How to Stop a Foreclosure

Foreclosures are at an all-time high, and if you're like most people, your housing dollar has been stretched to the limit. A job loss or a decrease in salary can spell disaster and the loss of a home for many people. If you're facing the devastating prospect of foreclosure, it doesn't have to be the end of the world. There are ways you may be able to save your home, delay the foreclosure, or at least give it up gracefully.

The first and most important thing to do, but perhaps the most difficult, is to work proactively with your mortgage company from the very beginning. That is, before the foreclosure notice has been served. Granted, it's difficult to place a call to someone that's going to ask you for money that you don't have, but frequent and persistent phone calls may just head off disaster. When talking to your mortgage company, keep detailed records of every call, what was said and promised, and who you talked to. Also, if a mortgage officer makes you a promise, always follow it up with a written letter that restates the terms of the discussion. Never trust the mortgage officer to carry through with a promise, always make sure it's in writing.

When you receive a foreclosure notice, it doesn't mean you have to pack up and leave right away. You do have the right of reinstatement, which means that if you can come up with the past due amount plus penalties and fees within a certain amount of time, the foreclosure becomes void.

Keeping in touch with your mortgage officer may well yield some solutions. Some lenders have forbearance programs and may be willing to restructure the loan, by moving the past due payments to the end of the term to give you a new start. They may also be willing to offer you a work-out plan, which lets you take the past due amount and pay it off over several payments.

The "deed in lieu of foreclosure" does not, contrary to common belief, protect your credit. It merely gives the house back to the bank and cuts the foreclosure process short. The advantage to the homeowner here is that if the bank were to go ahead with foreclosure and then have trouble re-selling the property, you may be held liable for any additional losses the bank may incur. As such, if you're sure you're going to lose the house anyway, offering the deed in lieu of foreclosure may save you some time and trouble, and possibly some extra expense.

It's always possible to sell the home on a "short sale." Your realtor will be able to help you with this, and may be able to stop the foreclosure proceedings. It's also possible that if the resale value is high enough, and you have enough equity, you may even be able to walk away with some cash. There are investors who specialize in buying properties in foreclosure.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.