Avoid Foreclosure & Stay in Your Home

Avoid Foreclosure & Stay in Your Home
  • Avoid foreclosure by modifying your mortgage.
  • Review the federal programs that may help you keep your home.
  • Consider hiring an attorney or filing bankruptcy as final options to keep your home

How to Avoid Foreclosure and Keep Your Home

If you are a homeowner having trouble making your mortgage payments, then you probably are experiencing a lot of stress. You likely want to do whatever you can to stay in your home and to avoid a foreclosure.

The first thing you should keep in mind is to stay in close contact with your lender. If you are going to miss a mortgage payment, inform your lender. Keep good records of all your correspondence. Use registered mail to send documents and letters, so you can verify that they were received. Most lenders will work with you, as foreclosing on homes carries heavy costs for them.


It may be impossible for you to make any payments at all, temporarily. Forbearance is an agreement between you and your lender, where your lender agrees to not pursue foreclosure and to accept no mortgage payment or a reduced mortgage payment for a defined period. If you have a temporary disability or can show that you expect money from an insurance pay-out or tax refund, you may qualify for forbearance. You need to have a clean payment history to be eligible. Forbearance is only granted if your lender is confident that you will be able to resume making your normal payments plus pay back the any arrears accumulated while in forbearance. In most cases the length of the forbearance plan will not exceed 18 months. Most forbearance plans stipulate that foreclosure will proceed, if the borrower defaults on the agreement.


One way to work things out with your lender, if you are delinquent on your payments, is to negotiate a reinstatement of your mortgage loan agreement. A reinstatement agreement requires you to stay current on all of your future payments and to commit to agreed on payment terms for all your mortgage payment arrears. Arrears may be required in a lump sum or it may the case that you can pay the arrears in supplementary monthly payments to your regular mortgage payment over a period of 12 to 24 months. Reinstatement is really only an option for you, if you were having serious financial problems but are over them, as it requires substantial monthly payments moving forward. If you can receive help from a family member or sell of a valuable asset, reinstatement is a worthwhile option to pursue.

Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

Loan Modification

An important option for you to consider is a loan modification. A loan modification is a permanent change to one or more terms of your loan. Your lender can modify your loan by reducing your interest rate and the size of your monthly payment, by extending the repayment term of your loan, or by agreeing to reduce the principal balance of your loan. A principal reduction is negotiated when the value of the property has dropped. Balance reductions became relatively common starting in 2008, in reaction to the dramatic decline in home prices in many areas.

Some home loan modifications are completed according to the rules set by the Obama Administration’s Home Affordable Modification Program (HAMP). This is a voluntary program; there is no requirement that a loan servicer (the bank holding the mortgage in question) participate in HAMP. However, if the loan servicer received TARP (Troubled Asset Relief Program) money, it must participate in HAMP.

As a borrower in distress, you must meet certain guidelines in order to qualify for a loan modification. The lender will examine the size of your loan compared to the fair market value of the property, your debt-to-income ratio, and your credit history. A loan modification is not a refinance. It does not add or remove a party from the loan agreement, nor allow you to remove equity from the property in the form of cash.

Loan modification is a multi-step process. You need to have patience and diligence to see the loan mod process through to a successful end. As mentioned above, you should keep thorough records. Save any letters you send to your lender or receive from them. Keep a log of any conversations you have, but remember that a paper trail gives you more solid records than notes you took of conversations with your lender’s representatives. Different lenders can have different rules and procedures for the loan modification process.

The first step to a loan modification is to apply for one. Some lenders require that you are delinquent on your loan in order to apply. Other lenders do not, as long as you can demonstrate a financial hardship that meets the lender’s standards. You generally have to supply tax records, bank statements, income documentation, and a statement of your assets and liabilities. You must make a declaration that explains why you are having troubles making your current mortgage payments or will soon be unable to make your payments. During the application period, you are still at risk for foreclosure. Your lender likely has separate departments reviewing your loan file. The loan modification department may be working on your loan mod application at the same time that the foreclosure department is moving forward to foreclose on your home.

After you have applied, your lender may put you on a trial modification, lowering your payment temporarily. Government loan modification programs require a trial period. A typical trial period lasts three months giving your lender time to test your ability to make the new, modified payment. During this time, the lender also reviews the documents you supply to support the financial hardship you claimed on your application. Make sure that the information you provide is accurate and verifiable. Adhere to any payment and document commitments that your lender requires from you.

