Foreclosure
is an intimidating word with real life consequences. Behind every
court document is a frightened family fighting to maintain the home
they worked so hard to acquire. Regardless of what some sources
imply, most people suffering in foreclosure are struggling to do the
right thing. Often they were not prepared, like many of us, for an
unexpected illness, job loss, or divorce. Follow the advice below to
regain your financial footing and keep your home.

Most
importantly, be vigilant. Open all of your mail and read it.
Foreclosure is a multi-step process that can be short-circuited at
nearly every stage, but only if you know what is coming. If a court
date is listed, make arrangements to attend. Not opening your mail
does not stop the foreclosure. It makes the situation worse. First,
you do not know what is in the documents from the basic allegations
to critical court dates. This leaves you completely unable to defend
yourself. Banks make mistakes, but you cannot make that argument if
you do not know what it is claiming against you. Second, in most
states, if the mortgage company is not able to serve the court papers
on you by certified mail it can send a sheriff to your house to serve
the papers on you personally or post the papers on your front door.
If that form of service fails, many states allow for a legal notice
to be published in the newspaper for a certain amount of time to be
sufficient notice, even if you never see it.

The
latest economic crisis has made one thing painfully clear: anyone's
circumstances can change in an instant. If your income changes be
sure to prepare a new budget. This exercise will be helpful for
several reasons. First, it will reveal ways you can reduce your
expenses – eating out less, smaller cellular phone package, no
movie channels, etc. Second, it will show the mortgage company and
court that you are committed to working the situation out. Finally,
if you know your financial forecast for the immediate future it puts
you in a better position to negotiate with the bank – you know what
you have to work with and what you do not. You do not want to commit
to another arrangement that really cannot afford. It is important
that when you compute your budget that you do not include money that
you do not have such as a raise or bonus.

Even
when your finances start to tighten, do not stop making payments
completely. Make partial payments even if you cannot pay the full
amount. Banks may not be allowed to continue foreclosure proceedings
if they are accepting payments. The burden, however, falls on you to
go to the court date and state your case showing proof of payment in
the form of cashed checks, money order stubs, etc. Plus, a court
will take into account your continued efforts to meet your
obligations.

Be
aware of your options before a foreclosure ever comes. Mortgage laws
are changing a little bit every day, but 5 options to avoid
foreclosure have been around for some time: refinance, forbearance,
modification, short sale, and bankruptcy.

Before
the recent housing collapse refinancing unfavorable mortgage terms to
those more palatable was the most common choice. If, however, you
have begun missing payments your credit may be damaged enough that
you cannot get good refinancing rates. Plus, you may not have the
equity available or cash for a closing for this to be a viable
option.

If
you have experienced a temporary disruption in pay or finances, you
may be able to negotiate a forbearance. The key to a forbearance is
that the condition that caused your financial trouble must be
temporary because you are agreeing to still pay all of the money
owed, but for a few months your payments are instead tacked on to the
end of your loan. This option has some practical consequences.
First, you are relieved of those payments for the time the bank
agrees. If the mortgage company agrees to a forbearance it should
not charge you late fees for the time agreed upon. Second, the
mortgage accrues interest so your balance is still growing at your
rate of interest. Third, if you escrow your homeowner's insurance
and/or property tax into your monthly mortgage payments you may
experience an escrow shortage that will have to be made up. It may
be advisable to at least pay the part of your payment dedicated to
the escrow. Finally, a forbearance may extend the amount of time you
have left on your loan and/or increase the amount of your payment for
the time remaining on your mortgage. Be sure to discuss these issues
thoroughly with the bank when negotiating a forbearance. If the bank
representative does not have solid answers, ask to speak to a
supervisor.

Loan
modifications are becoming increasingly commonplace. This option is
as straight forward as it sounds. You have analyzed your finances
and realize that the current loan terms, usually adjustable interest
rates, are not going to work for you any more. Contact the mortgage
company to negotiate new terms. Banks are loathe to do it, but stand
your ground – the bank does not want to have another house they
cannot sell in this market. Know exactly how much you have to spend
on the mortgage, taxes, and homeowner's insurance, and work with the
bank to get there.

Next,
if your house is now simply more than you can afford, do not just
abandon the property and walk away doing long-term damage to your
credit and harm to the neighborhood you called home. Talk to the
bank about a short sale – how much they are willing to compromise
and accept on a sale so you can try to sell the home.

Bankruptcy
is another avenue to explore. Chapters 7 and 13 are those most
commonly applied to individual consumer cases. If your goal is to
keep your home, Chapter 7 is not the best option for you. It is, in
essence, a complete liquidation of assets to pay debts. This will
almost certainly include your home. Chapter 13 is a better option
for keeping your home, but you must have the financial ability to
make monthly payments into a multi-year plan, usually 5, designed by
the bankruptcy court. As long as the plan is followed, any debts not
paid at the end of the plan are discharged and you get to keep your
collateral. Under the court plan, a debt holder must be paid at
least as much as they would if the collateral or asset is sold
outright under a Chapter 7. Bankruptcy laws are very complicated.
Plus, credit counseling may be required before a bankruptcy can be
filed. The best thing to do is talk to a bankruptcy attorney. They
can refer you to credible credit counselors and map out the most
appropriate course of action for your family.

Be
sure to insist that all new agreements with the mortgage company be
in writing. When you receive the paperwork review it to be sure it
includes all of the new terms agreed to as you understand them to be.
Do not sign the documents until you are sure. If you do not
understand what the paperwork says, find an attorney to help you sort
through it.

The
foreclosure laws vary by state and they can be difficult to
understand. There is no need to feel alone through the process.
Every state has a legal aid department that can provide free or
low-cost legal advice to those who meet income threshold
requirements. If you do not qualify for legal aid, do not give up.
Find the law school nearest you. Most law schools have legal clinics
where students supervised by attorneys can help the public with a
wide range of legal issues. For example, working with North Carolina
Legal Aid, North Carolina Central University's School of Law has a
group of student volunteers guided by faculty called the Foreclosure
Prevention Project. Together, the organizations aim to inform the
community homeowners of their mortgage options and assist with
ownership issues.

When
you feel your financial position start to slip out from underneath
you, your greatest tools are tenacity and communication. Banks have
cut back on their customer support staff so be prepared to make
multiple calls only to sit on hold. The best thing you can do is arm
yourself with a pen and paper. Every single time you call the bank
write down as much of the following information as you can, even if
you never actually get to speak to someone:

1. the number you called;

2. the time you dialed the phone;

3. how long you sat on hold;

4. the full name or work identification number of anyone you do speak
   with;

5. as much detail of the conversation as you can jot down;

6. the next step; and

7. when it is to occur.

This
information will help you stay organized and focused through a trying
event. You will know what needs to be done next and who is to do it.
Plus, if your case does go to court before you have had a chance to
get everything straightened out with the bank, you can show the
judge, magistrate, or court clerk all of the effort you have made to
do the right thing. In this financial climate, the person handling
your case will probably be sympathetic, having heard similar stories
for months. Your case may not be dismissed, but it may be continued
to allow time for you to make arrangements with the bank.

Homeownership
is the American dream – until it turns into a nightmare. Life is
full of pitfalls that can push even the most fiscally responsible
person to the breaking point. There are several options available to
keep the keys to your kingdom in your hand, but you have to take the
initiative and fight. Know your budget, document all contact with
the bank, be vigilant about court dates and deadlines, and seek legal
advice if you feel overwhelmed. You can be sure that the bank will
have someone knowledgeable in court to represent their interests.