First of all, don’t wait around, ask for help as soon as you realize there’s a problem with paying your mortgage. Banks and other loan servicers are becoming more willing to help now than they have been at any point during the current mortgage crisis. Sure, some of them are still bureaucratic nightmares to deal with but others are realizing that the political backlash against them could cause them to have to deal with even more regulation. Even if you fail to make any headway in preventing foreclosure, taking action can help your self-esteem much more than waiting around for things to happen to you.

Should you ask a government agency for help with your mortgage? That’s a good question. There are HUD-approved mortgage loan counseling services available that can help, provided you can get an appointment to speak with them. Many offices are having trouble keeping pace with the demand and with governments having to cut back on programs and expenditures to get their own financial house in order this situation may not improve soon. It is, however, always worth a try since these services are free of charge and can help you avoid mortgage repayment scams.

Some government sponsored agencies have been offering foreclosure prevention workshops. These can be helpful since they can gather all the necessary people and resources in one location. Just make sure that any foreclosure prevention workshop is government sponsored and not a trick by a dishonest mortgage service company.

Should you seek help from a private foreclosure service? I generally recommend that you avoid these services due to the dishonest nature that many of them have exhibited. Also, even if you find an honest foreclosure service, you’re probably no financial condition to pay for their services or to deal with the consequences of bankruptcy, something many of them push.

Should you seek a loan modification? While it is possible to get a lender to agree to change the terms of your existing loan to terms that you can afford, this can be quite difficult to do. Many homeowners who’ve pursued this route have ended up in worse trouble since lenders tend to accelerate the foreclosure process after a failed loan modification. I’m not saying that you shouldn’t try this avenue if it’s open to you but only not to hinge your entire financial future on it being successful.

Perhaps the biggest thing you can do to get help with your mortgage and financial life in general is to not apply for any more credit and work hard at paying down your current debts. At the same time, work out a budget plan so that you know how much you’re spending and what you can realistically afford when you pay cash. Once you’ve taken this step and really know the truth of your financial situation, you can begin to formulate a plan to help yourself get out of the mortgage trouble you’re facing.

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Remember that mortgage lenders are generally willing to work with homeowners to find a solution to avoid foreclosure if a feasible repayment plan can be worked out. In a forbearance, the lender agrees to temporarily cut or suspend mortgage payments until the homeowner can start paying a full mortgage payment again plus making up the missed payments.

A forbearance is typically only a viable option if you can show certain types of hardships that your lender approves of and that your income is expected to return to normal in less than 6 months, on average. Remember, a forbearance won’t help you if you’re have purchased a home that you can’t afford. In my experience, managing a forbearance is only possible if your regular payment amount is less than 30% of your monthly take home pay. Since loans are often made for more than this it may not be possible for a forbearance plan to work for you. In that case, you should pursue different options.

In order to grant a mortgage forbearance, mortgage lenders want to see that the delinquency was caused by an unexpected financial circumstance such as illness or injury. Some will accept a job loss as long as it’s a temporary situation. Surprisingly, few lenders will accept natural disasters such as a fire, flood or storm damage as a reason for a forbearance. The reason for this is that the property isn’t inhabitable and this increases the chance that the homeowner won’t continue to make payments. Beyond just the reason, the mortgage lender has to be assured that the borrower has a sound and reasonable plan to return to fiscal stability and can be relied upon to stay current on their mortgage payments afterward.

To begin a mortgage forbearance you should get in contact with the lender’s loss mitigation department. A customer service flunky or a collections agent won’t be able to help you with this. It is important that you take complete and careful notes about your interaction with this department. Stay polite and calm while you speak to them and in any written communication with them. It’s best to begin by asking for a homeowner’s assistance package or a forbearance agreement application. Sometimes the lender’s representative will ask you for details on your situation in writing although some will take a statement over the phone.

In general, most lenders will be willing to enter into a forbearance agreement if there are 3 or fewer delinquent payments on the the account. If  there are more, it is quite rare for them to negotiate an agreement. If you aren’t behind on your mortgage, then it is unlikely that they will be willing to negotiate an agreement with you until you are actually behind on payments.

