Just the word is enough to tie your gut in knots: "foreclosure.” The truth is, it's difficult. It's painful. The very thought is demoralizing and the reality can be even worse.
But ignoring the signs of foreclosure isn't going to make it go away. And if you act fast, you just might be able to pull it out.
So take a deep breath. Lift up your chin. Shrug off any feelings of shame or embarrassment – foreclosure happens to thousands of good, hard-working people every year. It's not a judgment of you as a person. It's just a problem to be solved.
So, if you're facing foreclosure, what should you do?
1. Talk to your lender
The worst thing you can do is dodge your lender. Don't wait until you've missed a couple of mortgage payments and don't wait for them to call you. Set your pride aside and call your lender as soon as you know you can't make a payment.
Here's the thing: your lender hates foreclosure almost as much as you do. The paperwork that goes along with a foreclosure, as well as the costs of marketing your property, will cost the bank thousands of dollars. They would much rather work with you to keep your loan on track.
Again, as soon as you see trouble ahead, call and ask about your options, including forbearance, reinstatement, payment plans or loan modifications. If what they tell you seems complicated, ask them to break it down into simpler terms. Ask as many questions as you need to. You're not the first person they've ever spoken to in this situation, and you need to understand your options.
2. Contact foreclosure relief programs
The Department of Housing and Urban Development's Federal Housing Administration has a website that provides advice to consumers facing foreclosure. Check the site to see if you might be eligible for loan balance reduction or refinancing.
Many state government agencies also have free hotlines to help consumers facing foreclosure. These programs exist for one reason: to help people like you. Don't hesitate to see what they can do for you.
3. Get counseling
You could use someone in your corner who has seen it all, and who knows what all the options are. That's what reputable credit counseling services do. They can negotiate with your lender to help alleviate your debt. In most major cities, HUD-sanctioned housing credit counselors are also available to talk to homeowners about their options during foreclosure.
Be wary, though. Some counseling services are not on the up-and-up. Check with your local Better Business Bureau to determine whether the company is fraudulent. And don't sign anything without consulting an attorney. (By the way, if you don't have an attorney, now's the time to give one a call.)
4. Time for a gut check
Ask yourself: can you honestly afford this house? Selling and starting over really may be your best option.
Each person's situation is different; talk to a trustworthy financial adviser about your circumstances. And always be truthful, with your financial adviser, lender, or credit counseling service – and with yourself. The best advice in the world can only help if it's based on your real circumstances, on real numbers, and on real facts.
5. Organize your debt
Take the same proactive attitude toward your other bills, too. Prioritize what really matters. Talk to your utility and credit card companies as frankly as you've spoken to your lender. Make them all aware of your financial crisis. If you’ve lost your job but are busy interviewing for a new one, let them know that.
Don't dodge the problem. Don't write bad checks in an effort to postpone disconnect notices. Avoid taking expensive short-term loans if at all possible. Late fees, bounced check fees, and exorbitant payday loan interest will only add to your troubles.
It's normal to feel panic, denial and embarrassment about foreclosure. But remember, you're not alone. You're not the first or the last to run into these problems. Life will go on.
The important thing is not to let your emotions keep you from facing the underlying financial issues. If you can keep a level head and stay focused on solving problems, you'll be ahead of the game – and well on your way to saving your home.