Avoiding Foreclosure

Falling behind on your mortgage payments? Fearful of foreclosure? We’ll show you the options available to help save your home.


Losing your home through foreclosure can be devastating, both financially and emotionally. While it may seem hopeless when you’ve fallen behind on payments, even if you’re unemployed there are ways to stop foreclosure.

You may be able to renegotiate with your lender to regain control of your mortgage or find options that provide government assistance that will make your payments for a limited amount of time. You need to find a way to get back on track with your mortgage payments or to sell your home in a timely manner to minimize any damage to your credit rating.

Foreclosure Prevention

Most homeowners will initially avoid talking to their lender. Don’t be afraid to contact your lender. Lenders do not want your house. Foreclosures will cost your lender money. It’s better for the bank to work with you to find a reasonable option and avoid taking your home.

Contact your lender as soon as you realize that you have a problem. The further behind you become, the harder it will be to reinstate your loan. Lenders have options to help borrowers through difficult financial times.

Contact your mortgage lender as soon as possible

Put your household budget on paper to provide a clear picture when speaking with your lender.
Provide a brief explanation for delinquent payments and why you fell behind.
Inform your lender of your personal plan to get back on track showing you’ll have more money available to make timely payments.

Your lender should be able to give you options that fit your specific situation. Which option is right for you will depend on a lot of things, including how far behind you are, how much you owe on your mortgage, what your overall financial situation is, the terms of your mortgage, and even the location of your home and your age.

Available Options

Repayment Plans

A repayment plan allows you to spread out your past due amount (increasing your current mortgage payments) over several months in order to bring your mortgage current. Within a negotiated amount of time, you’ll be able to bring your mortgage up to date.

A repayment doesn’t change the terms of your existing loan or create a new one. The agreement must be negotiated and approved in writing by your mortgage lender.


Even with a delinquent mortgage you still have an opportunity to refinance to bring a past due home loan current. The refinancing process pays off the existing loan and replaces it with a new mortgage. The goal is to modify your mortgage terms to lower your interest rate and adjust your monthly payment schedule.

For some, it can be difficult to get approved for refinancing as lenders will be looking at your current payment history to complete the refinance. The further behind you are the more difficult it is to be approved for refinancing.

The most important aspect of refinancing is the affordability of the new mortgage. The new payment amount obviously needs to fit your budget so you’re able to make timely payments. Refinancing can save your home and protect your credit if you’re able to maintain steady on time payments.

Mortgage Modification

This long-term relief option allows you to change the original terms of your mortgage (interest rate, length of the loan, payment amount) and reduce your monthly payment making it a more affordable option.

This is a good option for those that do not qualify for refinancing. Proof of hardship must be provided to your mortgage lender.

A loan modification can hurt your credit score depending on how your lender reports it to the credit bureaus. If your credit rating takes an initial hit, it will be less of a negative impact compared to continued months of late payments or a foreclosure.

Some lenders will report it as not fulfilling the original terms of your loan (settlement), this will affect your credit. Some may not report it as a settlement, and it is possible that your credit score to increase as your monthly payments will be lower. When negotiating a modification ask your lenders how they report it to the bureaus.


Forbearance offers mortgage relief by allowing you to pause or reduce your mortgage payments for a limited time while you build back your finances. Forbearance does not erase what you owe. You'll have to repay any missed or reduced payments in the future.

This option helps borrowers stay afloat during a short time hardship. If you are currently experiencing hardship such as a temporary illness, temporary disability, or job loss, forbearance may be a good option for you.

Your credit score could be affected as your mortgage lender may report your forbearance to credit reporting agencies. Regardless of any damage to your credit, you will save your home.

Short Sale

A short sale is when your lender allows you to sell your home for less than the outstanding loan amount taking the proceeds and forgiving any remaining debt. The lender must approve the short sale and the process for approval is tedious. It’s recommended to hire an experienced real estate agent with short sale experience to negotiate with the lender and guide you through the process.

To qualify for a short sale

Your home’s value must be less than the balance remaining on the mortgage.
You are in a position where you are unable to pay your mortgage, or you no longer can stay in your home.

Typically, the lender pays all fees associated with selling your home so there are no out of pocket expenses on your end. A short sale will do less damage to your credit than a foreclosure and allow you to stay in your home until it is sold.

Will I Owe Money After a Short Sale?

When negotiating with your lender for approval of a short sale, ask for them to waive a deficiency judgement. This provision of complete satisfaction of the debt should be in your short sale agreement. Many lenders will agree to this provision however, you may still have a tax consequence if you receive an IRS Form 1099-C. In this case you might have to include the forgiven debt as taxable income.

Deed-in-Lieu of Foreclosure

A deed in lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process. This agreement allows homeowners to satisfy a mortgage loan that’s at risk of defaulting, while avoiding foreclosure proceedings.

Lenders are not obligated to accept a deed in lieu if:

  • Your property is not kept up to date and in bad shape
  • There are liens and judgements on your property
  • Your property has depreciated in value
  • Your existing mortgage contract prevents it

Credit Impact

The negative impacts on your credit include:

  • It’s possible to end up with a deficiency judgement.
  • There could be a tax liability if debt is forgiven by the mortgage lender
  • Your credit score may drop between 50 – 125 points.
  • A deed in lieu agreement stays on your credit for 4 years.
  • If there is existing equity in the property it now belongs to the lender.

This may be the only option for those in severe financial distress regardless of the credit consequences. Walking away from your mortgage may be the best solution to save your finances.

Deed for Lease

In this option you go through the deed-in-lieu process to return the deed back to your lender. You’re permitted to stay in your home as a tenant while the bank takes ownership. A lease is prepared for a stated amount of time allowing you to remain in your home and prepare for relocation. The bank will sell the property after you move.

IAPDA can provide you with a certified, licensed professional that specializes in Bankruptcy solutions. Find out if Bankruptcy to stop a foreclosure action is the right option for you. Get the professional help you need. Click the "Free Consultation" button for a free consultation.

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