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ISSUES
How to Avoid Foreclosure
This section explains how property owners can avoid losing their
homes because of late payments.
Q. What happens when I miss my mortgage payments?
Foreclosure may occur. It is the legal means that your mortgage
lender can use to repossess your home. When this happens, you
must move out of your house. Additionally, if your property is
worth less than the total amount you owe on your mortgage loan,
you could be pursued by your lender or the U.S. Department
of Housing and Urban Development (HUD)
for a deficiency judgment. If that happens, you not only lose
your home, but there also would be an additional debt that you
would owe to your lender or to HUD.
Foreclosure or a deficiency judgment could seriously affect your
ability to qualify for credit in the future. So you should avoid
it at all costs!
Q: If foreclosure does happen, what should I do?
• DO NOT IGNORE THE LETTERS FROM YOUR LENDER.
If you are having problems making your payments, call and write
to your lender without delay. Clearly explain your situation.
Be prepared to provide them with financial information, such as
your monthly income and expenses. Without such information, they
may not be able to help.
• Stay in your home for now. You may not qualify for assistance
if you abandon your property.
• Contact a HUD-approved housing counseling agency nearest
you. These agencies are valuable resources. They frequently have
information on services and programs offered by Government agencies
as well as private and community organizations. The housing counseling
agency may also offer credit counseling. These services are usually
free of charge.
• If you bought your home with a Veterans Administration
(VA) guaranteed loan, call the VA office nearest you.
Q: What are my alternatives to foreclosure?
Your options include the following:
Special Forbearance: Your lender may be able
to arrange a repayment plan which would be based upon your financial
situation and may even provide for a temporary reduction or suspension
of your payments. You may qualify for this if you have recently
experienced an involuntary reduction in income or an increase
in living expenses. You must have also furnished information to
your lender to show that you would be able to meet the requirements
of the new payment plan.
Mortgage Modification: You may be able to refinance
the debt and/or extend the term of your mortgage loan. This
will help you catch up by possibly reducing the monthly payments
to a more affordable level. You may qualify if you have recovered
from a financial problem, but your net income is less than it
was before the default (failure to pay).
Partial Claim: Your lender may be able to work
with you to obtain an interest-free loan from HUD to bring your
mortgage current. You may qualify if:
- Your loan is at least 4 months delinquent and no more than
12 months delinquent.
- Your mortgage is not in foreclosure and you are able to begin
making full mortgage payments.
When your lender files a Partial Claim, the
U.S. Department of Housing and Urban Development will pay your
lender the amount necessary to bring your mortgage current. You
must execute a Promissory Note, and a Lien
will be placed on your property until the Promissory Note is paid
in full. The Promissory Note is interest-free, and will be due
if you sell or leave your property, or when your mortgage matures.
Pre-foreclosure sale: This will allow you to
sell your property and pay off your mortgage loan to avoid foreclosure
and damage to your credit rating. You may qualify if:
- The as is appraised value is at least 70% of the
amount you owe and the sales price is 95% of the appraised value.
- The loan is at least two months delinquent prior to the pre-
foreclosure sale closing date.
- You are able to sell your house within 3 to 5 months (depending
on what your lender agrees to). An additional benefit to this
option is the assistance you will receive with the seller-paid
closing costs.
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 will help your
chances of getting another mortgage loan in the future. You can
qualify if:
- You are in default and don't qualify for any of the other
options.
- Your attempts at selling the house before foreclosure were
unsuccessful.
- You don't have another FHA mortgage in default.
Q: How do I know if I qualify for any of these alternatives?
A housing counseling agency can help you determine which, if
any, of these options may meet your needs. You should also discuss
the situation with your lender.
Q: Should I be aware of anything else?
Yes. Beware of scams! Solutions that sound to 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: This type of scam involves
a buyer approaching you and 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
them. The buyer then collects rent for a time, does not
make any mortgage payments and allows the lender to foreclose.
Remember that 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. While it doesn't necessarily
mean they're going to do anything bad, 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 contact a
HUD-approved housing counseling agency. Do this before you pay
anyone or sign anything.
Q: Are there any precautions I can take?
Here are several precautions that should help you avoid being
"taken" by scam artist:
• Don't sign any papers you don't fully understand.
• Make sure you get all "promises" in writing.
• Beware of any loan assumption where you are not formally
released from liability for your mortgage debt and contracts of
sale.
• Check with a lawyer or your mortgage company before entering
into any deal involving your home.
• 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 points I should remember?
• Don't lose your home and damage your credit history if
you can help it.
• Call or write your mortgage lender immediately.
• Stay in your home to make sure you qualify for assistance.
• Arrange an appointment with a housing counselor to explore
your options. Call 1-800-569-4287 or the toll free TDD number
1-800-877-8339.
• Cooperate with the counselor or lender trying to help
you.
• Explore every alternative to prevent losing your home.
• Beware of scams.
• 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.
There's a lot of information to read through on the Debt Education
website, but we feel this is extremely important material. We
strongly recommend that you bookmark
this page right now. This will allow you to read at
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