Communicate with your lender
You and your lender are on the same side where foreclosure is concerned. Lenders are interested in your money and the interest they earn with it, not your house. Ideally for them, you would keep paying for the mortgage and keep the house. If you seem to be a good risk, the lender will offer to help keep your mortgage afloat. However, if you seem like a bad risk, it would make sense to your lender to cut its losses by moving ahead with foreclosure and your eviction as soon as possible.
So the important thing is to contact the lender before your debt gets out of hand. The sooner your lender knows of your problem, the more help it can provide.
The foreclosure
16 days overdue: The foreclosure spiral begins when your loan payment becomes 16 days overdue. At that point, your mortgage servicer will try to contact you to work out a repayment schedule to bring your loan current.
30 days overdue: If your first payment becomes 30 days delinquent and the next month's payment looks doubtful, collection attempts begin in stringently.
90 days overdue: If your payments fall 90 days behind, the servicer will likely refer your mortgage to an attorney or other entity that will initiate formal foreclosure proceedings.
Ways to avoid foreclosure
Here are some options your lender may offer you if you miss a payment and want to avoid foreclosure:
- Repayment plan: If the delayed payments is because of a short-term financial setback or hardship such as an expensive home improvement or emergency medical bills, your lender can provide you some breathing room by agreeing to let you pay off the missed payment in a couple of installments installments over the next few months.
- Loan modification: The terms of your loan can be adjusted by mortgage servicers to help you bring the loan current. This is most often done by lengthening the amortization schedule, lowering the interest rate or rolling the delinquent amount into the loan and reamortizing the new balance.
- Short sale: In this case, the lender allows you to sell the house for less than the outstanding loan amount. The proceeds are taken by the lender who then forgives the remaining debt.
- Short refinance: The lender forgives some of your debt and refinances the rest into a new loan.
- Refinance with a "hard money" loan: This will involve high rates and fees that come with a hard money loan from a private lender. But this option may give you enough time to sell your home and avoid foreclosure.