How to Avoid Foreclosure

The guidance below (and in the “How to Avoid Foreclosure” pamphlet) is applicable to homeowners with FHA Insured loans. While a good deal of this information may apply to all homeowners in danger of losing their homes, not all of the foreclosure avoidance tools mentioned may be available to you if you have a VA or conventional loan. Additionally, HUD/FHA does not have any Loss Mitigation oversight over VA or conventional loans. Please contact your lender or a housing counseling agency.

What alternatives to foreclosure are available?
(Information provided by the U.S. Department of Housing and Urban Development.)

Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.

Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the Federal Housing Administration (FHA) Insurance fund to bring your mortgage current.

You may qualify if:
1. Your loan is at least 4 months delinquent but no more than 12 months delinquent;
2. You are able to begin making full mortgage payments.

When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current.

You must execute a “Promissory Note”, and a “Lien” will be placed on your property until the “Promissory Note” is paid in full. The “Promissory Note” is interest-free and is due when you pay off the first mortgage or when you sell the property.

Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.

You may qualify if:
1. The loan is at least 2 months delinquent;
2. You are able to sell your house within 3 to 5 months; and
3. A new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.
Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it is not as damaging to your credit rating as a foreclosure.

You may qualify if:
1. You are in default and don’t qualify for any of the other options;
2. Your attempts at selling the house before foreclosure were unsuccessful; and
3. You don’t have another FHA mortgage in default.

2 Responses to How to Avoid Foreclosure

  1. Becki Johnson says:

    To whom it may concern, my husband and I have expercienced finicial hardship as my spouse was layed off work 11/09 and he worked for a chursch which is non profit so he could not draw unemployment. I have SSD and work part time, but we have had several unexpected events. we have called bank of america several times and always get different advice. We really want to keep our home, is there any help out there for us. The worry is getting to be extremely stressful. Please help. Becki Johnson

    • rmpbs says:

      Hi Becki, We encourage you to contact the Colorado Foreclosure Hotline at 1- 877- 601- HOPE. Representatives can help you find out your options. This is a free, trusted resource, and it could offer the support you’re seeking right now. Best of luck.

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