How To Avoid Foreclosure

Although the headlines aren't filled with news about foreclosures as they were a few years ago, there is still an alarming number of Americans who have lost their homes to foreclosure or are facing the prospect of it very shortly. A home means many different things to people. But nearly everyone who is a homeowner feels a sense of pride and accomplishment in being able to own their own home.

Unfortunately, American consumers are still feeling the effects of the economic recession and mortgage crisis which began in 2008. Unemployment is still at a very high level and job security continues to be shaky. Add to this the meltdown of the housing market and it's easy to see why so many people are seriously delinquent with their mortgage payments or are facing the possibility of foreclosure.

If you now find yourself in this very emotionally charged situation, there are some important facts which you should consider before making a decision on how best to handle your financial/mortgage dilemma. The biggest mistake most people make is to ignore the situation and do nothing. Or they wait until it's too late and foreclosure is the only option.

As soon as you realize you cannot make on-time monthly mortgage payments, contact your mortgage company immediately and explain the circumstances. Contrary to popular belief, mortgage companies don't want to start foreclosure proceedings. They are time-consuming and expensive. This may be incentive for them to work with you on a repayment/restructuring plan.

Even if you have decided you don't want to keep your home, you should make every effort to avoid foreclosure. This legal process can seriously damage your credit rating and may make you ineligible for a Fannie Mae mortgage for the next seven years. You may also be required to pay your mortgage company thousands of dollars (or more) if there is a deficiency between what you owe and what the home is worth. Here are some points to consider:

If you want to keep your home

If your mortgage is currently more than 30 days past due, your mortgage company will most likely start foreclosure procedures over the next 2-3 months. You should speak with your mortgage company as soon as possible to see what payment arrangements, if any, can be agreed upon. If you have the past due amount (along with any fees) and can pay it to your mortgage company, that should be sufficient to bring your mortgage account current.

If you don't have the entire amount but feel you can make extra payments to bring the account current over a few months, offer the mortgage company this option. Most companies will work with their customers to formulate a reasonable repayment plan. The following options are alternatives to foreclosure which also allow you to remain in your home:

It's very important that you are realistic when trying to negotiate a repayment schedule. As much as you may want to hold on to your home, if making the mortgage payments (plus paying the overdue amount) is going to place an enormous financial burden on you, it may not be worth it in the long run. Selling your home is another alternative you may wish to consider.

If you don't want to keep your home

If you've made the decision that you cannot afford to keep your home, your first step will be to contact an appraiser or real estate agent and find out the market value of your home. If you are lucky enough not to be underwater with your mortgage (owe more than the home is appraised at) you can try to sell your property and bank the profits. Remember that you may have to pay closing costs and real estate commissions.

If selling your home outright isn't an option there are other solutions which you might want to consider. These are:

Both of these options do impact your credit rating but not as severely as a foreclosure. With either of these options, be sure to read the contract carefully. If you have any questions or concerns you might want to consult a real estate attorney. In this way you can be certain of what you are signing and agreeing to.