If you fall behind in making your mortgage payments, don’t hide from the situation. Contact your lender immediately. The sooner you do, the more options may be available to you. Typically, if you work directly with your lender, they develop appropriate work out solutions for you. A lender is motivated to help you stay in your home. Lenders generally do not benefit if the home goes into foreclosure. Foreclosure can be a complex process in which lenders must strictly follow state and local laws, go through legal channels, take possession, often make repairs, market the home, and successfully sell it. Because of the extensive costs and effort involved, lenders usually consider foreclosures a “last resort.”
The U.S. Department of Housing and Urban Development (HUD) provides a list of approved housing counselors on their Web site: www.hud.gov. A HUD-approved housing counseling agency can help you assess your financial situation and recommend where you can cut costs, enabling you to pay the past due amount, if possible. The counselor can also help you negotiate with your lender. The Homeownership Preservation Foundation has a National Assistance Hotline – 1-888-995-HOPE (888-995-4673) – that provides advice, assistance and support to help individuals and families who are struggling financially to stay in their homes. For additional information, visit www.hopenow.com.
If you cannot pay the entire amount you owe on your loan, discuss a loan workout arrangement with your loan servicer. This means restructuring the loan in a way that enables you to repay. There may be several different options.
Talk to your lender about the possibility of establishing a new repayment schedule for your mortgage. This is known as a loan modification, or restructuring of the loan. (If you have a Federal Housing Authority (FHA) mortgage loan, this restructuring is known as “loan assignment.”) Loan modification is a change in one or more of the mortgage loan terms in order to make the monthly payment more affordable given the borrower’s present financial situation. These changes may be made on a temporary or permanent basis and could include changing the loan’s interest rate, monthly payment amount, or time available to repay.
If your financial circumstances dramatically change, you may not be able to find a way to pay your loan – even after working with your lender and a housing counselor. You may find that the best option is not to keep your home. In this case, one option may be a short sale, or pre-foreclosure sale. A lender will typically want the home’s sale price to repay what you owe on the mortgage, but may be willing to accept an amount less than what is owed. Discussing the short sale option with your lender as early as possible is helpful. Don’t sell your home for less than what you owe without talking to your lender first. Another option may be a deed-in-lieu of foreclosure. This is when you give your property back to the lender.
Bankruptcy is a legal process that involves seeking the help of the U.S. Federal Court to release or “discharge” some of your debts and get a fresh start financially. Bankruptcy is a serious matter that can have significant, long-lasting consequences. Bankruptcy law is complicated and changing. It’s essential to get professional counseling about your options. For more information, see the topic Using Credit to Your Advantage, or click on Library.