Perhaps you are at the point where you are certain that you will lose your home simply because you can no longer afford it. Maybe you have already been considering a short sale in order to avoid a foreclosure. Unfortunately, if you’re like many people, you may have found it difficult to get the mortgage lender to agree to sell your home for less than what you owe.

This situation has become common since the housing meltdown began. Often it takes months for an overwhelmed mortgage lender to respond to a short sale request. By then, it’s often too late because the buyer has gone elsewhere and the lender’s foreclosure department, or worse yet, their attorney or foreclosure legal services firm, may have started legal proceedings. What’s more, there have been no clear guidelines as to what types of short sale offers were acceptable. Beyond that, many borrowers also have second mortgages that further complicate the situation.

During the current housing crisis only about half of short sale offers have been accepted nationwide. In some hard hit regions, this number is less than 20%. As a result, many real estate agents have stopped listing short sale homes. This inability to close on homes in the short sale process has resulted in most of these homes winding up in foreclosure anyway. This is what the new Government Short Sale Program, the Home Affordable Modification Program, is supposed to correct.

Under this program, when a troubled homeowner decides to list their home as a short sale, mortgage lenders are required to respond to any short sale offers within 10 days. Additionally, the Home Affordable Modification Program also provides a number of incentives to both the homeowner, mortgage loan servicers and secondary lenders.

Under the program, homeowners get $1,500 to assist with moving expenses and cannot be charged any administrative fees for participation. Most importantly, borrowers are released from all legal obligations associated with the loan. This provision prevents mortgage lenders from seeking a deficiency judgment against the homeowner. These judgments can result in wage garnishment and other financial punishments in many states.

Loan servicers get $1,000 to help cover the cost of paperwork. Plus, the home is sold so they don’t have the additional overhead of maintaining a vacant house and trying to resell it, which can become very costly in some areas. For secondary lenders, there are up to $3,000 in incentives to encourage them to participate in the short sale offer.

To qualify for the Home Affordable Modification Short Sale Program you will have had to have unsuccessfully tried to get a mortgage modification through the program. Naturally, the property in question must be your principal residence. The mortgage loan must have been made prior to January 1, 2009 plus it must be guaranteed by Fannie Mae or Freddie Mac.

Additionally there are financial requirements. First of all, you must be behind on your mortgage. Your total monthly mortgage payment has be be more than 31% of your monthly income before taxes. Lastly, you cannot owe more than $729,750. Remember that lenders will check for any hidden income and/or assets and the tighter application process allows lenders to have greater access to a borrower’s financial information.

The Home Affordable foreclosure alternative program will expire on December 31, 2012 unless Congress decides to extend it. Let’s hope that the economy and real estate markets improve significantly by then, thus eliminating the need for the program.

Will the new Home Affordable Modification Short Sale Program help you get out of a home you can’t afford with as little financial and credit damage as possible? Maybe, but the results of the government loan modification program haven’t been that great since it was launched over a year ago. However, it is worth a try if you qualify for it.

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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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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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Just mailing the keys to the mortgage holder, aka “jingle mail”, and walking away is a bad idea. After all, you signed a contract to make payments on the home loan as agreed. If you find yourself unable to meet these obligations there a number of remedies you can pursue to discharge the home loan debt properly.

Naturally, you may feel frustrated with your situation. Many inexperienced borrowers found them tricked into taking on loans that they were obviously going not be able to pay back. Even experienced borrowers have been hurt by the boom and bust of housing prices. However, the excesses and mistakes of the past don’t discharge the debt. Even if you were a victim of predatory lending practices or out and out fraud, you still need to go through proper legal procedures. In short, you have to follow the rules in order to properly deal with your problem. Walking away from your home loan obligations isn’t following the rules. Remember, it is in both your best interest and the interest of the mortgage holder for you to stay in your home and paying a mortgage.

In some cases, you might be able to qualify for a loan modification that would allow you to stay in your home with a mortgage that’s been modified to better fit your financial situation. The government has recently created a $75 billion program to help people with out of control home loans. You should contact your mortgage company to discover if you qualify for this home loan modification program.

However, if you can’t qualify for a home loan modification then you will need to try for a short sale. This is where, with the agreement of the financial institution that holds the mortgage, you sell your home for less than what you owe, typically at the current market value, and the bank agrees to forgive the difference. These days it can be difficult to find a qualified buyer who can get a home loan even at the reduced prices.

In this case, the home loan lender may be willing to accept a deed in lieu of foreclosure. When this happens, you sign the house back over to the mortgage company and they forgive some or all of the debt you owe. You will need to work out the deals of this agreement with the mortgage holder. If at all possible you will want to have some qualified legal representation to help you through this process. Some former homeowners who’ve done a deed in lieu of foreclosure have found themselves still on the hook for thousands of dollars due to a bad agreement.

Another thing to understand about a short sale or a deed in lieu of foreclosure is that it will place a serious bad mark on your credit for several years. It will typically be 2-3 years before you can easily borrow money again for even small things like a credit card or vehicle and most likely 5-7 years before you can qualify for another home loan. Also, there are tax implications when a debt is forgiven. You may end up owning a big tax bill as well so make sure that you examine this aspect too.

