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Foreclosure is the legal process that creditors use to satisfy your financial obligation to them. Foreclosure generally results from non-payment of a debt (including mortgages, second mortgages, and home equity lines of credit) but can also result due to non-payment of property taxes. Technically, after one missed payment on your mortgage, you are in breach of your agreement with your mortgage lender and the mortgage company can force you to pay the entire balance of the loan or face foreclosure. Most mortgage companies will allow you to pay the past due amount including late fees to prevent foreclosure. The first step to take if you are having trouble making your payments, contact your lender immediately. Most lenders are willing to work with you, if you show a good faith effort to make your payments and avoid foreclosure. Remember, it is important to contact your lender early on - the longer you wait, the harder it will be to help you.

Alternatives to Foreclosure

Your lender may be willing to work out an alternative to foreclosure that may help you save your home, or at least to prevent a foreclosure from ruining your credit. Some alternatives include:

Repayment Plan

Your lender may give you a fixed amount of time to repay the amount you are behind, plus any late fees, by adding a portion to your regular monthly payment. This is a good option if you only missed a few payments.


Your lender may agree to suspend your payments for a period of time. At the end of this time, you will resume your regular monthly payments, and you may be required to either make one lump sum payment or additional partial payments. This may be a good option if you have a temporary reduction in income.

Loan Modification

Request a Home Loan Modification

Your lender may agree to reduce your interest rate, extend the term of the loan, or add missed payments to the loan balance. Under President Obama's Financial Stability Plan there is help through the Home Loan Modification Program and various other programs to modify the terms of principal and interest on your existing mortgages. You have to meet eligibility criteria regarding your income and financial circumstances to qualify for help. Currently, to qualify for help under the Home Loan Modification Program your home loan payment has to be 31% of your gross income.

Selling Your Home

Depending on the strength of the housing market in your area, selling may provide funds needed to pay the mortgage debt in full. In a "short sale," the lender allows you to sell and agrees to forgive any shortfall between the sale price and the mortgage balance. You still may face a tax liability on the amount of debt forgiven.

Deed in Lieu of Foreclosure

You voluntarily transfer title to the lender in exchange for cancellation of the remainder of your debt, but you will lose any equity in the home and may have to pay taxes on the debt forgiven. A sale or a deed in lieu of foreclosure may be a better alternative than a foreclosure adversely affecting your credit

Redemption Period

If your home is in foreclosure you are entitled to stay in the home for a redemption period that is set by statute depending on your particular situation. Generally you are given six (6) months after the sheriff's sale to "redeem" the property.

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