Real Estate: How to Avoid Foreclosure FAQs

Financial misfortune can happen to anyone, and a major concern for any homeowner is facing foreclosure. Check out common questions and answers on avoiding foreclosure and saving your home.

• Are there alternatives to foreclosure I should look into?
• Are there ways to avoid foreclosure?
• Do I qualify for any of the alternatives to foreclosure?
• If I miss my mortgage payments, what happens?
• Should I be concerned about scams?
• What precautions can I take to avoid scams?

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Q: Are there alternatives to foreclosure I should look into?

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• A: Yes, there are several options you may want to explore, including:
  • Special forbearance. Your lender may be able to arrange a repayment plan based on your financial situation. Your lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you recently lost your job or your source of income, or if you had an unexpected increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan
  • Mortgage modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay)
  • Partial claim. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current. You may qualify if:
  1. Your loan is at least 4 months delinquent but no more than 12 months delinquent
  2. Your mortgage is not in foreclosure; and
  3. You're able to begin making full mortgage payments

  When your lender files a partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must sign a promissory note for this loan, and a lien will be placed on your property until the loan is paid in full. The loan is interest-free and will be due if you sell or leave your property, or when your mortgage matures

  • Pre-foreclosure sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:
  1. The "as is" appraised value is at least 70 percent of the amount you owe, and the sales price is 95 percent of the appraised value
  2. The loan is at least two months delinquent prior to the pre-foreclosure sale closing date; and
  3. You're able to sell your house within three to five months (depending on what your lender agrees to)

  An additional benefit to this option is the assistance you'll receive with the seller-paid closing costs

  • Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it can help your chances of getting another mortgage loan in the future. You can qualify if:
  1. You're in default and don't qualify for any of the other options
  2. Your attempts at selling the house before foreclosure were unsuccessful; and
  3. You don't have another FHA mortgage in default

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Q: Are there ways to avoid foreclosure?

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• A: Yes, there are several things you can do to avoid foreclosure:
  • Don't ignore the letters from your lender
  • If you're having problems making your payments, contact your lender immediately. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help
  • Stay in your home for now. You may not qualify for assistance if you abandon or walk away from your property
  • Contact a HUD-approved housing counseling agency. They have information on services and programs that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge
  • If you bought your home with a Veterans Administration (VA) guaranteed loan, call the VA office nearest you

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Q: Do I qualify for any of the alternatives to foreclosure?

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• A: A housing counseling agency or foreclosure consultant can help you determine which, if any, of the alternatives to foreclosure may meet your needs. You should also discuss the situation with your lender.

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Q: If I miss my mortgage payments, what happens?

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• A: Foreclosure may occur. This is the legal means your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, your lender or HUD could seek what's called a deficiency judgment. If that happens, you not only lose your home, you also would owe your lender or HUD an additional debt.

  Also, foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future.

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Q: Should I be concerned about scams?

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• A: Yes. Scams artists prey on homeowners in foreclosure! Solutions that sound too simple or too good to be true usually are.

  If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.

  Be especially alert to the following:

  • Equity skimming. In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, doesn't make any mortgage payments and allows the lender to foreclose. Remember that signing over your deed to someone else doesn't necessarily relieve you of your obligation on your loan.
  • Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services call a HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

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Q: What precautions can I take to avoid scams?

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• A: Here are several precautions that should help you avoid being "taken" by scam artist:
  • Don't sign any papers you don't fully understand
  • Make sure you get all "promises" in writing
  • Beware of any loan assumption where you're not formally released from liability for your mortgage debt and contracts of sale
  • Check with a lawyer or your mortgage company before entering into any deal involving your home
  • If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state attorney general's office, state real estate commission or department, or your local district attorney's consumer fraud unit for this type of information