Dealing with Possible Home Foreclosure
publication date: Mar 23, 2009
Confront and take charge of the money challenges you face. Just as many folks do when consumer debt (on credit cards and auto loans) gets overwhelming, many people falling behind on their mortgage payments want to run and hide. Mortgage statements and bills go unopened and calls from the lender go unanswered and unreturned. Some folks with excessive credit card bills do the same thing.
Communicate with your lender and level with them about your problems. That said, don't allow any person at a financial institution to berate or verbally abuse you. Find a way to do the best you can. Avail yourself of counseling and try negotiating better mortgage terms (more on these topics in a moment).
The first step in taking the bull by the horns when you're drowning in mortgage debt is to zoom out to 30,000 feet and look at your entire financial situation. Tabulate all of your debts and spending. While your housing expenses are surely a significant portion of your total expenditures, they are probably less than the majority of your typical monthly expenses.
So long as you're not going to declare bankruptcy, you should make a list of assets you might tap to help meet your mortgage payments. Assets could include bank saving accounts, mutual funds, stocks, bonds, cash value life insurance policy balances, unneeded personal property you could sell, etc. Be sure you fully understand all tax consequences before liquidating any investments to help make mortgage payments.
A number of non-profit organizations offer low cost or free counseling to home owners in danger of losing their home to foreclosure. The best way to find those agencies is to contact the U.S. Department of Housing and Urban Development (HUD) "Subsidized Counseling and Referral line" at 800-569-4287. Simply enter your five digit zip code and select the "default, foreclosure and mortgage delinquency counseling" option to obtain the name and phone number of an approved counseling agency near you. Alternatively, you can visit the HUD web site and then click on the link for your state.
Smart lenders don't want your property to end up in foreclosure, especially if the mortgage balance exceeds what the lender could reasonably expect to net (after selling and other expenses) from selling the property. If your current mortgage terms appear to doom you to foreclosure, contact your lender and plead your case to have your loan modified.
For ideas on how to customize your current loan terms to help you afford your home, consult with a local HUD approved counselor. Most lenders will make your current loan more attractive (e.g. reduced interest rate, change to a fixed-rate from an adjustable) if doing so will keep you out of foreclosure and keep you making monthly payments.
The National Foundation for Credit Counseling (NFCC) has published a useful piece on foreclosure - not only what steps to consider but also what pitfalls and scams to avoid.
For assistance with reviewing your entire financial situation including a discussion of all of your options for dealing with your debt and reducing your spending, please see the most recent edition of my book, Personal Finance For Dummies, 5th edition (Wiley).