Home in Foreclosure? Here’s What You Can Do

As the subprime lending crisis comes to a head, many Americans facing foreclosure don’t want to pick up the phone to call their lenders. They owe money. They’d rather not talk about it. 

But Todd Mark, Director of Consumer Relations at Consumer Credit Counseling Service (CCCS), knows that ignoring the problem only makes it worse.

“The most important call you can make is to your lender,” says Mr. Mark, noting that more than 50 percent of his clients have never spoken with their lender.

Losing your home is not the inevitable outcome of missing a few payments. In reality, most lenders do not want to foreclose on a home. Foreclosure can actually cost lenders more money than if they negotiate a new payment plan with a borrower, so it behooves both parties to come to an agreement. In addition, there is more pressure on lenders from the government to try to work out payment plans so people can keep their homes.  

Mr. Mark states that there are six main options for borrowers heading towards foreclosure:

Reinstatement.

This means bringing the mortgage current. This is rare, unless you get a tax refund, a bonus check, or some other windfall that could catch you up on owed mortgage payments.

Partial Reinstatement.

Pay off a portion of what you owe. 

Forbearance.

Lender agrees to take less than the full payment. This is like a payment vacation, at the end of which you bring your debt current. This is particularly useful in for a temporary emergency (e.g., job loss).

Repayment Plan.

You pay off your outstanding debt over the course of several months or a year so a large payment can be broken down into smaller ones.

Loan Modification.

This changes the terms of loan—a later pay-off date or a change in the interest rate.

Refinance.

You may need decent credit to qualify, but this can get you a new loan with a better fee schedule or interest rate. 

If you can’t afford to make payments at all, and are not able to sell your house at your asking price, you have three options for liquidation: