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Avoid Foreclosure


When you miss your mortgage payments foreclosure may occur. What this means is that your lender can repossess your home and force you to move out. In the case that your property is actually worth less than the amount you owe on your FHA loan, you could potentially owe the Department of Housing and Urban Development money. Needless to say this would seriously affect your credit rating and substantially hinder your ability to get another loan. There are some steps you can take to avoid foreclosure on your FHA loan. Obviously the big one is to make the payments on your mortgage. This cannot always be avoided. In this case, what should you do?

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Loss Mitigation

If you canít make your payments call your lenderís Loss Mitigation Department. Try to work something out with them by explaining your situation. You will probably need to give them some of your financial information, like your monthly income and expenses; otherwise they might not be able to help you. Above all, pay attention to the letters your lender is sending you, do not ignore them. After you contact your lender, call a HUD-approved counseling agency. They will provide you with contact information for the nearest housing counseling agency, which will likely have information on Government or private services and programs that could be helpful to you. Do not abandon the property. This may disqualify you from certain assistance programs.

So what can happen? What are your options? Some of these options will allow you to stay in your home and could be available to you. Typically your lender can rearrange your payment plan and could possibly provide a temporary reduction or even suspend one or more of your payments. This is called Special Forbearance and would all be based on your current financial situation. If your income has recently dropped or your expenses unexpectedly increased, providing this information and proof that you could make payments under a new plan could be the solution for you. Another common option is to Modify your Mortgage. This typically means extending the term of your mortgage or refinancing the debt entirely. In the end this could result in a lower, more affordable, monthly payment.

One option most people do not know about is called a Partial Claim. If your loan is between 4 and 12 months delinquent and you can make full payments you may qualify for this option. The FHA has an Insurance fund, and your lender should be able to help you get a one-time payment from this fund. This payment would bring your account current and you will make all the necessary payments after this. In this instance, a Lien will be put on your property and a Promissory Note will be executed. The Lien will remain until the interest-free Promissory Note is paid in full when you pay off the mortgage or you sell the property.

Is Your Loan Past Due?

If your loan is at least 2 months past due you may be able to avoid foreclosure by selling the property to pay off as much of the mortgage loan as necessary. This is called a Pre-Foreclosure Sale and if you can sell the home within 3 and 5 months and you can show your lender that the home meets guidelines by HUD, you may be able to sell the house for less then the amount on the loan.

The absolute last resort is the called Deed-In-Lieu of Foreclosure. In this case you may be able to simply give the property back to the lender. You will have to move out of the home, but your credit wonít be harmed. Qualifications for this include: being in default and not qualifying for other available options, you were unable to use a Pre-Forclosure sale by selling in the allotted timeframe, and not having other FHA mortgages in default.

Determining if you qualify for any of these options might be the hardest part. Luckily your lender, as well as a HUD-approved housing counseling will be able to help you with this decision and tell you what options are available to you.

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