Avoiding Foreclosure

Mortgages are a great tool to help you have the ability to purchase your own house. However, there is a possible negative aspect to a mortgage--if you miss your mortgage payments, a process called foreclosure may occur. Foreclosure is the legal means used by the mortgage company to take over, or repossess, your house when payments are not made.

When foreclosure occurs, you have to move out of your house. If your house is valued at less than the amount you owe on the mortgage, you may also have a deficiency judgment entered against you by your mortgage company. This means you will still owe an additional debt even after your houses is taken back. Both foreclosure and a deficiency judgment can seriously impact your credit, so they are to be strongly avoided.

Whatever you do, the worst option if you are having problems with your mortgage payments is to ignore the letters from your mortgage company. You should try to work with the mortgage company. You will need to provide them with information about your income and expenses. You should also stay in your home, as you may not qualify for any assistance if you give up possession.

You may qualify for a number of programs to help you with your situation. You may be able to obtain a special forbearance, where the mortgage company arranges a plan based on your financial situation. These are most often provided in situations where you have had unexpected problems such as the loss of your job or a sudden rise in living expenses. Be prepared to show your mortgage company proof of your situation.

You may also want to check into mortgage modification, where you use refinancing to get your mortgage to a more affordable level. This may be a solution if you have recovered from a financial problem but your income is less than it was originally. You could also be eligible for a Partial Claim through HUD. This is an interest-free loan from HUD to make your mortgage current. You may be eligible if you are more than 4 months but not over 12 months overdue, you are not in foreclosure, and you can make full mortgage payments.

Another option is a pre-foreclosure sale. This allows you to sell your property to pay off your mortgage without going through foreclosure and foregoing the related impact on your credit. For this option to work, your house must be appraised for at least 70 percent of what you owe, and sell for 95 percent of the appraised price. If you arenýt able to sell your house in time (usually three to five months) you may be able to voluntarily return your deed to the mortgage company. These options won't save your house, but will save your credit and allow you to get another house in the future.