Most lenders do not pursue foreclosure during the trial period, but it is not unheard of. Your state may have rules that govern whether your lender can proceed with the foreclosure during the trial period and how your lender can move forward to foreclose on you if your trial is not successful.

After the trial period concludes, if you are approved for the modification, be sure to make all of your modified payments in a timely manner. Your loan modification may hurt your credit score, depending how your lender reports the information to the credit bureaus. Whatever credit harm you may incur from successful loan mod, it will have caused far less damage your credit rating than continued delinquent payments or a foreclosure.

If your lender decides that your hardship is non-existent or not as severe as you claimed, your loan mod application will be turned down. Even if you made all the trial payments on time, if you are turned down, you would still be in arrears each month for the difference between your lower modified payment and the payment required in your original loan documents. You may have to make up the difference between your standard mortgage payment and the reduced trial payment, in order to avoid foreclosure.

If you are not approved for the loan modification, you have only a few options left that may keep you in your home.

Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

Hire an Attorney

You could hire an attorney. An attorney will work to get the lender to take another look at your file, reviewing the reasons you were turned down. An attorney can audit all the original loan paperwork as well as your loan modification paperwork and threaten legal action if he or she finds any irregularities in the paperwork. With all the problems being reported in the news about how lenders handled foreclosures, your attorney may be able to apply some leverage that you as a layperson could not easily do.

Be wary of any private firm that wants to charge you money to help you with a loan modification. Unfortunately, there are many scammers out there who will take advantage of you when you are in a vulnerable position. Attorneys are not necessarily helpful. However, an attorney is at risk of losing his or her ability to practice law, if engaged in fraudulent conduct. This makes working with an attorney less risky than with a private loan modification firm.

Chapter 13 Bankruptcy

An option of last resort that allows you to remain in your home is for you to file for Chapter 13 bankruptcy. Once you are under the supervision of the bankruptcy court, your lender cannot proceed with a foreclosure. The goal of filing bankruptcy, in these circumstances, is to allow you to retain possession of your residence while you participate in a structured repayment of your debts. Consult with an attorney who has experience in bankruptcy to discuss whether bankruptcy will allow you to keep your home.


It makes sense to take every step possible to stay to stay in your home. If you are having problems making your mortgage payments, it is crucial for you to know what steps you can take to avoid losing your home to foreclosure. If you follow the advice laid out in this article but still are facing threats of foreclosure, please read about the different ways to sell your home. How you choose to handle the sale of your home affects whether you will have debt follow you, if your home sells for less than you owe on it, and how your credit will be impacted.


GGloria Howell, Mar, 2012
I have a rather odd situation (I think). Due to my husband becoming disabled, I have not made a house payment in 18 months. I get a statement from my servicer every month that shows the payment due and the arrears, but nothing else. According to the BBB, they are no longer in business. The company consisted of a husband and wife, no other staff, so I don't find it hard to believe they went out of business. I had spoken with them back when we first lost my husbands income, and she told me they don't do refinancing or loan modifications. I have no idea who actually owns my loan. I'm afraid that if I push the issue now, they will initiate foreclosure. Another unusual thing is that my mortgage does not show up on any of my credit reports, although I bought the property in 1999. My question is this - if I can get my credit score up high enough, would I be able to refinance through another lender? Or would they nix the deal once they talked to my current loan servicer (assuming they can find them)? Would I be better off to try to get myself in a position to resume house payments and then push to find out who my actual lender is? Hope this makes sense, it's pretty strange....
BBill Admin, Mar, 2012
As defined by the FDIC, a mortgage servicer is the person responsible for the servicing of a mortgage loan. Servicing includes:
  • Collecting scheduled periodic payments from a borrower pursuant to the terms of any home loan
  • Paying taxes and insurance from borrower escrow accounts
  • Negotiating workouts and modifications of a loan upon default
  • Supervising the foreclosure process
  • Paying the owner of the loan or other third parties the principal, interest, and other payments

The mysterious part of your question is the status of your mortgage servicer. It cannot be dead, as the BBB suggests, and also operating — someone or something sends you your monthly statements. Were we quantum physicists discussing your dilemma, we would refer to this as a Schrödinger’s cat problem.

I assume you are now in a financial situation where you can start paying your home loan. I do not buy into the notion doing nothing will maintain the status quo. Or, put another way, your opening negotiations now may not reflexively start a foreclosure.

My opinion? Consult with a lawyer in your state who has experience negotiating with mortgage lenders. There may be more oddness to your home loan than a zombie mortgage servicer. The investor in your home loan may not have, or was never given, the documents necessary to show it is the successor in interest in your loan. You may be able to file a quiet title action to your property if the investor cannot prove it holds the right to foreclose.

