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How to Avoid Foreclosure
The guidance below (and in the "How to Avoid Foreclosure" pamphlet) is applicable to homeowners with FHA Insured loans. While a good deal of this information may apply to all homeowners in danger of losing their homes, not all of the foreclosure avoidance tools mentioned 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.
What Happens When I Miss My Mortgage Payments?
Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount.
Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.
What Should I Do?
DO NOT IGNORE THE LETTERS FROM YOUR LENDER. 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.
What Are My Alternatives?
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. You may qualify for this if you have recently experienced
a reduction in income or an increase in living expenses. You must
furnish 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 may
help you catch up by reducing the monthly payments to a more affordable
level. You may qualify if you have recovered from a financial problem
and can afford the new payment 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 current.
You may qualify if:
your loan is at least 4 months delinquent but no more than
12 months delinquent;
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 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:
the loan is at least 2 months delinquent;
you are able to sell your house within 3 to 5 months; and
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:
you are in default and don't qualify for any of the other
options;
your attempts at selling the house before foreclosure were
unsuccessful; and
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.
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.
Q: Are There Any Precautions I Can Take?
Here are several precautions that should help you avoid being "taken"
by a scam artist:
Don't sign any papers you don't fully understand.
Make sure you get all "promises" in writing.
Beware of any contract of sale of loan assumption where you
are not formally released from liability for your mortgage debt.
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.
Call or write your mortgage lender immediately and be honest
about your financial situation.
Stay in your home to make sure you qualify for assistance.
Cooperate with the counselor or lender trying to help you.
Explore every alternative to keep 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 SELL YOUR HOME . Delaying can't help. If you do nothing, YOU WILL LOSE
YOUR HOME and your good credit rating.
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