Sidestep landmines that can lead to foreclosure

Laura T. Coffey • Profile • E-mail

There’s almost nothing more stressful – and more soul-crushing – than the specter of losing your home because you can no longer keep up with your mortgage payments. Thousands of homeowners across the United States are living with this fear, and many of them are convinced that it’s too late to avoid the worst.

That, however, might not be the case.

No matter how bleak your financial situation may seem, you still may be able to avoid having your loan servicer foreclose on your property. And foreclosure is something you absolutely want to avoid. With a foreclosure on your credit report, your credit rating will be severely damaged – so much so that it may be difficult for you to find landlords who will let you rent from them.

If you’re struggling to stay afloat – possibly because a real estate agent encouraged you to buy more house than you could afford, or because you got funneled into a toxic mortgage loan that has ballooned exponentially on you – consider the following tips, and also check out the helpful resources listed at the end of this column.

1. Face the problem head-on. Have you fallen into the habit of throwing all the ominous-looking mail you’re receiving from your mortgage lender into a big pile – and then not opening any of it? If so, snap out of this state of denial pronto! By responding to your mail quickly, you could be directed toward viable foreclosure-prevention options. That’s a good thing, not a bad thing. Credit and housing counselors say they’re approached all too often by people who waited months to stop ignoring the problem and get help. By that point, though, many of them had already received foreclosure notices in the mail.

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2. Contact your lender and explain your situation. This step may scare you to death – but do it anyway. Here’s why: Depending on your circumstances, your lender may reduce your interest rate, lower your monthly payment to make it more affordable for you, or agree to a repayment plan for any payments you’ve missed. This won’t happen in every case, mind you – but you stand a better chance of getting this kind of a response from your lender if you reach out sooner rather than later. Finding the correct lender to call may prove to be your biggest challenge, though. Mortgage loans often get sold again and again, so it may require plenty of perseverance on your part to figure out who owns your loan. Start the process by calling the company that receives your mortgage payment.

3. Understand your mortgage rights. As unappealing as this task may seem, dig out that pile of loan documents you received when you bought your home. Start scanning them for the answer to this question: What can your lender do to you if you’re unable to make your mortgage payments? Being armed with this information will equip you to have smart conversations with your lender about your situation. You also need to learn about the specific foreclosure laws and time frames in your state. Contact your state government’s housing office or department to find out which rules apply where you live. To track down the correct agency, do a quick Internet search for the name of your state along with the words “state government housing office.”

4. Consider selling your home. This may be one of the most painful decisions you’ll ever make, but it could be the right decision if you were sold more house than you can afford. Selling your home on your own terms sure beats having your home taken away from you, and money from the sale could cover your mortgage debt and selling costs in full. Even if it takes you months to sell your home, the decision to sell could relieve your stress levels immediately. Here’s why: Your lender likely will suspend foreclosure proceedings once your home is on the market, thus preserving your credit rating. In fact, your lender may even allow you to stop making mortgage payments until the house is sold.

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