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Foreclosure Assistance Guide

The phone calls... the Notice to Accelerate... attorney fees... sheriff's sale... foreclosure. What does it all mean? How did this happen? Most important, is there any way to stop it and save your home?

While the number of foreclosures has declined from its peak in September 2010, over 933,000 mortgaged homes faced foreclosure proceedings in 2016.[1] If you're struggling to make payments or if proceedings have already started against you, there are strategies and programs in place to help. As painful as it may be, take the time to assess your situation honestly and plan your next action.

Scenario 1
Your financial situation is short term. You want to stay in your home. Whether it was unemployment, underemployment, medical costs, divorce, death, a natural disaster, or some other unexpected life event, you suddenly found yourself unable to make payments for a couple of months. You're reasonably sure that, given a few more months, you'll be back on track and able to resume paying. What are some of your options?

Reinstatement - Reinstatement is an agreement between the lender and borrower in which the lender agrees to accept a total amount lump sum by a specific date. Lenders often combine reinstatement with forbearance.

Forbearance - Forbearance means that the lender gives the borrower some time, usually not more than three months. During the designated period, payments are reduced or suspended. This option often depends on the assurance that money is coming your way shortly. Whether there will be an insurance settlement or a tax refund, you know the money is coming. You just need time. This option also requires a provision for catching up on missed payments.

Repayment - A repayment plan is an agreement that allows a borrower to resume a payment schedule adding a portion of the unpaid debt each month until the account is current.

Scenario 2
Your financial situation is long term. You want to stay in your home. Your honest assessment made it abundantly clear that the problem with paying is a long-term issue. A few months of forbearance won't solve your problem. You need a long-term solution. Here are some options to explore:

Modification - With modification, the lender changes the terms of the original mortgage. Qualifying borrowers may be able to add missed payments to their balance, change interest rates, secure a fixed rate on a previously adjustable rate loan, or extend the number of years.

Refinancing - Refinancing has a similar result to modification. Under some programs, refinancing can be done on homes that do not qualify for modification. Being in an upside-down loan (a loan where the mortgage is greater than the current value of the home) does not eliminate the possibility of refinancing.

Claim Advance / Partial Claim - If your mortgage is insured, you may qualify for an interest-free second loan to cover the missed payments. The second loan does not come due until you pay the initial mortgage off or sell the house.

Scenario 3
Your financial situation is long-term. You need to move to cheaper housing. Your honest assessment shows that you will not be able to keep up with your payments. Refinancing will not bring down payments sufficiently. It's time to get what you can for the house and move on.

Short Sale - In a short sale, the lender agrees to have the homeowner sell the house for a price that falls "short" of the amount still owed on the mortgage. It is important to read and understand the terms of the short sale. The mortgage company may agree to forgive the remainder. Alternately, the company may require the homeowner to pay the full amount. Under this second arrangement, homeowners typically still owe thousands of dollars that will take years to repay.

Deed in Lieu - Under a Deed in Lieu, the homeowner returns the deed to the lender "in lieu of" payment. The lender now owns the deed to the property. A "deed in lieu" hurts credit, but the effect is not as severe as a foreclosure.

Getting Help
Contact your lender - After missing a payment, inform your lender about your financial situation. Explain concrete steps you are taking to secure money for payment and to stay in your home.

Read or listen to all communication from your lender - While it may be tempting not to accept phone calls from your lender or to ignore letters, whatever your situation, you must welcome and understand the lender's communication with you. By law, the lender must inform you of all steps they are taking. Foreclosure can feel like it's happening very quickly. Do not ignore your lender's efforts to inform you. Understand the process and take action quickly.

Explore affordable home programs - The federal government has programs to help homeowners avoid foreclosures. Programs are available through HUD to help homeowners modify mortgages, reduce principal, modify second liens, refinance, or receive forbearance for unemployment or emergencies. Military personnel are eligible for special programs. If you need to leave your current home and find cheaper housing, the Home Affordable Foreclosure Alternative (HAFA) can help you make a managed exit.

You may be able to navigate the programs based on information that is readily available, or you may want a free counselor to help you select and follow through on the best program for your situation. The specifics can vary from state to state, so in addition to the federal programs listed, you will want to find out if additional help is available in your state. Information about free HUD-approved housing counselors is available here.

Pursue help through HOPE NOW - HOPE NOW offers counseling and events in various states designed to help you understand and tackle issues such as debt and foreclosure. Services are in connection with HUD and are free of charge. Click here to learn more.

A final word of caution... there are scams run by people who seek to benefit from hardships. You will want to avoid organizations that promise you quick solutions that require you to pay them or turn over the deed to your property, or that do not work directly with your lender. Turn to reliable sources that will help you manage your situation wisely and find long-term security.