First and foremost, be candid and honest. Nobody can help if all the information is not disclosed. These are tough times and everyone knows it and tend to be sensitive to this. Also, always be nice...you will get so much further than if you become irritated and upset with the people or situation. This is an emotional time for you and understandably so, this means that keeping your cool can be challenging so if you do happen to loose your composure just explain to the person you are under a lot of pressure, confused, frustrated, scared, or whatever and apologize to them letting them know you are not upset with them and that you appreciate their calm and willingness to help. Remember, you get more flies with honey than vinegar.
Foreclosure is about the worst thing you can have on your credit, add to that the loss of your home where you are comfortable and raise your children. Call your current mortgage company and ask about getting a loan modification. Unlike refinancing which you must first qualify for and pay all those closing costs totalling thousands of dollars a loan modification will tend to be better terms than anything one could get by refinancing and will cost little to no money. There are some qualifications that must be met...they are very different than those for refinancing and have nothing to do with your credit score. You do not *need* to pay anyone to do or help you with a loan modification though there are people/companies out there who are in the business of helping with this, if you so choose please be certain to select a solid, credible, stable, reputable place that will act solely in YOUR best interest not theirs.
If you have two different mortgage companies contact them both to see if one or both will help. You have a little more leverage on your second mortgage than you do on the first because they are the second lien on the property. What this means is that if the first lien holder forecloses then the second lien is wiped out and thus that lender gets nothing (this is why the interest rates on second mortgages is so much higher than on a first mortgage...it's riskier). Let the second mortgage company know you are having troubles and have to find a way to keep the home or the first mortgage company will foreclose and they will loose their investment. It is in their best interest to work with you so that they get something rather than nothing in the event of a foreclosure.
One resource to also check out is Making Home Affordable (http://makinghomeaffordable.gov/) which is part of Obama's drive to help keep people in their homes and stabilize the housing market and economy as a whole. This is completely separate from anything you are or are not able to work out directly with your current mortgage company.
What if the above does not work out and you are still facing foreclosure? Well depending upon your overall situation considering bankruptcy may be an option. The first thing to know here is that while you may feel embarrassed bankruptcy is not really a that bad...some wealthy people actually 'plan' their bankruptcies. Bottom line here is that bad or unfortunate things happen to people all over no matter how good a person they may be nor how well off they may have been at one time or another. Not to put too fine a point on it, well...shit happens to all of us at one time or another. It's how we deal with it that really matters.
So on the note of foreclosure and how this can help. Filing bankruptcy will immediately stop all collection attempts from all creditors (federal law!). It will also stay off a foreclosure. Some general things to know, here in Texas your homestead is pretty safe (one of the great laws here is the homestead law, it's very hard to lose your primary residence unless to foreclosure by the mortgage company or for taxes). This is not to say it can not happen. There are two different types of personal bankruptcy, chapter 13 which is restructuring your debt. You still owe it and are put on a payment plan to manage repayment. Then there's chapter 7 with actually wipes out your debt...though not all debt is eliminated. You will still have your mortgage if you keep your home, your car payments if you keep your cars (if they have loans on them already of course), and you can not eliminate student loans or any tax related debts such as the IRS. Debts that will go away are things such as credit cards, store and finance company debts (i.e. furniture, your Sears card, etc.), medical bills, signature/personal loans from an institution (not something borrowed from a friend or family member), and other unsecured debt. These are just some examples of what you will learn through the process.
Things that you may loose in a bankruptcy are second or vacation homes, investment real estate, collections of value such as guns, art, coins, etc. The law allows one automobile to be retained per licensed driver in the household so if it is just you and your spouse then that third or fourth car may have to go. Also recreational vehicles such as boats, RVs, campers, etc. may have to be sold to fulfill some of the debt being included in the bankruptcy. Much more information can be acquired about this online or by contacting an attorney (see below).
Before being allowed to file bankruptcy you will be required to have a financial counseling session (part of the new bankruptcy laws passed in 2005). In Austin you will be sent to Consumer Credit Counseling Service (http://www.cccs.net/) probably.
If you decide that bankruptcy is a possible option then you will want to contact an attorney. They generally do not charge all that much for what they do since they already know you do not have a lot of resources to work with otherwise you would not be seeking their assistance. To get referrals and good rates you can use the Lawyer Referral Service in your area if there is one, it is Austin Lawyer Referral Service (http://www.austinlrs.org/). You can of course learn how to do everything yourself and skip the attorney...though I do not recommend this at all. After all, you wouldn't operate on yourself using the internet as a guide would you? Of course not, you'd find a well qualified surgeon for this. Get the right person for the job, you'll be happy you did.
Neither of these are have to be mutually exclusive either. Look in to a loan modification then after that is completed reevaluate your finances and see if bankruptcy is still something that may be worth looking in to or even pursuing.
Additional questions to ask just will be related to tax ramifications of any course of action you take. This will likely require one additional phone call to your CPA after having discussed everything with the above people and asked tax related questions such as will you get a 1099 for any 'forgiven' debt? It's likely that even if you do get one your accountant can show insolvency and you will not have any taxable event to worry about. Though you need to ask so you know what may happen...the key here and to all of this is EDUCATION. Even if there is a taxable event look at the big picture, will you be better off than you are now if you move forward?
And the WORST thing you can do...stick your head in the sand, do nothing, and hope it all just goes away. Do not just sit idly by and let life happen to you, take charge and take action. Ask question, educate yourself, and take the most appropriate course of action for you and your situation...don't let your friends, family, or neighbor tell you to do what they did, everyone's situation and needs are different and unique...as such they must be treated and evaluated as such.
As for your credit report, foreclosures and bankruptcies are the worst things you can have for the most part. On the upside, they don't follow you forever and after a couple years they are not as important as they are the first two after they occur. It is not the end of the world. Again, look at the big picture and consider what it really important. Don't let pride drag you down, I know that's easier said than done sometimes...big picture!
I hope that this helps and covers everything. This was kind of a brain dump of many things I've been thinking of during these challenging times knowing that people are looking for help, options, and information. The tough part is that many do not know where to start or what their options are.
All this great advice for free!! All I ask is that next time you or a friend, family member, or someone else you know needs a mortgage you will consider me. My name is also my website: Allan Pape (http://www.AllanPape.com)
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