A forbearance agreement generally calls for the borrower to pay back the loan delinquency within 3 to 12 months, usually by making an extra 1/2 payment each month including interest and late payment fees. Sometimes lenders will remove late payment fees but sometimes not, however, it doesn’t hurt to ask about this. Occasionally, they will tack on an inspection or appraisal fee. They will do this to insure that you’re still occupying the home and that the property hasn’t been abandoned. Lenders generally prefer a gradual repayment plan instead of a lump sum payment although some may accept this if the source of the funds can be verified. It is almost unheard of for a lender to extend the pay back time for more than 12 months so make sure any proposed repayment plan fits well within this timeframe.

Make sure that you carefully read any forbearance agreement you receive from the lender. If you’re unsure about any part of it, consult with the lender and with an attorney. Some lenders will try to sneak in additional terms and conditions that may cause you difficulty.

It is important not to abandon the property while you’re working under a forbearance agreement. Not only does this indicate to the lender that you’re likely to default on the loan, it may also disqualify you from tax advantages as well as government programs intended to help distressed homeowners.

Of course, a forbearance agreement will only work if you’re on solid financial ground where you will be able to overcome a temporary financial setback. If this isn’t true in your case you should examine other options that are more drastic than a forebearance.

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With the current credit crunch that dangerous period of time is now.  As these subprime mortgages reset to higher rates and thus higher monthly payments, many of these homeowners are in a financial bind. Many may even lose their homes because they can no longer afford payments. Should the homeowner lose income due to job loss the problem becomes more acute. Foreclosure proceedings usually start when a homeowner is ninety days late.

If you have an ARM, you should look at your personal finances to insure that you will remain solvent in these upcoming tough economic times we are facing in this recessionary period. Aks yourself these questions. How high can your monthly home loan payment go? Will you be able to afford it when it resets? Talk to your financial adviser and determine if refinancing to a fixed rate is the best thing for you to do. I believe that locking in a 30 or 15 year fixed rate home loan is the safest choice you can make at this time although everyone’s situation is different.

There are many mortgage and home loan companies that will provide you with refinancing options for your adjustible rate mortgage. Unfortunately, given the credit crunch, many of these companies have become much more stringent in regard to your credit worthiness for a fixed rate home loan. Today, it is much harder for most people to be able to borrow money than it was when they initially purchased their home or took out a second mortgage or home equity line of credit.

Do you need to refinace your home loan to avoid the subprime adjustable rate mortgage trap?

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First of all, you will want to gather up your financial documents. This should include your mortgage statements, both your primary mortgage and secondary mortgage if you have one. You will also need information that documents your income such as your current pay stubs and most recent income tax return. Additionally, you will want your recent bank statements and investment statements. Lastly, you will need to have other financial information such as amount owed on car loans, credit cards and any other consumer debt.

Now that you have all of your financial information together, go to the Making Home Affordable website and click on the “Find Out If You Are Eligible” link. Next, select the program type that best fits your situation, either loan modification or refinancing. You may want to review both your options to see which you’re most qualified for. If you don’t qualify for either program based on their web application and still feel that you need assistance with your home loan, don’t get discouraged. You may still qualify for other programs or for lender based loan modifications.

After you’ve determined your qualifications for the Making Home Affordable you will want to get in contact with a HUD-certified housing counselor. You can find one by calling the HUD information line at 1-888-995-4673 or going to the Department of Housing and Urban Development Foreclosure Avoidence Web site. You should be prepared to take notes when you speak with a housing counselor on the phone. Jot down the names of the people you talk to, the date and time as well as the basics of the conversation such as promises that were made or if your were denied. You should also receive a case number. I recommend keeping a notepad handy for this purpose because staying organized is quite important in this effort.

If your current lender gives you a hard time in your refinancing efforts, a new rule change may help you. This new rule allows homeowners who have a mortgage that is guaranteed by Freddie Mac to refinance with any Freddie Mac affiliated lender. You will also be able to roll a larger percentage of you closing costs into the refinancing as well. This additional flexibility in the program should help those who’ve had frustration in obtaining a home loan modification under the current rules from certain lenders.

It is important to remember that you must be current on your mortgage loan to qualify for a government-sponsored refinancing plan. Should you be behind on your home loan you may still qualify for a loan modification under the Making Home Affordable program.

