How to Avoid Foreclosure
The guidance below 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.
Both foreclosures and deficiency judgments could seriously affect your
ability to qualify for credit in the future. So you should avoid foreclosure
Q: What Should I Do?
- DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems
making your payments, call or write to your lender's Loss Mitigation
Department without delay. Explain your situation. Be prepared to provide
them with financial information, such as your monthly income and expenses.
Without this information, they may not be able to help.
- Stay in your home for now. You may not qualify for assistance if you
abandon your property.
- Contact a HUD-approved housing counseling agency. Call (800) 569-4287
or TDD (800) 877-8339 for the housing counseling agency nearest you.
These agencies are valuable resources. They frequently have information
on services and programs offered by Government agencies as well as private
and community organizations that could help you. The housing counseling
agency may also offer credit counseling. These services are usually
free of charge.
Q: What Are My Alternatives?
You may be considered for the following:
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
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 FHA-Insurance fund to bring
your mortgage current.
You may qualify if:
- your loan is at least 4 months delinquent but no more than 12 months
- 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:
- the loan is at least 2 months delinquent;
- you are able to sell your house within 3 to 5 months; and
- 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 can qualify if:
- you are in default and don't qualify for any of the other options;
- your attempts at selling the house before foreclosure were unsuccessful;
- you don't have another FHA mortgage in default.
Q: How Do I Know if I Qualify for Any of These Alternatives?
Your lender will determine if you qualify for any of the alternatives.
A housing counseling agency can also help you determine which, if any,
of these options may meet your needs and also assist you in interacting
with your lender. Call (800) 569-4287 or TDD (800) 877-8339.
Q: Should I Be Aware of Anything Else?
Yes. Beware of scams! Solutions that sound too simple or too good to be
true usually are. If you're selling your home without professional guidance,
beware of buyers who try to rush you through the process. Unfortunately,
there are people who may try to take advantage of your financial difficulty.
Be especially alert to the following:
Equity skimming. In this type of scam, a "buyer"
approaches you, offering to get you out of financial trouble by promising
to pay off your mortgage or give you a sum of money when the property
is sold. The "buyer" may suggest that you move out quickly and
deed the property to him or her. The "buyer" then collects rent
for a time, does not make any mortgage payments, and allows the lender
to foreclose. Remember, signing over your deed to someone else does not
necessarily relieve you of your obligation on your loan.
Phony counseling agencies. Some groups calling themselves
"counseling agencies" may approach you and offer to perform
certain services for a fee. These could well be services you could do
for yourself for free, such as negotiating a new payment plan with your
lender, or pursuing a pre-foreclosure sale. If you have any doubt about
paying for such services, call a HUD-approved housing counseling agency
at (800) 569-4287 or TDD (800) 877-8339. Do this before you pay anyone
or sign anything.
Q: Are There Any Precautions I Can Take?
Here are several precautions that should help you avoid being "taken"
by a scam artist:
- Don't sign any papers you don't fully understand.
- Make sure you get all "promises" in writing.
- Beware of any contract of sale of loan assumption where you are not
formally released from liability for your mortgage debt.
- Check with a lawyer or your mortgage company before entering into
any deal involving your home.
- If you're selling the house yourself to avoid foreclosure, check
to see if there are any complaints against the prospective buyer. You
can contact your state's Attorney General, the State Real Estate Commission,
or the local District Attorney's Consumer Fraud Unit for this type of
Q: What Are the Main Points I Should Remember?
- Don't lose your home and damage your credit history.
- Call or write your mortgage lender immediately and be honest about
your financial situation.
- Stay in your home to make sure you qualify for assistance.
- Arrange an appointment with a HUD-approved housing counselor to explore
your options at (800) 569-4287 or TDD (800) 877-8339.
- Cooperate with the counselor or lender trying to help you.
- Explore every alternative to keep your home.
- Beware of scams.
- Do not sign anything you don't understand. And remember that signing
over the deed to someone else does not necessarily relieve you of your
Act now. Delaying can't help. If you do nothing, YOU WILL LOSE YOUR HOME
and your good credit rating.
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