If you have reached the point where you recognize that you can’t make your mortgage payments going forward, it is time to act. The best time to act is as soon as you realize that you are not going to be able to make your payments… Don’t delay!

If you aren’t interested in keeping your home – skip the rest of this post and learn about – “Jingle Mail!”

If you want to keep your house, here are five simple steps to follow that could end up saving your house.

1. Do Something.
2. Start With Your Current Lender.
3. See If You Can Qualify For a “Regular” Refinancing Option
4. Talk To A Housing Counselor
5. Sell Your Home

Step 1 – Do Something.
So… you are currently late on your mortgage. The future of making your mortgage payment as it now stands seems like an impossible mountain to climb.

You may be 30 days late.

You may be 60 days late.

You may be 90 days late.

You may have been 30 days late for 3 months running.

For this step in the process, it doesn’t really matter how many lates you have had in the past 12 months or how many days late each of those lates were… if you are in the situation where you are currently late on your payment…

DO SOMETHING!

You are aware of the situation that you are in and probably know exactly how you got there. If you are going to get yourself out of this situation, YOU AND ONLY YOU must take the initiave to do something! The sooner that you actively start exploring your options, the higher the chances of you finding a solution are.

Step 2 – Start With Your Current Lender.
The first person that you need to call is your current lender. Generally, the bigger the lender, the better your chances for them being able to help you – although this is not always true. When you call them, begin your conversation with the first person that you talk to by saying “hello, I am currently behind on my mortgage payment and I want to talk to someone to see if there is anything that your company can do to help me.”

The first person that answered the phone will most likely transfer you to the loss mitigation department (or some department similarly named) where the first question that they will probably ask is “are you currently behind on your payments?” This question will be followed by a series of other questions so be prepared to tell them all about your situation. Also be prepared to PROVE whatever you are saying with income documentation, letters from employers, utility bills, bank statements – pretty much anything and everything is what you need to be prepared to show.

If there is anything that can be done — assuming that you are in serious trouble – your current lender is the best place to start. Mortgage companies are used to dealing with delinquencies related to life events, such as job loss or an illness, with the most common approaches being a temporary repayment plan or the folding of missed payments into the principal balance.

If you find your lender unwilling to help at this stage, don’t completely give up yet, it will prove valuable to just get the dialog going with them about your situation and the fact that you are in need of help.

A side note if you currently have an FHA insured loan – your lender has to follow FHA servicing guidelines and regulations for FHA loans. If your lender is not cooperative, you can contact FHA’s National Servicing Center at 888.297.8685 or via email at hsg-lossmit@hud.gov.

Step 3 – See if You Can Qualify For a “Regular Refinancing” Option.
If you have contacted your lender and they have been unable to help you, it is time to start talking to a reputable mortgage company and – perhaps even more important – someone at that company who has significant knowledge and expertise in helping people in situations like yours.

It has been my experience that every situation is slightly different than any other situation, so it is important that you find someone who knows what they are talking about at a reputable lender that is licensed to do FHA loans. Usually a referral from a friend or neighbor is a good way to find a lender. If you have no friends or neighbors… you can see a list of lenders who do FHA loans in your area here.

Explain your situation to the lender and ask for their advice. Have your pen and paper ready and take significant notes. The three questions that you will want to ask them are:

1. Ask them if they think that there is any way that you could qualify for a “regular refinance” (keep in mind, in today’s mortgage marketplace, this would include any type of program other than FHA).
2. Ask them if they think that there is any way that you could qualify for an “FHA refinance”.
3. Ask them if they think that there is any way that you could qualify for “FHASecure”.

Because every situation is different, I won’t expand into all of the possibilities – but if there is a way to get you qualified for one of the 3 options above, this is potentially a good solution.

It is also important to talk to AT LEAST 3 different lenders about your situation, you may be amazed at how you may get different answers to the above 3 questions based on the lenders knowledge and expertise.

Step 4 – Talk to a Housing Counselor.
If you have done step 1-3 and still haven’t found a solution, it is time to start exploring other options – and talking to a housing counselor is not a bad next step. Most FHA counselors are free or cost very little and a housing counselor can help you:

• Review your financial situation, determine what options are available to you, and negotiate with your lender
• Learn which of the various workout arrangements lenders consider makes the most sense for you and your family, based on your circumstances
• Call the lender with you or on your behalf to discuss a workout plan (I have heard of housing counselors having success where individuals did not)
• Protect you from future credit problems before you get too far behind on mortgage payments
• Give you information on services and programs in your area that provide financial, legal, medical or other assistance

You can find a HUD-approved housing counseling agency here.

It is important in this step to avoid foreclosure prevention companies. You don’t need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for pretty much the same information and help that you can get at a HUD approved housing counselor – which will help you for free.

Step 5 – List Your House for Sale (Probably a Short Sale)
If you have done steps #1-4 and have not found a solution, it is time to be realistic and accept the fact that you are probably not going to be able to stay in your house forever when you are not making/can’t afford the payment. The best option at this point is to find a buyer for your house – even if the market value of your home is less than what you owe. If the market value of your home is less than what you currently owe on your home and you want to sell it, the best option is to list it as a “short sale” and you will want to be sure to find a Realtor who is experienced in doing short sales.

This person needs to negotiate on your behalf to have your lenders release some (or all) of your obligations so that you will be able to sell your home. Many Realtors avoid these kinds of transactions because they are difficult – so make sure you select someone with significant experience in this area.

If you end up in a short sale situation, be familiar with the tax implications involved in a short sale – this is something that your accountant can help you with.

Perhaps the most important point to consider no matter which step you are in during this process is to stay positive and solution-oriented. No matter if you are talking to your current lender, talking with other lenders about finding a different loan, talking to various other groups about foreclosure avoidance or listing your home for sale – you will have much more success in the process by focusing on the solution going forward and maintaining a positive attitude.

–Tammy

Other resources/articles on avoiding foreclosure:
Tips for avoiding foreclosure from HUD

Avoiding Foreclosure and Keeping Your Home – HUD