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First of all, put your emotion aside and channel your energy into finding a solution to your problem. Dwelling on the emotion of the situation only makes it worse while taking action, even if it means finding and moving to a new location, can help you recover mentally from the blow. When you begin to think clearly and take action, you’ll feel much better. Let’s take a look at some of the basic steps you can take and who you can turn to who can assist you in this situation.

If you are having financial problems as serious as foreclosure, my first recommendation is to contact members of your extended family. Of course, this depends on how strong your family bonds are and how good your family relationships are. I understand that not everyone is blessed with a good family situation. But, if your relationship is good, don’t ignore the help you can get from them. Sometimes, they may be able to help you through a financial rough spot if they’re fully aware of the problem. But even if they can’t help financially, they can often help you deal with the problem at an emotional level. Sometimes close friends can substitute for family relationships but I always counsel caution when money is involved although emotional support is fine.

When one is dealing with foreclosure, one of the first places, outside of family and friends, to contact is with the Department of Housing and Urban Development (aka HUD). They can put you in touch with a HUD approved housing counselor. This counselor can give you some ideas you can use to avoid foreclosure. Even if your foreclosure cannot be stopped, these counselors have resources at their disposal that can help you find a new place to live.

You may also find it useful to contact an attorney who specializes in handling foreclosure cases. While bankruptcy is the most common way lawyers stop foreclosure they can have other tools at their disposal, such as determining if your lender has followed legal procedures correctly. Another thing that a good foreclosure attorney can do is provide an emotional buffer between you and the mortgage lender and their representatives. Since your lawyer doesn’t have an emotional stake in the dispute, they can shield you from the troubling emotions that can surround a foreclosure and speaking to lender on the phone or in person about it. The downside of hiring an attorney is the cost. If you’re having financial trouble, then one may not be affordable to you.

Real estate agents who specialize in pre-foreclosure sales and short sales may also be a helpful resource. Having an agent who knows the laws in your state and how to work with lenders on these sales can be a great asset. You do need to be a little wary about who you work with though. Some agents may be lazy in working with you for various reasons and others may push you toward questionable deals. I always recommend checking out the reputation of any real estate agent you work with but especially in the difficult situation.

In some cases, working with your mortgage lender themselves is an option. If your loan is through a smaller, local, bank or loan organization, this is a practical thing to do. They have an incentive to avoid foreclosing on properties in the mortgage portfolio and may be quite willing to work with you. If this is where your home loan is, by all means, contact them as soon as you can. However, if your loan is from a large national banks or if your loan has been sold on the secondary investment market it can be difficult or even impossible to contact anyone with any real decision making authority regarding your loan. At best, you’ll be put in touch with a low level cubical dweller who’s only interest is in following a pre-defined collection script and have no interest in hearing the details of your situation. Don’t put yourself through that kind of useless stress.

I hope this article has provided you with some ideas on who to consult when you’re dealing with a foreclosure.

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First of all, remember that if you’re in danger of falling behind on your mortgage payments it’s best to be proactive and move quickly to resolve the situation. If you act early, you’ll face fewer consequences financially and emotionally. Delaying and ignoring the reality of the situation will only make things worse for you.

Most mortgage loans are due on the first of the month and the borrower typically has a grace period of 5 to 15 to make the payment without a penalty. After this grace period most lenders impose a late fee that’s typically 3 to 5% of the missed payment. Some mortgage lenders have gotten more aggressive in calling home owners during this period over the past year. They’re doing this to head off potential problems down the road and to get a feel for the borrower’s financial situation. Naturally, it’s best not to be late on payments simply to avoid the late fee. These fees can add up and hurt you financially, especially if you’re struggling.

At 30 days past due, the problem becomes more serious because the mortgage lender will report you to credit reporting agencies as being delinquent. This single report can drop an excellent credit score to a below average credit score although some evidence suggests that credit scores that are already average and below average as less affected by this. This black mark on your credit score will make it more difficult to qualify for new loans, including a refinance on the home. It will also make other loans, like auto loans, much more expensive.

Also, at 30 days, you will begin to get calls from the collection department within the mortgage lender’s organization. Their typical home loan relief option is for you to make your back payment and current payment now. If you’ve faced a temporary financial set back, such as a short job loss, natural disaster or medical expense, and you will be financially able to get caught up, this is the point where you might want to consider working out a forbearance agreement. This agreement will allow you to get caught up on the missed payment over a 3 to 6 month time frame while stopping the foreclosure timeline. Of course, if you don’t meet the payment commitment, the lender will probably move more quickly toward foreclosure.

