Home foreclosures hit a record high in September, as rising unemployment, sinking stock portfolios and easy financing took their toll.

According to the Washington, D.C.-based Mortgage Bankers association of America, 0.4 percent of loans entered foreclosure in the second quarter with another 1.23 percent of loans in the foreclosure process.

Many Americans live just a paycheck or two away from foreclosure, according to industry statistics. The slightest bump in the financial road can result in a family losing their home.

Although it may seem that lenders are quick to foreclose on a home, mortgage experts say foreclosure is an expensive, time-consuming process for lenders – one they’d rather avoid.

If you are in danger of not making a payment to your lender, or if you are struggling to pay all of your bills, there are some ways you can avoid foreclosure and work out a different payment plan with your lender.

If you miss a payment, or are late, you may receive a letter from your lender. Don’t ignore this letter. Instead, contact your lender’s “loss mitigation” department. This is the department that has the ability to work with you to restructure your loan.

Your lender will want to know why your financial situation has changed since the loan was made. Did you lose your job? Was their an illness or death? Be prepared to provide the lender with your financial information, including information about your monthly expenses and income.

Although you may feel like leaving your home, experts say the best thing you can do is to stay put, even if you can’t afford to make your monthly mortgage payments. You may qualify for special assistance from the Department of Housing and Urban Development (HUD) as an owner/resident.

Next, contact a HUD-approved housing counseling agency (www.hud.gov or call toll free 888-466-3487). These agencies have information on special homeowner assistance programs that can help. They also may offer credit and budget counseling, usually free of charge.

If you bought your home with a Veterans Administration (VA) guaranteed loan, call the VA for financial assistance.

No matter which lender owns or services your loan, there are several options available to you that could keep you out of foreclosure:

  1. Special forbearance. According to HUD, your lender may be able to arrange a repayment plan that will help you out of your current financial situation, including a temporary reduction or suspension of your payments. Homeowners who have recently lost their jobs or had an unexpected increase in expenses (like from an illness or death), may qualify.

  2. Mortgage modification. Your lender may be able to refinance your debt or extend the term of your mortgage loan. This could help you catch up on your payments by reducing your monthly debt costs to something more affordable. Homeowners who are recovering from a financial problem but whose income is less than it was before, may qualify.

  3. Partial claim. Your lender may be able to help you receive an interest-free loan from HUD to cover the cost of bringing your mortgage current. HUD files a lien against your property, just like a mortgage lender would, and when you either pay off your mortgage or sell your home, you’ll have to pay HUD back out of the proceeds. Homeowners who are at least four months late but whose mortgage is not in foreclosure may qualify.

  4. Pre-foreclosure sale. If you have equity in your home, and can sell your home in three to five months, you may be able to sell your home and avoid foreclosure altogether.

  5. Deed-in-lieu of foreclosure. If none of the other options are available to you, another way to avoid foreclosure is to voluntarily give back your home to the lender. While this action will be recorded on your credit history, it’s somewhat better than if the lender actually forecloses on your home.

Unfortunately, homeowners in precarious financial situations often turn to the wrong people for help. Instead of working with a lender’s “loss mitigation” department, homeowners will instead end up at phony counseling agencies or bad-apple lenders who promise they can get you out of any tough spot.

Just remember, if it sounds too good to be true, it probably is. Instead, put aside any feelings of embarrassment you may have over not being able to pay your bills, and contact your lender directly – not the mortgage broker who may have helped you get the loan initially.

Published: Sep 16 2002