If you fail to make your home mortgage payments, your lender may initiate foreclosure proceedings. Foreclosure is the legal means that your lender can use to repossess your home. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued by the lender. If that happens, you not only lose your home, you would also owe your lender an additional amount to make up for the difference between the amount owed on the mortgage and the foreclosure sale price of the house. Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. Below are 10 valuable tips provided by the U.S. Department of Housing and Urban Development about avoiding foreclosure:
1. Don't ignore the problem. The further behind on your payments you become, the harder it will be to reinstate your loan and the more likely that you will lose your house. It is advisable to acknowledge and confront your inability to make your mortgage payments as soon as the problem occurs.
2. Contact your lender as soon as there is a problem. Lenders do not want your house. They have options to help borrowers through difficult financial times. There are typically many more options available to a borrower who contacts their lender as soon as they realize they will have a problem making their mortgage payment.
3. Open and respond to all mail from your lender. The first notices you receive will offer good information about foreclosure prevention options that can help you work through financial problems. Later mail may include important notice of pending legal action. Ignoring or failing to open mail from your lender will not prevent foreclosure.
4. Know your mortgage rights and foreclosure laws. Find and read your loan documents so you know what your lender may do if you default on your mortgage payments. It is also important to become educated on Michigan's foreclosure laws.
5. Understand foreclosure prevention options. Several pre-foreclosure strategies can be employed by borrowers to help avoid foreclosure. These options include forbearance, mortgage modification, a short sale, and a deed in lieu of foreclosure. Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender.
6. Contact a HUD-approved housing counselor. The U.S. Department of Housing and Urban Development funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance.
7. Prioritize your spending. After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending and optional expenses so that you can afford to make your mortgage payment. Also, it is advisable to delay making payments on unsecured debt, such as credit cards, until you are current on your mortgage payments.
8. Use your assets and increase your income. Do you have assets such as a second car, jewelry, a whole life insurance policy that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
9. Avoid foreclosure prevention companies. You don't need to pay fees for foreclosure prevention help. Instead, use that money to make your mortgage payments. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee for information and services your lender or a HUD-approved housing counselor will provide free.
10. Beware of foreclosure recovery scams. If you rely on a firm that claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may become the victim of a foreclosure recovery scam. Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD-approved housing counselor.