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So, the unimaginable has happened. For any of a variety of reasons – job loss, health issues, death, disability, divorce or some other unexpected crisis – you just cannot make your mortgage payment.

What should you do? The answer may surprise you.

According to the experts, the first thing you should do is call your lender to let them know what the problem is and what you can or can't do to correct it. Most foreclosure victims never make that call. And the result of simply wishing the problem away is a foregone conclusion: You will lose your home.

Think about it. Typically, your lender does not want your home. They want your house payments. Foreclosure proceedings are court actions involving lawyer's fees. They cost lenders a lot of money (as much as $40,000 for one proceeding), so often it is in everyone's interest to agree on new terms that modify your current mortgage.

However, nothing starts without your phone call. It can be discouraging. You may be placed on hold for a long time. Some mortgage companies immediately turn your account over to a collection agency, which may not want to work out new terms if they're only getting paid to collect your money.

If possible, try to circumvent the collection agency and go right to the mortgage company's Loss Mitigation Department or Foreclosure Prevention Department if your mortgage becomes unmanageable. Ask them to send a "work-out" packet to update your financial information, including income, expenses, and other debts. If you qualify, you might have several options:

  • Forbearance Agreement: This is a written repayment plan based on your current financial status. You make your regular payments, plus part of the amount you owe, until you catch up. Some lenders will suspend payments for a month or two.

  • Mortgage Modification: The lender may extend the timing on the mortgage loan out over a new thirty-year period and/or reduce your monthly payment.

  • Partial Claim: If you have an FHA loan, the U.S. Department of Housing and Urban Development (HUD) may consider lending you the money to catch up on what you owe. This would be through an interest-free loan that you would pay back when you sell the property or pay off your first mortgage.

  • Pre-Foreclosure Sale: You may be permitted to sell the property for less than the mortgage balance. This will damage your credit less than an actual foreclosure.

  • Deed-In-Lieu of Foreclosure: As a last resort, it may be best for you to give the house back to the lender. This is better for your credit than an actual foreclosure.

Please visit our Foreclosure Resources page for a list of government and private agencies that offer free programs and services to homeowners facing foreclosure.