Basic Strategies to Avoid Foreclosure – NFCC

Editor’s note: This post was originally published in August 2020.

If you’re worried about missing your mortgage payments, you’re probably looking for strategies to avoid falling behind or facing foreclosure.

Fortunately, there may be ways to find real help and stay current on your mortgage payments. Depending on what is causing your financial difficulties, small changes to your budget or a temporary relief program from your lender may be the answer. In other cases, avoiding deadlock may require more drastic steps. Here’s what you can do to find help.

What happens when you go into foreclosure?

Foreclosure is a legal process that allows a lender to take possession of a home. If you fail to make your mortgage payment for several months in a row, the lender may begin the foreclosure process.

The exact process varies by state and can take months or even years to complete. At the end of the process, the property will usually be sold to pay off some or all of the remaining mortgage balance.

Beyond losing your home, you can expect the process to damage your finances and credit. Here’s what happens:

1. Default: The loan can be considered in “default” if you are only 15 days behind in your payment. The lender may call you to try to find a solution, or send a notice of default stating how you can get current on your loan.
2. Seizure procedures: After 3 to 6 missed payments, the foreclosure process usually begins. Once initiated, you may have 90 days to work out a resolution with your lender. Some remedies may include repayment plans, forbearance, loan modification, refinancing or selling the home.
3. Notice of sale: If no settlement is reached, the lender will proceed with the sale of the property. If the home sells for less than you owe, you may have to pay the difference.
4. Loss of home: Once the foreclosure is complete, you must move out of the property.

The good news is that homeowners often have foreclosure prevention options from the event. In some cases, you can even stop the process after it has started. But the earlier you seek help, the better your chances of avoiding foreclosure.

3 options to prevent shutdown

Your options for preventing foreclosure depend on your situation. Before you fall further behind on your mortgage payments, review these options to see what might be right for you.

1. Adjust your budget

A somewhat obvious (but not to be overlooked) solution is that adjust your budget. The goal is to free up funds that you can reallocate toward your mortgage payment.

This may not help you much if you have already missed numerous payments, or if confiscation proceedings have already started. But if you’re just starting to struggle with your mortgage, this can help immensely.

The task will basically come down to eliminating everything you don’t need from your budget. This means cutting back on your “wants” and looking for ways to increase your income. Your options may include:

• Rent out part of your home
• Sale of valuables
• Canceling memberships you don’t use
• Downsizing to a more affordable vehicle
• Applying for government assistance to cover needs

2. Work with your lender

Working with your lender can be a critical step in saving your home. If you know you can’t make a future payment, or have already missed a payment, contact your lender or servicer immediately. Working directly with them can be a great way to find a solution that is affordable and tailored to your needs.

Their solutions may include the following:

• PATIENCE: For short-term difficulties such as temporarily reduced incomeforbearance helps you by giving you a certain period of time where you don’t have to make payments. These late payments are often paid at the end of the forbearance period as a lump sum, but some lenders offer a repayment plan or allow you to add missed payments to the end of the mortgage.
• Modification: Modification, which involves a total review of the terms of your mortgage, is usually available if you’ve had a permanent change in your finances and can’t afford to pay the mortgage up front.
• Refinancing: Depending on your credit scores and your mortgage details, you may be able to get a refinance loan to pay off your current mortgage. With refinance loans, you may be able to get a lower interest rate or a longer loan term than your original mortgage. This could mean lower monthly payments going forward.

3. Sell your home

While it’s rarely ideal, you shouldn’t overlook the possibility of selling your home and moving elsewhere. Maybe you’re hoping to keep your family home, or you’re just in love with where you live. But if you go through the jam, you’ll have to move anyway. If you sell, you can at least avoid some of the impact on your finances and credit.

Downsizing to a smaller home or apartment, or moving to another community where home prices are lower, can potentially equate to big savings, especially if you have some equity and the housing market is strong.

Do you have to pay for blocking prevention?

There are, unfortunately, many companies that take advantage of struggling homeowners. But it’s important to avoid any company that wants to charge you for this service, or that guarantees it can save your home.

For real help in determining which option is best for you, contact one NFCC Certified Credit Counselor. These nonprofit counselors are experts in all the foreclosure prevention options available. Not only can they help you work out your budget, but in some cases they can even step in to mediate between you and your lender.