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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Begin by going over all of your home loan documents so that you are prepared for any upcoming resets or other changes to the conditions of your loan. When will your payments increase? By how much? Can you refinance? What kind of penalty would you face for refinancing, if there is any?

You may need to make significant changes in your spending and lifestyle in order to keep your home and maintain your credit in good standing. You may need to consider taking on a second job to help make your payments. Avoid making any major purchases at this time when you are facing financial hardship and the economy is uncertain. Think about selling other assets if you can, such as cars or boats, so that you can use this cash to assist you in meeting your payments.

You should always take the initiative with your home loan lender. It is important that you contact them before the problem becomes overwhelming to you. Should you receive calls or letters from your lender it is imperative that you  respond to them as soon as possible. Do not wait to get too far behind. Lenders are less likely to move quickly into foreclosure if you have been proactive and show that you’re working to make your payments. You will want to speak to the right people. This can be tricky because of the way home loans are resold but be persistent. Ask for the loss mitigation or collections department. It is key for you to be completely honest with them about your situation. Also, don’t make promises to them that you can’t keep even if they pressure you in to accepting unfavorable terms.

You should beware of foreclosure rescue scams and other related rackets. There are a number of scam artists who target people in neighborhoods where foreclosure rates have been high. Their typical approach with troubled homeowners is to promise to help them keep their houses. The trick is that these mortgage loan rescues often come with payments which are out of reach of the average homeowner. This results in the homeowner being defrauded of their home and often still owing the original mortgage amount. Should any company approach you with such an offer make sure that you check them out through the Better Business Bureau as well as your state real estate commission and Attorney General. Do not sign anything without reading it all and get all promises in writing. Ask your attorney or other real estate financial professional to review any paperwork before you sign it. And remember that if it sounds too good to be true it probably is.

Another approach is to contact a nonprofit group that offers free housing advice specific to your area. This is a good way to get more information and financial counseling. They may be able to help you with your options. If you took out a loan between Jan. 1 2005 and July 30, 2007, are current on your loan payments and your mortgage has not yet reset to a higher rate, you may be eligible for a five year rate freeze.

If all else fails, you can always try to negotiate a short sale. If you have missed more than two payments but your home has not yet gone into foreclosure this is the right time for you to find out if you can sell your home for a price that falls short of what you owe the lender on your original home loan. Should your mortgage holder agree to accept the sales price and forgive the rest of your debt, they forgo the pricey foreclosure process and save money. As for you,  you will walk away with only minimal damage to your credit score in most cases.

I hope this article has provided you with some important information on how to avoid home loan foreclosure.

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