Foreclosure is a growing reality for many homeowners now that pandemic-related forbearance programs are long gone, and record-breaking inflation shows no signs of slowing. These forces as well as other financial uncertainties impact household budgets for many homeowners.
Recent data shows that the number of U.S. properties with foreclosure filings climbed 185% in May 2022 from a year earlier, according to the latest report from ATTOM.
995Hope Hotline counselors regularly talk to people who face foreclosure. Some of the reasons people discuss with our counselors as to why they’ve fallen behind in their mortgage payments include an unexpected reduction in monthly income, an increase in expenses such as a new roof or a medical expense, a change in a family situation such as a divorce or death in the family, credit card debt or other debt.
Our homes are central to our safety and well-being. When a homeowner has difficulty keeping up with mortgage payments, they feel vulnerable, especially when they face the challenges alone.
For those having trouble paying the monthly mortgage, one way to manage the stress is to take the following steps that could help you make a plan to prevent foreclosure.
1. Connect with Your Lender
- If you are starting to have financial difficulties and having a hard time paying your mortgage, make sure you contact your servicer and respond to any correspondence you may receive from them.
- It might be tempting to avoid connecting with your servicer, but you will have more options if you connect as soon as you can to describe your situation and challenges.
- Read more about communicating with your loan servicer to help prepare for the conversation.
2. Connect with a Trusted Resource
- You may be too nervous to contact your mortgage company. Counselors can often contact your lender with you. They will help you to better understand the process. They can even help you gather the required documents.
- A helpful step is to seek free debt counseling. A HUD-approved, nonprofit housing counseling agency such as the 995Hope Hotline is a trusted source of information. The advisor will take a comprehensive look at your budget. They will also help you identify your options. This will help you make an informed decision and get access to the resources you need to keep your home.
- Read more about the signs it is time to connect with a housing counselor.
3. Organize Your Information
- Sorting through a messy pile of documents and mail can be overwhelming. Disorganized bills and mortgage communications are not only stressful, they can also help drive you deeper into debt and risk of foreclosure.
- Homeowners with cluttered documents are more likely to miss payment deadlines and rack up fees.
- Take inventory of paper-based and electronic documents and communications. Organize the information in a simple file folder or notebook. Track online accounts and password information. Use a password app for the best security.
- Looking for your loan documents will help you understand what your mortgage rights are if you can’t make payments to your lender.
4. Rethink Your Budget
- If you want to keep your home, you will have to review your finances and figure out what areas of spending need to be cut or reduced and applied to your mortgage.
- A simple budget helps you identify where your money is going. With inflation at all-time highs, be sure to look at the additional money it takes to fill up your car or purchase weekly groceries.
- A budget worksheet can help you track areas where you can cut down on spending. Examples of areas you might be able to trim include cable and eating out frequently until you are back on track with your mortgage. And even beyond, help you save!
- Read more about retooling your housing budget here.
5. Be Wary of Scams
- Those facing foreclosure are often targets of scams from less-than-credible for-profit companies.
- According to the U.S. Government Accountability Office, there are two primary types of foreclosure rescue and loan modification scams: Advance-fee loan modification schemes are when scammers ask you to pay a fee ahead of time for the promise of a guaranteed loan modification. The second type are sales-leaseback schemes when scammers ask the homeowner to surrender the title to his/her home in exchange for being allowed to continue occupying it as a renter, buying the home back over the next few years. Once the title is turned over, however, the scam artist forces the homeowner out of the home.
- These types of scams are heavily promoted by those looking to profit from the misfortunes of desperate, unsuspecting homeowners. Read more about watching out for foreclosure scams here.
6. Know Your Alternatives
While each person’s situation is unique, knowing the alternatives to foreclosure is important. Some options may include:
- Repayment Plan: Your lender may agree to allow you to make regular monthly mortgage payment, plus an additional amount. Depending on your specific situation, a repayment plan can extend from two to 18 months. This helps you catch up on your mortgage without extra hardship. You usually have to make a good faith payment up front. The amount of this payment varies but is usually the same as your monthly mortgage payment.
- Loan Modification: This is a written agreement that changes the original terms of the loan. In some cases, you can change the interest rate, the payment amount, or other factors. The changes in the loan terms can reduce the monthly payment amount. The bank or lender must agree and modifications must be in writing.
- Forbearance: This is an option that pauses your monthly payments. At the end of the period, you must pay your debt either in a lump sum payment or a repayment plan. Forbearance may be a good option if you will be able to resume making payments by a specific date and will have income to support repayment.
- Refinancing: Refinancing lowers your mortgage payment by taking out a new loan, but this depends on the original terms of your loan and current interest rates. Typically, refinancing has additional costs, such as application fees. It takes effort to shop around for the best rate.
If it is in your best interest to find other housing arrangements, a home sale might make sense. Additionally, a short sale could be an option, when you arrange with your servicer to sell your home for a price that is less than the loan balance. The Deed-in-Lieu option is when you give the house to the lender in exchange for an end to your debt
These options are not as damaging to your credit as a foreclosure, which appears on your record for up to seven years. It may take years after a foreclosure before lenders will consider you for another mortgage.
Take a look at additional information about foreclosure prevention.
Take These Steps when Facing Foreclosure
It’s important for homeowners who are struggling to keep up or concerned about foreclosure to get unbiased and nonjudgmental support.
With additional resources and support from a trusted agency like the 995HOPE Hotline, you can discover what options work best for your situation.
The call is free. HUD-certified counselors will work with you to understand your full financial situation and your goals and develop a personal plan to move forward.