There are two types of foreclosure: Mortgage Foreclosure and Tax Reversion.

A mortgage foreclosure starts with missed payments, and the lender is the one foreclosing. Call your lender as soon as you realize that you have a problem. Ask for the loss mitigation department (or whatever your lender names this department). Do not talk to the collections department. Banks are more willing to work with you if you call them within the first thirty (30) days after a payment is due as banks do not want to end up owning your home.

The U.S. Department of Housing and Urban Development (HUD) offers suggestions to homeowners to avoid mortgage foreclosure by listing the following alternatives that a lender may offer:

Special Forbearance:

Your lender may be able to arrange a repayment plan based on your financial situation and may even provide a temporary reduction or suspension of payments.

Mortgage Modification:

You may be able to refinance the debt or extend the term of the 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 work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. This strategy is used on FHA loans or those with Private Mortgage Insurance (PMI) only.

You may qualify if:

  • Your loan is at least four (4) months delinquent, but no more than twelve (12) months delinquent.
  • You are able to begin making full mortgage payments.

When your lender files a partial claim, HUD 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.

Pre-foreclosure Sale (or “short sale”):

A “short sale” will allow you to avoid foreclosure by selling the home for less than what is owed on the mortgage.

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 as your credit rating as a foreclosure. This must be done before the Sheriff’s Sale.