Foreclosure Fact Sheet
Foreclosure is a very serious problem in our country. It is estimated that a staggering one million families will face foreclosure this year. Not only does foreclosure have a disastrous financial impact on a family, but it also has harsh consequences for an entire community. Just one or two boarded up homes can begin a downward spiral causing negative impacts in the areas of property values, crime, and economic growth.
Not being able to pay the mortgage can be one of the scariest situations a person faces. Embarrassed about their situation and unsure about what to do, studies show that roughly 50% of delinquent borrowers avoid contact with their lender, hoping that the problem will go away. By not facing their mortgage issues, they only make matters worse; they fall deeper into the hole and increase their chances of foreclosing. If these borrowers could receive solid financial advice and help, most could avoid foreclosures.
How can I reduce the risk of foreclosure when I purchase or refinance my home?
- Take advantage of pre-purchase counseling offered by not-for-profit organizations. Homeowners can avoid trouble later on by making informed decisions while purchasing their homes. Borrowers who are most likely to keep their homes understand their mortgage options and how much they can really afford. Education also helps borrowers identify and avoid unscrupulous sellers or lenders. Studies have found that borrowers who received counseling have half the default risks as those who did not.
- Avoid prepayments penalties and balloon payments. People who refinance their mortgages with loans containing prepayment penalties or balloon payments are more likely to undergo foreclosure. According to a study by researchers at the University of North Carolina, a prepayment penalty increases foreclosure risk by about 20 percent. Mortgages with balloon payments were 46 percent more likely to go to foreclosure than loans without. Protect the equity in your home – it’s a valuable source of wealth that will build over time.
- tay on top of home repairs and maintenance. Not-for-profit organizations and the New York City Department of Housing Preservation and Development (HPD) provide counseling and seminars in home maintenance and repairs and rehabs that improve the value of a home. Too often emergency repairs and less-than-trustworthy contractors push a homeowner into foreclosure.
Tips To Avoid Foreclosure:
- Beware of scams. Beware of predatory lenders, pre-approved loan offers and phony counseling agencies. If any firm claims they can stop our foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property. Never sign a legal document without reading and understanding all the terms and getting professional advice. Many for-profit companies will contact you promising to negotiate a loan work-out with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender or a U.S. Housing & Urban Development (HUD) approved housing counselor will provide for free or for a small administrative fee. You don’t need to pay fees for foreclosure prevention help – use that money to pay the mortgage instead.
- Prioritize your expenses. Prioritize your bills and pay the ones that are most necessary for the well-being of you and your family, such as shelter, food, and utilities. Keeping your home should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment or if you or a member of your household can get an extra job to bring in additional income.
- Protect your credit score. When you are experiencing a financial challenge, remember that making late payments or skipping them can seriously affect your credit score.
If You Are Unable to Make Your Mortgage Payment:
- Contact your lender as soon as you realize that you have a problem. More than half of homeowners facing foreclosures did not call for help when they feel behind in their mortgage payments. Lenders do not want your house. They have options to help borrowers through difficult financial times. Calling when you are 30 or 60 days late is better than calling when you are 120 days late. The farther behind you are on your payments, the fewer options are available. Foreclosure is expensive for lenders, mortgage insurers and investors. HUD and private mortgage insurance companies and investors like Freddie Mac and Fannie Mae require lenders to work aggressively to help borrowers facing money problems.
- Open and respond to all mail from lender. If you don’t get in touch with your lender, your lender will try to contact you by mail and phone soon after you stop making payments. It is important that you respond to mail and phone calls offering help. The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
- Contact a HUD certified housing counseling agency. If you don’t feel comfortable talking with your lender, you should immediately contact a housing counseling agency and make an appointment with a counselor. A counselor can help you:
- Review your financial situation, determine what options are available to you, and negotiate with your lender.
- Learn which of the various workout arrangements lenders consider makes the most sense for you and your family, based on your circumstances.
- Call the lender with you or on your behalf to discuss a workout plan.
- Protect you from future credit problems before you get too far behind on mortgage payments.
- Give your information on services and programs in your area that provide financial, legal, medical or other assistance.
To find out about HUD-approved housing counseling agencies in your area, please call our Foreclosure Prevention Helpline at (212) 669-4600, weekdays between 9:00 a.m. and 5:00 p.m.
- Know your mortgage rights. Find your loan documents and read them so you know what your lender may do if you cannot make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different).
- Understand foreclosure prevention options:
Forbearance – You are allowed to delay payments for a short period, with the understanding that another option will be used afterwards to bring the account current. A forbearance option is often combined with a reinstatement when you know you will have enough money to going the account current at a specific time.
Reinstatement – When you are behind in your payments but can promise a lump sum to bring payments current by a specific date. Forbearance may accompany this option.
A Repayment Plan – If your account is past due, but you can now make payments, the lender may agree to let you catch up by adding a portion of the past due amount to each current monthly payment until your account is current.
Modifying Your Mortgage – The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments). One solution is to add the past due amount into your existing loan, financing it over a long term. Or changing the interest rate, including making an adjustable rate into a fixed rate.
Partial Claim - If your mortgage is insured, your lender might help you get a one-time interest-free loan from your mortgage guarantor to bring your account current. You may be allowed to wait several years before repaying this loan. You qualify for a Federal Housing Administration (FHA) partial claim if:
- Your loan is between 4 and 12 months delinquent
- You are able to begin making full mortgage payments again
When a lender files a partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must sign 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.
Your lender has to follow FHA servicing guidelines and regulations for FHA-insured loans. If you have an FHA-insured loan and your lender is not responsive, contact FHA’s National Servicing Center at toll free (888) 297-8685 or via email hsg-lossmit@hud.gov. HUD does not oversee VA or conventional loans.
- If keeping your home is not an option – contact your lender and discuss these possibilities:
Selling Your Home – If catching up on payments is not possible, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home and pay off the total amount owed. You will be expected to use the services of a real estate professional who can aggressively market the property.
Pre-foreclosure sale or short payoff – If you cannot sell the property for the full amount of the loan, the lender may accept less than the total amount owed. Financial help may also be available to pay other lien holders and/or help towards some moving costs. You may qualify if:
- The loan is at least 2 months delinquent
- You (or your real estate professional) can sell the house within 3 to 5 months
- A new appraisal (obtained by your lender) shows that the value of your home meets HUD program guidelines
- Assumption – A qualified buyer may be allowed to take over your mortgage, even if your original loan documents state that it is non-assumable.
Deed-in-lieu of foreclosure or Property Give-Back – As a last resort, the lender can allow you to give-back your property – and then forgive the debt. Give-backs do, however, have a negative impact on your credit record, although not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
