How to Avoid Home Foreclosure

There are three main types of home mortgage loans:

1. Conventional loan - from banks and finance institutions
2. FHA Insured Loan
3. VA - Veterans Association Loan

The following information applies directly to FHA [HUD] loans, but many points also apply to the other types of mortages.

Homeowners With FHA Insured Loans

If you start defaulting on your loan repayments you could face foreclosure. Foreclosure means the lender can take possession of your home and sell it to recover the default plus any sale fees.

You will be required to move out of your home, and if the property is sold for less than the total amount owing, you could also face a deficiency judgment.

You not only lose your home, you also end up owing HUD an additional amount.

This is a very distressing situation to find yourself in. In addition, both foreclosures and deficiency judgments can seriously affect your ability to qualify for credit in the future.

Hence, avoid foreclosure if at all possible.

How To Avoid Foreclosure

To have the best possible chance of avoiding foreclosure:

1. Stay in your home. You may not qualify for assistance if you abandon your property.
2. If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
3. Do not ignore any pre-lien or default notices from your lender.
4. Contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 for the housing counseling agency nearest you. These agencies are valuable resources. They generally have information on services and programs offered by both Government agencies and private and community organizations. The housing counseling agency may also offer credit counseling. These services are usually free of charge.

Options To Foreclosure Sale

You may be considered for the following:

Special Forbearance.

Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments.

This generally applies during times when you experience a reduction in income or an increase in living expenses. You must still be able to prove you can meet the modified payments.

Mortgage Modification

If you can prove you have now recovered from a temporary financial problem, you may be able to refinance the debt and/or extend the term of your mortgage loan. T

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 current. To qualify for a partial cliam:

1. your loan must be at least 4 months, but no more than 12 months delinquent
2. 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 is due when you pay off the first mortgage or when you sell the property.

Pre-Foreclosure

If you are willing to sell your house before foreclosure, even if it is for an amount less than the amount necessary to pay off your mortgage loan, you may qualify for pre-foreclosure assistance. To qualify:

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

Deed-in-Lieu of Foreclosure.

As a final option you may voluntarily "give back" your property to the lender. Whilst this will not save your home, it will avoid damaging your credit rating with a foreclosure. To qualify:

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
3. you don't have another FHA mortgage in default.
   

Assistance Qualification

Your lender will determine if you qualify for any of the above options.

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.

Beware Of Scams

Be proactive, but do not rush into selling your home before contacting your lender or loan counselor for options.

Scam Buyers Vs Genuine Investors

There are genuine purchasers who do make a profit from buying your house less than market value, this is just good business and back luk on your part.

You will recognise the difference between genuine investment buyers and scammers by how fast they try to move you through the process and how much information they provide you with. A professional investor will explain all your options to you and help you assess the value of the deal being offered.

Equity Skimming

This is a scam where 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 them.

The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose.

DO NOT confuse this situation with Shared Equity Ownership, which is a legitimate business relationship where a buyer will buy a share of your home from you to get you out of trouble. By taking over the mortgage, you avoid risking default, and instead you pay an ongoing monthly payment - just like a rental or mortgage payment.

Remember - signing over your deed to someone else does not necessarily relieve you of your obligation on your loan. So if you are signing over your deed, make sure you get a release of mortgage at the same time.

Phony Counseling Agencies.

Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. Most of the services they offer you are available free from your HUD loan counselor.

If you have any doubt about paying for such services, AND before signing anything, call a HUD-approved housing counseling agency at (800) 569-4287 or TDD (800) 877-8339.

Precautions To Avoid Scams

A few precautions to 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 by contacting your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit.

Summary

The main points you should remember are:

1. Don't lose your home
2. Avoid damage your credit history.
3. As soon as you find yourself in trouble - contact your mortgage lender immediately and be honest about your financial situation.
4. Stay in your home to make sure you qualify for assistance.
5. Make an appointment with a HUD-approved housing counselor to explore your options at (800) 569-4287 or TDD (800) 877-8339.
6. Cooperate 100% with the counselor or lender trying to help you.
7. Explore every alternative to keep your home.
8. Beware of scams.
9. Do not sign anything you don't understand.

NEXT: Sub Prime Lending And Foreclosures

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