How To Stop A Foreclosure

Popular belief holds that once the foreclosure process starts, it is impossible to stop. Fortunately, that is rarely true. If you know what to do and when to do it, it is possible to stop foreclosure so you can save your home. If saving the home is not an option, you can at least prevent foreclosure so that it does not affect your credit rating and your chances of getting a mortgage in the future. The important point is that you do not leave it too late, because the longer you ignore the problem, the fewer options you will have.

Stop Foreclosure before the Process is Put in Motion

Missing one mortgage payment is not an issue in most cases, as long as you tell your lender as soon as you know you will miss a payment. You will need to explain why making payments is currently a problem, and they may ask for additional financial information such as your current income and expenditure. Usually the lender will extend forbearance, meaning they will set a date at which you must be up-to-date with all mortgage payments. If you are missing one payment, the due date will usually be the date that the next payment is due. On this date, you'll pay the current payment and the one you missed.

What if you are likely to miss several payments? If you inform your lender, they may still be willing to extend forbearance, again on the condition that you make up the missing payments by the date they specify.

Alternatively, if you know you will miss a number of payments but also know that in the near future you will have no further problems with cash flow, the lender may allow you to miss the payments on the condition that your future payments include a portion of what you owe until the missing payments are made up. In most cases, as long as you inform your lender early, they will be willing to work with you in solving the problem.

If your problem is that you cannot afford your mortgage payments in the long term, and do not see the situation changing, your lender might be willing to modify the terms of your loan to make it affordable, by changing your amortization schedule to reduce your monthly payments. If you currently have a 30 year fixed rate mortgage, for example, they may be willing to modify that to a 40 year mortgage.

Finally, if you have an FHA loan, you have another option. If your mortgage is between four and twelve months in arrears, and you are able to make mortgage payments each month once the initial problem of overdue payments is taken care of, you may be eligible for an interest-free loan from the FHA Insurance Fund.

In all of these situations, the key is that you inform your lender immediately you know you're going to have a problem making mortgage payments. A lender is far more likely to be willing to help you if you're honest and up-front about your problem.

What to do if Foreclosure has Already Begun

If you are serious about wanting to save your home, preventing the foreclosure is going to require finding the money to make up all of your missed payments. This will stop foreclosure, regardless of how far along the process is, as most state laws require that your lender accept a full repayment of arrears. Don't be embarrassed to attempt borrowing money from family or friends-this is not the time to hold onto your pride. Alternatively, taking out a loan may be an option, particularly if you have already built up a good amount of equity in your home, and your credit rating is still good.

Note, however, that this is only a good idea if you know you will be able to keep up with both the mortgage payments and loan repayments in the future-there is no sense in holding onto the house if you cannot afford the mortgage.

If you are content with preventing foreclosure and do not need to keep your home, you have some other options. In these cases, your main objective is selling the home before foreclosure actually occurs, to prevent further damage to your credit rating. If you know that you cannot afford to live in your home, selling is always the best option. You can attempt to sell the home at current market value, or try to arrange a deal for a short sale with your lender. In this case, your lender will agree to take a loss if you have to sell the property for less than you currently owe them. Another option is a pre-foreclosure sale, which in effect stops the foreclosure process as long as you meet certain criteria and can sell your home within a period of time agreed upon by your lender.

Finally, if all else values, there is a last resort solution-a deed-in-lieu of foreclosure. In this case, you are essentially giving your property to the lender rather than allowing them to foreclose. This will unfortunately damage your credit rating, but not as severely than a foreclosure would.