5 Steps to stop foreclosure

Steps 1-3: what you should do right away

Whether you're already behind in your payments, or you think that you might run into financial trouble soon, you need to act now!

This page:

  • Makes clear what you should do right away

  • Helps you develop a plan of action

  • Explains when and why it's worth it to save your home

Step four and step five of this plan help you assess your options and understand your lender's position.

Steps 1-3: what you should do right away
No new home owner wants to think about the possibility that they may default on their mortgage and have the bank foreclose on their property. However, unexpected events like divorce or loss of employment are unfortunate but not rare.

If for some reason you run into financial difficulties, we'd like to give you some advice on what to expect and how to handle the situation.

  1. Take action quickly. Notify your loan servicer of any mortgage payment problem as soon as it comes up, even before the payment due date.

The importance of this step cannot be stressed enough. Acting quickly and in good faith makes your lender much more likely to try and work with you.

You can also avoid hidden legal costs. Once the foreclosure process begins, bills start piling up, and lenders will hold you responsible for their share. Even if you can cover the missed payments, you may be in for an unpleasant surprise if your lender has initiated proceedings.

  2. If possible, document your difficulties. Keep a record of any sudden unexpected expenses. Let your lender know if you will be losing your job or going through a divorce. It can be especially helpful to you to keep track of involuntary expenses so your lender knows you're acting in good faith.

  3. Assess your situation. This is an especially important step in formulating a financial plan. Ask your self these questions:

  • Is your financial reversal temporary or permanent? If you are relieved of mortgage payments for six months and after that time can make the normal payments plus repay the amount for which you are in arrears within a year, your situation is temporary. If you cannot reasonably expect to this, a lender considers your reversal permanent.

  • How much equity do you have in your home? Equity is the current sale price of your home minus your remaining loan balance. This is one situation where having a lot of equity may hurt you by making foreclosure an easy and cheap option for your lender. If you don't have much equity, your lender may be more willing to modify your loan.

  • Has your home appreciated or depreciated in value? Working hard and paying extra in legal fees to save a home that's lost some of it's value doesn't always make good financial sense. On the other hand, if your property is gaining value, it may be worth protecting the investment.

Next: Steps 4: assess your financial options

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