The payment negotiation period typically ends after 3 mortgage payments are missed, roughly 90 days. However, some lenders have let this go for longer periods given the current state of the real estate market and general economic conditions. But the negotiation period ends when the mortgage lender files a “notice of default” with your local courthouse. They will send you a certified letter, usually from their law firm, stating that the the foreclosure process will begin unless you make good the missing payments plus late fees and legal fees, typically within 10 business days.

At this point in the foreclosure timeline you should have already contacted the loss mitigation department of your lender. Depending on the lender and the type of loan, they may be able to offer you loan modifications, longer term forbearance agreements and other ways to avoid foreclosure. If your financial situation won’t be good enough to avoid foreclosure, you can still negotiate slightly less damaging alternatives such as a short sale or deed in lieu of foreclosure. Once the legal notice is filed, most lenders become a bit more hard nosed since they’ve had to pay a law firm so it’s quite important for you to try to work out something before things get to this state.

Another thing that happens at this point in the foreclosure timeline is that the borrower’s credit score is further damaged. Public notices like a notice of default are picked up by credit bureaus and this will depress credit scores to the point that getting almost any loan is impossible.

Since the notice of default is a public notice this will also bring a slew of scammers and opportunists to your mailbox, phone and even to your home. You’ll get all kinds of offers to ‘help’ you out but most of them will be dishonest to one degree or another. Be very wary of entering into any kind of buy back or foreclosure prevention program, especially if they involve you making payments to a third party or signing over the deed to your home.

After the notice of default, the borrower typically has about 90 days to make up the payments and fees in full. In states where non-judicial foreclosures are used a “notice of sale” is presented to the borrower, once again from the lender’s law firm, and this notice is made public as well. This means that the house will be sold at the next available legal sale date in that state or locality, usually 15 to 30 days after the notice. In judicial states, the process is often different but will follow a common time line. In this case, it’s best to consult a local foreclosure attorney to get an understanding of a particular state’s legal procedures and foreclosure timeline.

Lastly, you can halt foreclosure prior to the sale date if you bring the loan current and pay fees. For most people in this dire financial situation it’s not possible but some people have been able to do this. Some lenders will delay the sale and reinstate the loan if a substantial portion of the payments owed are paid and an agreement is struck to pay off the remaining fees in a short time. Others may delay the actual foreclosure pending the closing of an approved short sale deal. Others won’t do this. Of course, foreclosure can be also delayed by filing a lawsuit against the lender or declaring bankruptcy but these are basically stalling the inevitable and only put off, and don’t stop, the foreclosure timeline.

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However, there is still a way to get a low down payment home loan and that is a Federal Housing Administration (FHA) loan. With a FHA loan you will only need 3% of the total purchase price of the home until January 1, 2010 when this percentage goes up to 3.5%. In most of today’s real estate markets this percentage is doable to potential homeowners who’re able to practice a little financial discipline and save their money with the goal of home ownership in mind.

It is important to note that there are some aspects of FHA loans that a borrower should be aware of before they choose to go the low downpayment route.

First of all, FHA loans will tend to have higher rates than conventional loans. In most markets this difference will run between .5% and .75%. Occasionally you can find incentives from home builders that will pay down this rate difference so be on the lookout for these deals. A good points incentive plan may be able to null out this higher interest rate.

FHA loans require mortgage insurance and the initial insurance premium, that is usually rolled into the loan, is about 1.75% of the total amount of the home loan. On top of that there’s an annual 0.55% premium. This could easily add another $100-200 to your monthly payment so make sure that you take this into consideration when you are planning your budget.

The interest rate FHA loans are also sensitive to the credit score of the borrower, just like conventional loans. Borrowers with a credit score of less than 720 will typically pay a higher interest rate, generally of .5% to 1% higher. Given that conventional home loan lenders generally will increase the rate 2% for borrowers with poor credit scores this helps make FHA loans attractive.

