How to prevent foreclosure on your mortgage

During 2012, more than 1.5 million homeowners suffered through foreclosure per RealtyTrac. While there is little doubt, the first and foremost way to avoid foreclosure is to pay your mortgage on time.
However, there are extenuating circumstances including job loss, divorce and health issues that make this option next to impossible for thousands of homeowners. Fortunately, a foreclosure notice may not always mean a homeowner will suffer through a black mark on their credit report. There are options that should be explored by anyone facing potential foreclosure.

Contacting the lender

One of the most common problems faced by homeowners is a fear of contacting their lender when they get into trouble. One of the worst things to do is ignore a foreclosure notice. Contact the lender immediately and find out if it is possible to set up an agreement with them to pay back the amount that is in arrears. Fortunately, HUD has several programs available that make it easier than ever for lenders to work with borrowers.

Consider contacting an attorney

One option a struggling homeowner may wish to consider is a bankruptcy filing. While the new bankruptcy laws are very stringent, requiring a credit counseling service and a means test, this may be a viable option. When a consumer files bankruptcy and with the approval of the court, there are some assets that are "safe" from liquidation. In nearly all cases, a primary residence is one of these assets. Bankruptcy filings will stop any foreclosure actions placed by a lender allowing the borrower to work with the bank to repay the arrears on their mortgage over a longer period of time. While most people do not want the stigma associated with bankruptcy, in some cases, this may be a viable option.

Consider a short sale or deed in lieu

While most homeowners do not want to consider losing their home completely, this is not always the best option. For a homeowner who feels they are going to be unable to meet their mortgage obligations going forward, a short sale or deed in lieu of foreclosure may be viable options. These options work as follows:

• Deed in lieu: Some mortgage notes are written in a manner allowing the homeowner to turn the deed of the property back to the lender instead of going through the foreclosure process. Before agreeing to this process, a homeowner should speak with the lender and confirm they will not be held liable for any deficiency. This is especially important if the amount of the existing loan is higher than the value of the home. Some lenders will not accept a deed in lieu unless the home is listed for sale.
• Short sale: The short sale procedure is more complex than a deed in lieu of foreclosure. Before a homeowner elects for this method, it is imperative they have a discussion with their lender. A short sale occurs when a home is sold to another person for less than the amount of the outstanding mortgage. These sales are impossible to complete without the lender agreeing to the terms and conditions. In addition, it is crucial the current homeowner ask the lender about any deficiency, especially if they live in a state where deficiency judgments are allowed.

When a homeowner is facing foreclosure it is likely because they are facing some unusual financial problems. There are options to foreclosure that must be investigated carefully before deciding which is most feasible for your individual circumstances. When a homeowner wishes to keep their home, bankruptcy, forbearance agreements or loan modification are options. When a homeowner feels they are unable to maintain their home, a deed in lieu of foreclosure or a short sale may be the best option.

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