Top seven ways to stop delinquency

Although the housing market has improved substantially over the last several years, there are still millions of Americans who have difficulty paying their mortgage each month and are facing possible foreclosure. The good news is homeowners who take immediate steps to save their home may be able to avoid foreclosure.

Let's take a look at the most successful ways to avoid delinquency and foreclosure.

1. Evaluate your financial status.

The first step for any homeowner facing delinquency is to take a hard look at their financial position. Do you have a budget? Are you following your budget? Could you increase your income or reduce your debts? Do you have assets you can sell? Could you sell your home and pay your mortgage debt?

Consider talking to a financial planner if you are not sure where to start.

2. Talk to your lender.

Your lender has an incentive to help you resolve your financial issues. They are not in the real estate market and do not want to foreclose on your home. The key, however, is to talk to them immediately and not wait until you are three months behind on your payments.

Make sure you speak to the right person who has the authority to make decisions. Options you can discuss with your lender can include a loan modification, which may allow you more time to make loan payments or add payments to the tail end of the loan repayment period; loan reinstatement, which may allow you to repay back payments plus fees; or forbearance, which may allow you to postpone payments for a time period.
Remember, the sooner you contact the lender the easier it is to negotiate a solution.

Discuss each of these options with the lender and find out if the lender is willing to help you avoid foreclosure.

3. Review governmental options to avoid delinquency and foreclosure.

The United States government offers several programs which may help borrowers avoid delinquency and foreclosure. Review both the Home Affordable Modification Program, which allows qualifying homeowners to modify their loans and potentially reduce monthly mortgage payments, and the Home Affordable Refinance Program, which offers options for homeowners to refinance their mortgages.

4. Sell the house.

The housing market has improved in many parts of the country and selling your house may be the best option for you, especially if the market value of the home is more than the mortgage balance. Selling a home will also eliminate any negative impact to your credit score and may allow you to make a new home purchase in the future.

5. Deed in lieu of foreclosure

Deed in lieu of foreclosure may allow you to transfer the title of a home or property back to the lender. Although you will lose your house, you may avoid the cost and hassle of a foreclosure.

Deed in lieu of foreclosure will negatively impact your credit score. Generally, it is also not the best option unless other options such as a redemption or sale of the home, is not available.

6. Filing bankruptcy

Another option to deal with delinquency is to file bankruptcy. Chapter 7 bankruptcy may allow certain unsecured debts to be discharged, although certain non-exempt assets may be sold to repay creditors.

Filing Chapter 13 bankruptcy may also allow you to stop home foreclosure and it may also allow you to repay delinquent mortgage debt within your 3 to 5 year debt repayment plan.

7. Redeem the loan

Although all states allow homeowners to stop home foreclosure by redeeming the property prior to the sale of the home, some states may also allow homeowners a specific period of time after the foreclosure sale to redeem the property.

If you decide to redeem your property prior to the foreclosure sale, you will have to repay the principal balance, plus certain additional costs and interest. If you wait until after the sale, you will have to pay the purchase price, interest, and additional fees.

Bottom Line:

If you are delinquent on your mortgage payments for your home or property contact your lender immediately. Waiting until your lender begins the foreclosure process is not a good idea. Not only do you eliminate any chance you have of keeping your home, if the mortgage lender forecloses on your home and sells it for less than you owe for the original mortgage amount you may also owe a deficiency.

Under some conditions and in some states the mortgage company can also sue you for the deficiency balance and receive a judgment to collect the debt.