Lastly, you have to consider that when you purchase a house or condo with a low down payment home loan you will start out being ‘upside down’ on your loan. This means that you will owe more than the house is worth. Remember that the costs associated with the sale of a home make up about 5% to 6% of the total purchase price, the amount of the loan. This includes fees for the real estate agent, attorneys, title and taxes. Traditionally, this difference has been absorbed by rising home prices but, given the economic climate of 2009-2010, you probably shouldn’t expect a new home to rise in value for several years.

The important thing to remember about a FHA low down payment home loan is that should you have to sell early your options could be limited to a short sale or foreclosure. With the current economy, you have to make sure that you have enough cash on hand to weather a financial storm like an unexpected job loss. I recommend that a new homeowner have between 3-6 months of mortgage payments in an emergency fund. Don’t purchase a home by using all of your financial reserves, especially if you plan on using a low downpayment home loan plan. You don’t want to put yourself in the position of your new home owning you.

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At the time you’re facing foreclosure, the primary step you ought to take is to contact your bank. It is considered to be the best option if you do this prior to actual foreclosure proceedings. However, when this occasion arrives, it is not too late to have a meeting with the loss mitigation department with your bank or institutional mortgage holder. Should you be able to establish that your intention is to get your mortgage loan back in good standing your lender may decide to delay any foreclosure actions by offering a forbearance agreement or connecting you with government sponsored loan modification programs. This is especially likely if you can show that your financial troubles are just momentary.

Still, even if your lender seems eager to work with you, keeping your home may not be in your best financial interests. If you are experiencing extended economic hardships, it may be in your best interest to put your house up for sale prior to it entering into foreclosure. It is important for you to speak to your lender prior to reaching this decision. They may have the same opinion based on your situation and may be able to assist you in working out the details of a pre-foreclosure sale. As a matter of fact, they may choose to delay the process of seizing your home while you try to find a buyer. Think about it, they want somebody in the house who can make the payments more than they want a empty house making them no money at all. When listing your home as a pre-foreclosure, you can put it up for sale yourself as a “for sale by owner” if you want. However, it is best to find a local real estate professional who specializes in pre-foreclosure and short sales.

Also, you can expect to be contacted by prospective buyers and investors. When you are delinquent on your mortgage and your mortgage holder begins foreclosure procedures this information is placed in your local legal notices newspaper. A number of savvy investors who are specifically specialized in investing in pre-foreclosure properties find and contact troubled homeowners using this information. Although having a stranger show up on your doorstep or call you on the phone offering to buy your home may seem strange it is a choice that you may wish to seriously consider if the offer is good enough. Unfortunately, some of these people can be quite discourteous and ill-mannered and some can be scam artists so be cautious in dealing with them.

An additional option that a homeowner has during foreclosure to employ an attorney who specializes in helping troubled homeowners manage this situation. A lawyer can counsel you on what steps you should take given your particular situation. They can aid you in recognizing and understanding the pros and cons of pre-foreclosure sales, short sales, foreclosure and bankruptcy. In some cases, they can help you find mistakes made in your original home loan paperwork that may give you a way to avoid or at least significantly delay foreclosure.

Some states’ laws include a redemption period provision. These are intended to assist homeowners when it’s necessary to provide them with an opportunity to avoid foreclosure. These laws offer you a grace period to regain your home. If you are able to get your mortgage payments caught up, the foreclosure proceedings will come to an end. States that have these laws on the books frequently allow you to reclaim your property although it has been sold at a foreclosure auction. This is, of course, provided that you take the appropriate action within the legally mandated time frame.

If you live in a state that does not have a specified grace period or a redemption period, you could have the option of purchasing your house yet again. Anyone can place a bid at a foreclosure auction, however, it is important to note that you will have to have a significant amount of cash on hand in order to purchase your home at a foreclosure auction. And there could be other bidders present who will bid up the price. Sometimes your financial institution will be represented there as well. Provided the bids received are not sufficiently high to cover their costs, they might purchase the house themselves and place it on the market as a REO home.

I hope this article has given you a good overview of some of your foreclosure options. As always, if you have any questions concerning foreclosures, feel free to ask below.

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If the foreclosure process has been handled properly many of the typical problems with buying a foreclosure at the courthouse steps are taken of prior to the home going into a REO inventory. Major banks generally hire a foreclosure property management company to insure that the house is officially vacated by the prior owner and not vandalized by them. This also should prevent you from being caught up in lawsuits brought by delinquent borrowers and having to evict them. One of the first things to check is if the mortgage lender who’s listing the REO property has taken care of these important details. If the home in question is still occupied or in obviously poor condition it’s best to pass on it in most cases. However, it is important to note, that foreclosure property management services do not include a proper home inspection or guarantee against other potential problems.

