Avoiding Mortgage Default

It happens. You lost your job, you were injured or seriously ill and you are falling behind in your mortgage payments. You’re not the first family nor will you be the last. The real question is - do you know what to do?

1. Call your mortgage lender immediately and explain the circumstances which affected your ability to earn the same income necessary to pay your mortgage note.

2. Think about one of the following options that may be available to you through your mortgage provider:

* Reinstatement – if you think you are in a temporary situation, make arrangements to pay the outstanding loan payments and penalties by a date that is agreed upon by you and the mortgage lender.
* Repayment Plan - Essentially your total outstanding payments can be re-paid to the mortgage company through a fixed amount and through a specific time period.
* Forbearance – Again, if you are temporarily out of work or disabled due to illness or injury – you may be interested in this program. Your payments are either reduced or stopped for a short period of time. Once you start up the payments on the agreed date you will resume your regular mortgage payment as well as an additional amount to help make up the suspended payments.
* Loan modification – You permanently change the terms of your loan. Modifications can reduce your interest rate; extend the loan or add payments to the total outstanding principal. Under the Mortgage Forgiveness Debt Relief Act of 2007 the debt could possibly be permanently reduced or canceled.
* Bankruptcy – Not the most favorable action to pursue, especially for your financial future, but you need to know it exists and the basics. Filing a personal bankruptcy will remove your debt and start you over. One of the biggest problems is just that – starting over. Getting future credit, buying insurance, getting or changing employment, etc. can be a huge challenge. Your credit report will reflect this action for at least ten years.

3. Consider selling your home in order to avoid foreclosure.

4. Lastly, as you are evaluating one of the options above – you should seek the advice of a home counselor. Your local City Housing Department or Community Center can put you in touch with a community organization that offers free counseling services.

Are you considering a second home or relocating to the United States?