Helping Your Lender to Help You (Avoid Foreclosure)

One can hardly listen to a news report today without hearing about a national epidemic of declining property values and adjustable rate mortgages (ARMs) re-setting at alarmingly higher rates. Over 1.26 million Americans went into foreclosure last year, and the number has risen sharply. In the present housing climate, home owners need to be vigilant in protecting themselves against foreclosure on existing mortgages.

Following is the first of a two-part series exploring ways that consumers can work with lenders to avoid foreclosures that are devastating for the consumer and costly for the lender.

  • Request to switch from an escalating ARM (or any other non-traditional loan product) to a fixed rate mortgage or an ARM with lower caps and fewer adjustments.
  • Come to the table with the details of your own loan, including pre-payment penalties or other financial disincentives.
  • If you are having trouble making the current mortgage payments, proactively call your lender - do NOT wait until you've missed several payments.
  • Open every letter or document the lender sends to you. Because of the mortgage crisis, right now lenders are monitoring borrowers in order to try to assist them. These notices can give you good options to help prevent foreclosure. They may also contain a notice of legal action. Ignoring the mail will not sit well with the judge as your excuse for not showing up!
  • Consider counseling. The US Department of Housing and Urban Development, known as HUD, offers free and low-cost housing counseling. They can help you learn about the law and figure out your options.
  • Cash in your assets. If you can increase your available cash by selling a second vehicle, jewelry, or other valuables, you will show the lender that you are serious about trying to hold onto your home. Another often overlooked asset is your whole life insurance policy.
  • If you have been in military service during the past 90 days, you are protected by the Service Members' Civil Relief Act. This act states that your property cannot be seized, sold, or foreclosed on during your period of service and for 90 days thereafter.
  • If you're considering a debt negotiation company, check with your local consumer protection agency and the Better Business Bureau first to see whether there are any complaints against the company. If your state requires licensing for such agencies, ask the State Attorney General if they are licensed to do business there.
  • Do not pay foreclosure prevention companies--and do not under any circumstances sign documents with a company who says they can "stop your foreclosure immediately." These are often scams, and you're actually signing your property over to the company. Always consult with an attorney or a HUD housing counselor before signing anything.
Further Reading

Continue to the second part of this series.

For a listing of HUD counselors by state: HUD Counselors

Learn about US Bankruptcy

HUD Hotline: 1-888-995 HOPE

Tanya Davis is a writer specializing in real estate and mortgage topics. She is the author of The Real Estate Developer's Handbook.