As with any primary home purchase it is essential that you have the property inspected. Even if you’re buying for investment purposes an inspection may save you thousands of dollars. Many people get caught up in the competition and quite often the novice REO buyer ends up purchasing a money pit. Sometimes REOs are sold at auction where you can’t get a full inspection report ahead of time. In this case, leave the buying to the pros with a lot of cash on hand who can take a loss if the property turns out to be a dud. Don’t bet the farm on an uninspected REO home unless you’re willing and financially able to take the risk.

One thing that you have to consider is that a REO home might have structural issues that led the prior owner to the tough decision of letting it go into foreclosure. For example, some homes in foreclosure in Florida right now have defective Chinese made drywall that will cost thousands of dollars to correct. Other homes might have serious termite damage. Others may have dangerous mold issues. There have been reports of expensive homes built during the housing boom that were so poorly constructed that they’re essentially worthless because they’re falling apart.

Beyond the serious problems, you can expect the REO home to have some damage simply from someone living there and general wear and tear. You should budget for at least new carpet and new paint in any REO home you buy. You will probably also need to make drywall, hardware and other general minor repairs. Also, it is quite likely that the HVAC system will need maintenance and, if the home is more than a few years old, a new roof.

The bottom line is that you should have cash reserves equal to about 10-15% of the purchase price for repairs. Do not count on credit for these repairs since today it is quite common for banks to refuse equity loans on previously foreclosed properties. Using credit cards or lines of credit for these repairs is also risky in today’s financial climate. In today’s real estate market cash is king.

It is also quite important to make sure that any outstanding liens and back taxes have been resolved. Depending on the state laws, you may be responsible for these items as the buyer of the foreclosed property. You do not want this to come as a surprise to you after the fact. If you don’t know what you’re getting into this could significantly increase the cost of the home, making a great deal into a nightmare. For your own protection you should always consult with a local real estate attorney before buying a foreclosed REO property so that you understand your potential legal liability.

Most banks make a list of REO properties for sale available online or go through a real estate broker or management firm who handles this for them. My recommendation for the novice buyer is to go through a real estate agent who specializes in selling foreclosures and REOs or a REO specialist. While the savvy real estate investor can save money with a do-it-yourself approach the risk to the beginner is quite significant. That’s why it’s best to work with seasoned real estate professionals when buying a REO property.

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Under the expansion of the Home Affordable Modification Plan (HAMP), mortgage lenders who’re participating in the program will be required to offer a forbearance plan to borrowers who’re unemployed. These plans are required to be for at least 3 months duration and may be up to six months under certain circumstances. Payments, if there are any under the plan, have to be reduced to 31% or less of the borrower’s gross income.

For a homeowner to be eligible under the HAMP plan they must first meet the typical program standards which are owner occupancy, a loan balance of less than $729,750 and a loan origination date prior to January 1, 2009. Beyond this, the mortgage, while it can be current, can’t be more than 90 days overdue. Proof of receiving unemployment benefits is another requirement. Additionally, a borrower must request the forbearance, it can’t just be given automatically.

As part of the program, should the unemployed homeowner find work during the forbearance period and their regular mortgage payment would exceed 31% of their gross income, the borrower has to be given the opportunity to seek a permanent loan modification. The idea here is to move the troubled homeowner from the temporary payment reduction to a permanent principle reduction under HAMP. The Obama administration is offering lenders incentives to do this kind of loan forgiveness but banks have been slow to implement this costly plan.

Should the homeowner not qualify for a loan modification under the Home Affordable Modification Plan they are expected to fulfill their obligations under their mortgage loan. This means to pay back the difference between any reduced payments and the full payment, typically rather quickly.

If the homeowner remains unemployed or otherwise unable to make mortgage payments at the end of the forbearance period then other foreclosure alternatives would be considered such as a short sale or deed in lieu of foreclosure.

Should you wish to participate in a Home Affordable Modification Plan approved mortgage forbearance make sure that such a plan will work for you and won’t just serve as a way to postpone foreclosure and get you in a deeper hole financially.

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