Foreclosure

---

Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control. You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure.

If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their 'loan.'
If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record.

As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily 'give back' your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure. Exhaust all other viable options before making a decision.

Becoming a more and more popular option for distressed homeowners, this process is called a 'short sale', which occurs when a lender agrees to write off the portion of a mortgage that is higher than the value of a home. But, usually, a buyer must be willing to purchase the property first.

A short sale may be more complex if the loan has been sold in the secondary market. Then the lender will need permission from Freddie Mac or Fannie Mae, the two major secondary-market players.

If the loan was a low-down payment mortgage with private mortgage insurance, the lender also will need to involve the mortgage insurance company that insured the low-down payment loan.

The short sale can keep the homeowner from landing in bankruptcy or foreclosure, but you must be able to prove your financial hardship. And any remaining difference between your home's value and the balance on your mortgage is considered a forgiveness of debt, which may mean it is taxable income.

It can happen. But a lot will depend on your circumstances and the mortgage interest rate you are willing to pay. Generally, most lenders will consider your request for a home loan two to four years after your foreclosure. Predatory lenders will issue a home mortgage in less time. But beware-they routinely charge high mortgage interest rates, fees, and penalties for this privilege.

A quality lender will expect you to show that you have cleaned up your credit. Providing a reasonable explanation about the circumstances that led to the foreclosure - such as exuberant medical expenses-is also helpful.

They can remain on your credit record for seven to 10 years. 

However, a borrower who has worked hard to reestablish good credit may be shown some leniency by the lender. And the circumstances surrounding the bankruptcy may also influence a lender's decision. For example, if you went bankrupt because you were laid off from your job, the lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, it is unlikely the lender will readily give you a break.