This is the legal means a mortgage company may use to repossess their collateral, your home should you default on making timely payments. If the property is sold for less than the total amount owed on the mortgage loan, the mortgage company or HUD could seek a deficiency judgment against you. A deficiency judgment could seriously affect your ability to qualify for credit in the future.  Even worse, it's a one way street.  Surplus funds are not returned to former homeowners.  With much to loose & nothing to gain, foreclosure should be avoided at all costs.

Do Not Ignore a Breach / Notice of Default Letter From your Mortgage Company

Contact the mortgage company immediately. Explain the situation. Be prepared for the bank to request financial information, such as monthly income and expenses. Without this information, they may not be able to assist. Never abandoned the property. This could disqualify you from receiving any further assistance.

CONTACT THE LOSS MITIGATION DEPARTMENT:  Loss mitigation is different from the lenders collection department.  Collections will likely demand all monies owed right now.  Loss mitigation is designed to work with you to come to an agreement about how to resolve the debt.  Get any agreement in writing.  If they do not provide one, send them a certified letter outlining any agreements reached.

Here are some options to consider:

Special Forbearance - The mortgage company may be able to arrange a repayment plan based on your financial situation. The mortgage company may even provide for a temporary reduction or suspension of payments. Homeowners who have recently lost their job or source of income or have had an unexpected increase of expenses may qualify for these programs.

• Mortgage Modification - The homeowner may be able to refinance the debt and/or extend the term of the mortgage loan. This will help the homeowner catch up by reducing the monthly payments to a more affordable level.
• Partial Claim - The mortgage company may be able to work with the homeowner to obtain and interest-free loan from HUD to bring the mortgage current. When the mortgage company files a Partial Claim, HUD will pay the mortgage company the amount necessary to bring the mortgage current. The homeowner must execute a Promissory Note, and a lien will be placed on the property until the Promissory Note is paid in full. The Promissory Note is interest free and will be due if the property is sold or when the mortgage matures.
• Deed-in-lieu of Foreclosure - As a last resort, the homeowner may be able to voluntarily "give back" the property to the mortgage company. This won't save the house, but will help the homeowner's chance of getting another mortgage loan in the future.
• Pre-Foreclosure - The "Short Sale" - This will allow the homeowner to sell the property and pay off the mortgage loan to avoid foreclosure and major damage to their credit rating. Homeowners may qualify if they meet the following requirements.
  1. The "as-is" appraised value is at least 70% of the amount owed and the sales price is 90% of the appraised value;
  2. The loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date;
  3. The homeowner is able to sell the home within 4 to 6 months.

Beware of Scams

Solutions that sound too good to be true usually are. Be alert to the following:

• Equity Skimming - A "buyer" approaches the homeowner, offering to get them out of a financial bind by promising to pay the mortgage or giving the homeowner a lump sum of money at a later date when the property is sold. The "buyer" may suggest the homeowner deed the property to them. The "buyer" collects rent but does not make any mortgage payments, and the mortgage company still forecloses. Signing over a deed to another party doesn't relieve the homeowner of their obligation to repay the loan.

Expensive Counseling Agencies - These may be services a homeowner could do for themselves such as negotiating a new payment plan with the mortgage company, or pursuing a pre-foreclosure sale. Contact HUD and request a HUD-approved counseling agency. Call 1-800-569-4287.

• This should be done before any fees are paid or contracts signed.

Greg Zacagni @ www.MortgageAdvisor.info