Steps to Avoid Foreclosure

The best defense against foreclosure is a good offense. Lenders don't like taking back homes ? selling homes is not what they do, and they often lose money in the foreclosure process anyways. Communicate with your bank. Figure out what your total debts are, and tell the lender if your current money woes are temporary or long-term (i.e. job loss or pay cut). These days, there are several alternative options to entering foreclosure. To better find the one that suits you, it's important to understand what foreclosure is.

What is foreclosure?

When you accept a mortgage from a lender, you sign a contract that outlines the financial terms and nature of your relationship. One of those terms says that the lender can take possession of your property if you are unable to make the scheduled payments. That process is known as Foreclosure. The lender terminates your interest in the property, evicts you and puts the home up for sale. The consequences of foreclosure can be devastating for you and your family. Beyond the emotional toll, it can take up to 300 points from your credit score, which takes years of on-time payments to recover from.

Preemptive actions

Smart money management is the best way to head off any financial crisis. Saving money whenever you can and trimming unnecessary expenses when times get tough are the common-sense methods. If you've received a default notice, call them and discuss how you can avoid a Foreclosure. Make sure you ask to speak with the loss mitigation department, if they have one. A loss mitigator can detail the types of foreclosure alternatives available, such as forbearance, reinstatement, repayment, or liquidation through a short sale, and which ones you qualify for. No matter who you talk to, have all your financial records together, including statements from the lender, your job, your other bills, anything that will paint a clearer picture about your current financial situation. Try to organize all your paperwork in one folder.

If the lender isn't receptive, turn to your local housing agency, or contact the nonprofit, HUD-certified Homeownership Preservation Foundation at 1-888-995-HOPE.