The Truth About Foreclosure Help

© 2009, Brandon Cornett

These are tough times for homeowners in America. As a result of our housing crisis and subsequent recession, millions of homeowners have lost their homes to foreclosures. And over the next few years, millions more will need help to avoid foreclosure on their homes.

There are legitimate sources of help out there, but there are also plenty of scam artists seeking to take advantage of folks who are in trouble. On this page, you can learn about both sources of foreclosure help -- the ones worth pursuing, and the ones to avoid.

Different Types of Foreclosure Help / Avoidance

First of all, we need to face some hard truth. There are certain scenarios where foreclosure becomes unavoidable. In most cases, there are certain steps a homeowner can take to avoid foreclosure completely. Those steps are covered below. But there are also situations where these steps fail to help. It's a tough reality, but it's one we must face.

With that disclaimer out of the way, let's talk about the different types of foreclosure help available to homeowners. These options are divided into two categories, depending on whether your money problems are temporary or more long-term in nature.

If you're only having temporary financial problems, you should research the options listed below:

• Repayment -- This is when you make your regular mortgage payments, plus a little extra to cover back payments and fees. You are essentially spreading your missed payments over future payments, until you are current / caught up on the mortgage. You would need to talk to your lender about this option, as well as the ones described below.
• Forbearance -- This is when your lender temporarily suspends or reduces your payments, with the understanding that you will make a future lump-sum payment to get caught back up. This is often used in conjunction with reinstatement (see below). This type of foreclosure help could be a wise option for people who have extra money coming in the future, as the result of a tax refund, a hiring bonus, etc.
• Reinstatement -- This is when your lender accepts the total amount due (for missed payments) as a lump sum. It is often used in conjunction with forbearance, which is explained above.

If your money problems are more permanent in nature, and you simply cannot afford the payments, you may want to consider the options below:

• Mortgage Modification -- This form of foreclosure help has been in the news a lot lately. This is where a lender restructures a loan to make the payments more affordable for the struggling homeowners. They usually do this by modifying the term or the interest, as opposed to the principal amount owed. The government is currently encouraging lenders to modify loans, under the Making Home Affordable program. You can find out if you're eligible at the official website.
• Short Sales -- Selling a home is also a way to avoid foreclosure. But the problem for many homeowners is that they owe more on their mortgages than their homes are currently worth. In these situations, some lenders will allow a "short sale." This is when the home is sold for less than the mortgage amount owed. The purpose is to sell the home fast. This technique can help the homeowner avoid foreclosure and help the bank prevent future losses. You can learn more from this Washington Post article and from this (more recent) USA Today article.

Talking to Your Lender - The Common Thread

Regardless of what kind of foreclosure help you pursue, you'll have to talk to your lender at some point. Sooner is usually better. This is the first step recommended by housing and financial experts. For example, an article on the HUD website says the following:

"Do not assume that your mortgage problem will quickly correct itself. Contact your lender to discuss your circumstances as soon as you realize that you are unable to make your payments. While there is no guarantee that any particular relief will be given, most lenders are willing to explore every possible option."

If you are falling behind on your payments, contact your lender. They have a variety of "workout" options to help you avoid foreclosure and keep your home. We talked about these options above (forbearance, reinstatement and repayment). They may or may not be able to help you, given your particular circumstances, but you won't know until you talk to them. So this is your first step on the path to a solution.

Now, there are certain companies that will tell you not to contact your lender. They offer to handle this process for you, by acting as an intermediary. More often than not, this is a scam that you should avoid. Anyone who tells you not to talk to your lender is probably someone to avoid. We will talk more about foreclosure prevention scams below.

Foreclosure Prevention Scams to Avoid

It's a sad state of affairs when so many "companies" swoop in to take advantage of struggling homeowners. But that is what's happening across the country right now. Foreclosure prevention scams are popping up at an alarming rate. This is when you pay a person or company to help you avoid foreclosure, only to be left high and dry.

These scams take many different forms, but they usually go like this...

The company says they will deal with your lender on your behalf, in order to work out some kind of solution to lower your payments, modify your loan, etc. Then they ask for an upfront payment (which is always a bad sign).

Later, your mortgage lender tells you that they are initiating foreclosure proceedings, since you have defaulted on your loan. You say, "Well what about the company I hired to work with you on this?" And the lender tells you they've never heard of that company, and have certainly not been contacted by them.

Education is your best line of defense against such scams. Here are some resources to help you learn more about them:

• Los Angeles Times article (September 2009)
• Consumer advisory from the Treasury Dept (April 2009)
• Blog post on our website (January 2009)

You should also avoid signing any documents you don't understand. Here's what HUD says about it: "If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home!"

General Disclaimer: This foreclosure help tutorial is intended for educational purposes only. We are not acting as financial advisors. Every housing situation is unique, so you should seek professional advice for your particular situation.

---

About the Author Brandon Cornett is a consumer advocate and creator of the Home Buying Institute. He has been educating consumers on housing-related topics since 2004.