BBlandena Buenafe, Feb, 2012
If I file for foreclosure, how will that affect my credit score regarding premiums to already existing car insurance, life insurance, disability insurance, Investments, etc? Also, will filing for foreclosure affect my position at work?
BBill Admin, Feb, 2012
Please read the Bills.com article Short Sale, Foreclosure & Your Credit Score for a discussion of your credit score question. I am not aware of any insurance company that bases its premiums on credit score, so I doubt you will see any change to the cost of your car, life, or disability insurance based on a foreclosure. However, you may be receiving a homeowner discount on your car insurance, but that has nothing to do with foreclosure as such. Regarding your employment, I doubt your employer will receive any notice of your foreclosure, and if it did, why it would hold it against you.
KKen P, Sep, 2011
Hello, I filed for Chapter 7 bankruptcy and my 3 mortgages were included (1st, 2nd and HELOC). Because I owe more than my home is worth, I am working with the mortgages to modify the first and I am negotiating settling the 2nd and HELOC. Since my loans have been discharged, I presume they would show "included in bankruptcy" on a credit report. As far as credit report goes, would the settlement status "i.e. settled - less than full value" replace the "included in bankruptcy" status or should it still simply show as only "included in bankruptcy"? That is, will one status override the other? The mortgager suggested that, if they accept the offer, they would report it as "settled for less than full value" instead of "settled paid in full" but maybe it would not matter if the "included in bankruptcy status" overrides any settlement status. Do I need to make sure that they still list it as "included in bankruptcy" when settling or could that be done anytime (even after the fact) since there is hard documentation to show that it was included in the bankruptcy. Is "included in bankruptcy" status better or worse than "settled for less than full value" status? Thanks -Ken
BBill Admin, Sep, 2011
The bankruptcy notation is what impacts your credit negatively and the most severely. The exact language of "settled in full" or "settled- less than full value" is not so important. As long as you get the settlement agreements in writing, so you can prove the debt is settled, if need be, then you are taking the best steps possible.

You may want to look into credit repair, either on your own or by hiring a professional firm. The bankruptcy filing stays in the public records area regardless, but the individual accounts may be able to be removed.
mmarty norris, Sep, 2011
My deceased mother and step father bought a condo with the intention of it being mine. My name is on deed as a tenant in common. I made down payment and all mortgage payments for 12 yrs. step father remarried and and now he wants me to short sale to an investor. My mother meant for the condo to go to me at her death and their was an insurance policy, but I have no idea what happened. I will not sign for a short sale to investor because he wants to be done with it. I am now paying half the payment. Any advice?
BBill Admin, Sep, 2011
The best I can do is to raise some questions that you should discuss with an attorney, which is the wisest choice you can make, if you and your stepfather can't reach an agreement.
  • Were there any specifications in your Mom's will, about her share of the condo?
  • Was there any agreement between you and your stepfather, at the time he started making payments?
  • Is your stepfather going to continue to make payments? If not, what is your strategy?
JJames Clark, Dec, 2010
I have retained an attorney for bankruptcy proceedings. He has yet to file any action as he wants his payment in full to proceed. I have been making payments and have had the attorney on retainer since September. It may be another few months before I can pay in full. I am current on my first mortgage but have been unable to meet the 2nd payments of interest only of 10%, payments in excess of $1000. They refuse to refinance, although I can afford to make such a payment with respect to the lower rates. The second has sent a letter stating that they will start foreclosure if the balance isn't paid in full. Where do I stand now as to what action to take??
BBill Admin, Dec, 2010
The course of action you should take depends on your goals for retaining the property and whether you plan a Chapter 7 or Chapter 13. Since you have retained the services of a lawyer, I urge you to consult with him or her about the foreclosure threat.
RRuth Traci, Jan, 2011
20 months submitting and resubmitting/declined, then told would consider mod on prior res./wouldn't even consider/both listed to foreclose/auction, put both homes up for short sale to avoid foreclosure on credit record, own more than one home, ssd, due to injury. I never ever thought that banks would lie, that fraudulent loans made to numerous customers/however they go after the homeowners/refused to help them/employers can term/medical ins. there is absolutely no one in your corner, what is wrong with this picture. Where I live numerous foreclosures/and most could afford their home, hardships have been horendous.property values have dropped 75%, now the city has crawled in bed with the federal government to sell to investors/rentals, the neighborhoods have gone down hill.