If you can’t work out a deed in lieu of foreclosure agreement this only leaves foreclosure itself and bankruptcy. This isn’t a great option for either you or the mortgage holder. This is the result of a failed negotiation, either on your part, the bank’s part, or of both parties. My recommendation is that if you find your home loan in trouble that you begin seeking alternatives to foreclosure with your mortgage holder as soon as possible.

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This new program, Making Home Affordable, that was pushed by the Obama administration should help millions of people  attain lower monthly payments and also avoid foreclosure. But, are there any strings are attached to the program? What are the credit score implications? Are there any tax implications? How could it affect your monthly payments? Are there any scams associated with this program? Let’s take a look.

One of the first questions people ask about the federal loan modification plan if their credit score will be affected. In general, a refinancing plan doesn’t affect your score since it’s just a rewriting of the terms of an existing mortgage loan. What negatively affects your credit score is missing payments. Under the new federal housing relief plan, one of the terms is that qualifying homeowners can’t have missed a payment during the past year. So, if you’ve missed a payment, the new program won’t help you.

It’s still too early to tell how much impact the this federally sponsored mortgage loan adjustment program. There are no credit reporting guidelines in place for these home loan modifications. It’s not even clear if they will be reported at all. However, most people who’re applying for this program will have had some financial problems and missed credit card or car payments will have a negative impact on their credit report. But, in the long run, if a loan modification puts you on the right track financially your credit score will begin to improve. Just make sure that you have a sound financial plan for your own recovery, such as using the savings on your mortgage loan to pay down other debts..

One potential problem in the federal housing relief plan is that your payments might be more. For example, if your home loan is still at a low introductory rate it isn’t out of the question that you may have an increased home payment after the adjustment. However, the up side is that you will avoid any interest rate spikes that are common with subprime adjustable-rate mortgages

Mortgage lenders who’re participating in the Making Home Affordable program are required to provide you with a “good faith estimate” which will include your new interest rate, monthly mortgage payment amount and the total cost of the loan. You should compare the numbers of the refinancing offer with your current loan to insure that it will be and improvement for you.

Another question is when should you apply for this mortgage loan adjustment. Mortgage rates right now are at historic lows and aren’t likely to go much lower but are more likely to rise later in 2009 and into 2010. It wouldn’t be a good idea to wait. Also the Making Home Affordable program expires on June 10, 2010 so you should bear that in mind as well.

As for the tax impact, any charges associated with refinancing a mortgage are currently tax deductible. However, some fees, such as an appraisal or home inspection, are not. Neither are certain attorney’s fees. Also, a lower interest rate will reduce your mortgage interest deduction so you may need to adjust your withholding to account for this change as well.

Should you not qualify for the federal loan modification program you can attempt to negotiate your own refinance or modification of your loan. Many lenders are willing to work with you to help avoid a costly foreclosure. I have mentioned in other articles on this site how to handle these negotiations.

Beware of third party home loan adjustment companies. While some are legitimate there are plenty of scammers out there. Some even operate using the federal loan modification as a cover by using official sounding names or invoking President Obama’s name. Don’t pay any upfront fees or fall for other scams like this. Remember that home loan assistance is always available for free from government approved housing counselors.

I hope this article has helped answer questions you might have about the new federal home loan modification plans.

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If you are facing foreclosure, you need to do start by taking a close look at your financial situation. How far behind are you on your mortgage? What caused you to get in this situation? What are your chances of recovering financially? If you don’t know where to begin, then you probably need some financial counseling to help you get back on track. If you do understand what got you into this situation, what can you do?

Of course, getting current with the payments on your mortgage is one of the best ways to prevent foreclosure. But that is typically not an option for most people. If you can make a partial payment, talk to your bank or mortgage lender. If you can, make an appointment to see someone in person. If this isn’t possible, try to arrange for a specific time for a phone conference with someone who can help. Your goal is to determine what they are willing to accept as a forbearance agreement and/or what, if any, alternative mortgage payment plans can be made. Often they’re willing to help you, especially if they’re a locally owned bank, but some aren’t willing to help at all.

If you can’t get help from the mortgage holder, your next step should be to contact the United States Department of Housing and Urban Development (HUD). HUD is the place to start when your looking for help with mortgage payments or to avoid foreclosure altogether. Their job is to point you in the right direction for the help you need. Every state has specially trained housing counselors that are know and understand the laws, rules, and restrictions related to foreclosure in their state. This foreclosure counseling is normally offered for a low fee or even free of charge. Because of the number of foreclosure scams, it is suggested that you only deal with a HUD approved housing counselor.

In some situations legal representation by a foreclosure attorney is recommended. If you’re keeping up your end of a forbearance agreement or loan modification but are still facing foreclosure, you need legal representation. The United States Department of Housing and Urban Development (HUD) can get you in touch with with affordable or perhaps even pro bono real estate lawyers in your area that specialize in foreclosures.

There are many places where you can find foreclosure assistance so make sure you take advantage of them if you need to do so.

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