How to Avoid Foreclosure

The following article applies to homeowners with FHA Insured loans. While much of this information is generic and, therefore, will apply to any homeowner in danger of losing their home, not all of the foreclosure avoidance tools mentioned in this advice may be available to you if you have a VA or conventional loan. Additionally, HUD/FHA does not have any Loss Mitigation oversight over VA or conventional loans. Please contact your lender or a housing counseling agency through hud.com.

Q: What happens when I miss Mortgage Payments?

Unfortunately, Foreclosure may happen. This is the legal means through which your lender can repossess (take back) your home. If this happens you, then by law you have to move out of your home. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment may be pursued. And if that happens, you not only lose your home, but you may owe US Department of Housing and Development (HUD) an additional amount.

Foreclosures and Deficiency judgments can seriously affect your ability to qualify for credit in the future. So it's best to avoid foreclosure if you can.

Q: What Should I Do in the event of pending Foreclosure?

1. DO NOT IGNORE THE LETTERS FROM YOUR LENDER. This is extremely important. If you are having problems making payments, call or write to your lender's Loss Mitigation Department without delay. Make full disclosure of your situation. Provide financial information where requested, such as your monthly income and expenses. For without such information, they may not be able to help.
2. You should be able to stay in your home for the time being. Though you may not qualify for assistance if you suddenly abandon your property.
3. Contact a HUD-approved housing counseling agency (available from the HUD Website) or call (800) 569-4287 or TDD (800) 877-8339 for the Housing Counseling Agency nearest you. It must be said the above agencies are valuable resources. They have information about their services and those programs offered by Government agencies, as well as private and community organizations that may be able to help you. The Housing Counseling Agency also offers credit counseling (usually free of charge).

Q: What are the Alternatives to Foreclosure?

It's possible you may be considered for the following:

Special Forbearance: Your lender may be able to arrange an alternative repayment plan based on your current financial situation. They may also provide for a temporary reduction or even a suspension of your repayments. You can qualify for this if you have experienced a recent reduction in income or increase in your living expenses. However, You must provide information to your lender to show you'd be able to meet the requirements of any new repayment plan.

Mortgage Modification: It may be possible to refinance your debt and/or extend the term of your mortgage loan. This can server to help you catch up on missed payments by reducing the monthly payments to a more affordable level. This may be permissible if you're able to demonstrate you've recovered from your financial problems and have the ability to pay the new amount.

Partial Claim: Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage payments up to date.

To qualify:

1. Your loan must be at least 4 months delinquent, but no more than 12 months delinquent;
2. You must be able to recommence making full mortgage payments.

If your lender files a Partial Claim, the U.S. Department of Housing and Urban Development (HUD) will pay your lender the amount necessary to bring your mortgage up to date. You must also execute (sign) a Promissory Note, resulting in a Lien (claim) being placed on your property until the Promissory Note is paid in full.

The Promissory Note is interest-free and is due when you clear the first mortgage or when you sell your property.

Pre-foreclosure sale: This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.

You may qualify if:

1. the loan is at least 2 months delinquent;
2. you are able to sell your house within 3 to 5 months; and
3. a new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure.

You can qualify if:

1. you are in default and don't qualify for any of the other options;
2. your attempts at selling the house before foreclosure were unsuccessful; and
3. you don't have another FHA mortgage in default.

Q: How Do I Know if I Qualify for Any of These Alternatives?

Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender. Call (800) 569-4287 or TDD (800) 877-8339.
Q: Should I Be Aware of Anything Else?

Yes. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

Equity skimming. In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency at (800) 569-4287 or TDD (800) 877-8339. Do this before you pay anyone or sign anything.

Q: Are there any Precautions I can take against Foreclosure?

Here are several precautions that should help you avoid being "taken" by a scam artist:

1. Don't sign any papers you don't fully understand.
2. Make sure you get all "promises" in writing.
3. Beware of any contract of sale of loan assumption where you are not formally released from liability for your mortgage debt.
4. Check with a lawyer or your mortgage company before entering into any deal involving your home.
5. If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.

Q: What Are the Main Things about Foreclosure I Should Remember?

1. Don't lose your home and damage your credit history.
2. Call or write your mortgage lender immediately and be honest about your financial situation.
3. Stay in your home to make sure you qualify for assistance.
4. Arrange an appointment with a HUD-approved housing counselor to explore your options at (800) 569-4287 or TDD (800) 877-8339.
5. Cooperate with the counselor or lender trying to help you.
6. Explore every alternative to keep your home.
7. Beware of scams.
8. Do not sign anything you don't understand. And remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation.

Act now. Delaying can't help. If you do nothing, YOU WILL LOSE YOUR HOME and your good credit rating.