporary, you may be able to work out one of the following options with your lender:
- Reinstatement – The lender accepts the total amount owed in one payment on or before a specific date.
- Forbearance – The lender reduces or suspends your payments for a short period of time. This option can be useful if you know you’re going to get enough money in the future to bring your payments up to date.
- Repayment plan – The lender allows you to resume your regular monthly payments plus a portion of the past due amount each month until you’re caught up.
- Mortgage modification – The lender changes the terms of your original loan to make the payments more affordable.
Although it may appear to be the most devastating option, giving up the property is sometimes the best solution available to you. If you can’t afford to stay where you are, throwing a lot of money into trying to save your home in the short run doesn’t make sense.
There are still options open to you if you think you cannot keep your property:
- Sale – The lender will give you a specific amount of time to sell your home and pay off what you owe.
- Short sale – If you can’t sell your home for the full amount you owe, the lender may accept less.
- Deed-in-lieu of foreclosure – The lender takes back your property and forgives your debt.
Personal bankruptcy is usually considered the option of last resort. A bankruptcy will stay on your credit report for 10 years, and may make it difficult for you to obtain credit, buy another home, or sometimes even get insurance. In a Chapter 7 bankruptcy, all debts are discharged, but you may lose your home anyway. In Chapter 13 bankruptcy, the court will approve a repayment plan that may allow you to keep property such as your home or car, while you pay off your creditors over three to five years. A qualified bankruptcy attorney can help you determine whether this option is right for you.
Before you reach the point of deciding whether you can keep your home, be sure to take advantage of many organizations in your community that can guide you through this process and help you with financial and housing decisions. In addition to talking with your lender, look for a housing counseling agency. A qualified housing counselor can review your financial situation, discuss a workout plan with you and your lender, negotiate on your behalf, and refer you to other community resources for any additional assistance with problems you’re having. The U.S. Department of Housing and Urban Development (HUD) maintains a list of national and regional housing counseling intermediaries at www.hud.gov/offices/hsg/sfh/hcc/nrhci.cfm or by phone at (800) 569-4287.
Another resource that can help you is a nonprofit consumer credit counseling agency. Counselors at these organizations can negotiate lower or long-term payments with your creditors, which might help you come up with the additional money you need to pay your mortgage. Trustworthy credit counseling agencies provide services at no cost or charge just a small monthly fee that is tied to a repayment plan. The National Foundation of Credit Counseling can refer you to a local member agency; visit www.nfcc.org or call 1-800-388-2227.
Before you contact any organization – or your lender – for assistance, you’ll need to pull together some documents that will help explain your financial situation and assets/liabilities. These include:
- Pay stubs
- Benefit statements from Social Security, unemployment, retirement, public assistance, etc.
- Tax returns
- A list of all your assets and financial resources
- A list of your household expenses (food and utilities, for example)
- Credit card statements
Your counselor will let you know how many months’ or years’ worth of documents you need to bring in.
These documents will help the credit counseling agency or housing counselor assess your financial abilities, work out a monthly budget and show how much money you have available to meet your obligations. Often, this personal financial plan can help you and your counselor decide on the best option for your mortgage.
Difficult situations such as potential foreclosures seem to bring scam artists out of the woodwork. Be prepared to receive all kinds of phone calls and letters from individuals and companies claiming they can restore your good credit, rescue your home and pay your mortgage. In reality, you’ll likely end up with no home and destroyed credit.
A legitimate company will not solicit your business through high-pressure direct marketing or make upfront promises. The company’s representatives will explain everything clearly, put all agreements and contracts in writing, and will welcome your desire to consult a lawyer, family member or other expert resource to help you make informed decisions. The Better Business Bureau, an attorney, your lender, or a nonprofit credit/housing counselor can advise you whether a company or offer seems “too good to be true.” Be sure to check with one of these resources before you sign any contract.
The common thread in all of these options is good communication. Don’t wait for your problems to compound before taking action. Contact your lender at the first sign of difficulty, and contact your local credit and housing counseling agencies for additional help. There are many resources available that will provide the expert guidance you need to help you through this difficult process.