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As soon as you realize that you may not be able to make timely mortgage payments, take action. Do not wait until you fall behind. Making mortgage payments on time is important both for your credit rating and to avoid unnecessary fees or a forced sale through a foreclosure.

Whether you are being proactive and taking steps before you fall behind in mortgage payments, or you are already behind, consider the following steps, each of which are described in other sections of this article:

Step 1. Find out if you qualify for help under the federal government program known as FHA Secure.

  • If your mortgage is more than the value of your residence, you may qualify for a government program known as Making Home Affordable. 
  • You can find out about whether you qualify for one of these programs and other relevant advice by contacting a HUD-approved housing counselor. HUD-approved housing counselors work for free. Other professional advisors are also available.

Step 2. If you do not qualify for one of these programs, seek professional advice. When you tell the professional about your situation, be sure to include your diagnosis and what it is doing to your income and expenses. A professional:

  • May have advice about how someone in your position could best negotiate with the lender or company that services the mortgage. 
  • May be in a better position to have the discussion with your lender than you are. 
  • Can let you know about a defense you hadn't thought of. For instance, some states have laws against taking advantage of a vulnerable person. Vulnerable person could include people over age 65 or people who are otherwise vulnerable to exploitation (including people with a health condition).

Before hiring a professional, speak with one or both of the following people:

  • A government-certified housing counselor. A counselor can give you advice, help you organize your finances and prepare documents for your lender. Counselors are free or low cost. To locate a counselor, see the U.S.Department of Housing and Urban Development Website at   offsite linkor Neighbor WorksAmerica: offsite link
  • A real estate broker who is knowledgeable about foreclosures.

Step 3. It is time to approach the lender, or the company that services the loan. If you feel comfortable with the situation (or have a family member or friend who has negotiating expertise), you can approach the lender yourself.  Otherwise, consider hiring a professional to do the negotiation for you. For instance, a lawyer, a financial planner or a foreclosure rescue company. There are also nonprofit groups that can help. One alternative to help you find a solution or to engage a professional is to contact the nonprofit organization HOPE Now (888.995.4673), a counseling service backed by the White House. (For information about finding a lawyer who works for a reduced fee or for free, click here.)

If you are to contact your lender or the entity that services your loan to find out if you can modify (restructure) the loan:

  • Over the phone, you will likely be asked about the amount of your income and expenses. (You will have to provide proof later.)
  • While the lender cannot legally ask about your medical condition, this is a good time to bring it up because it likely explains substantial increases in your expenses and a decrease in your income if there is one. Bringing up your condition will also:
    • Help individualize your situation 
    • Explain why you are having financial difficulty and that you are not a spendthrift, and 
    • Perhaps get some sympathy which will help sway the lender to do what you need. Just about all contractual rules can be changed if you get to a decision maker if the situation warrants. (Yes, even bankers are human). 

Step 4. If a modification that works for you isn't possible, consider selling the house before it goes into foreclosure. If the mortgage is higher than what you would receive, ask the lender to allow you to sell it for what you can get for it and to forgive the rest of the debt. This is known as a "short sale." (You may have to pay a tax on the amount which is forgiven, but that's better than having to pay off the whole debt).

As you move through the above process:

  • Send all important documents via certified mail or by overnight delivery with delivery confirmation.
  • Keep copies of everything including every letter you send, every fax confirmation, 
  • If you can, record your phone calls with the company every time you call. There are inexpensive recorders and free services such as Skype.
  • Watch for scams.
  • Do not give up!  Getting a loan modification is likely to be a pain and take time. Be persistent!

For more information, see:

NOTE: For information about dealing with a financial crunch, click here

To Learn More

Alternatives To Consider To Help Keep Mortgage Payments Timely Or If You Are Behind In Payments

The following alternatives can help keep mortgage payments timely:

  • You be allowed to pay the amount of the back payment in installments over a period of time, such as two years. This is known as "forebearance."
  • The mortgage be rewritten to lower the monthly payments. This usually involves extending the term. For example, if you have a 15 year mortgage, extend the term to 30 years. This is known as a "Loan modification."
    • You may be eligible for a modification under the government backed 2008 FHASecure plan. To learn more, see the section below.
    • If your mortgage involves Fannie Mae or Freddie MAC, you may be eligible for a refinancing or loan modication to reduce payments under the government's Making Home Affordable Program. To learn more, see the section below.
  • That you be given an opportunity to sell the property voluntarily. Advantages of this alternative as compared to letting the lender foreclose are:
    • You avoid owing the high default interest rate which would otherwise be due both on the outstanding amount of the mortgage and on the taxes. A default interest rate can quickly eat up any remaining equity.
    • You don't have to pay the bank's attorney fees for which you're responsible in foreclosure. These fees can range from $8,000 to $10,000 or even more - money down the drain.
  • If you are arguably approaching end-of-life, it may be possible to get an agreement to permit you to continue to live in your home provided there is an agreement to sell the house within an agreed number of days after death.

HOPE NOW ( offsite link) is a White House backed non-profit organization that was created to help homeowners avoid foreclosure. A call to the hotline at 888.995.HOPE (888,895.4673) should connect you with a counselor who will provide additional advice about financial planning and avoiding foreclosure. You (or someone else on your behalf) will still have to contact the lender or company that services the mortgage yourself.

FHA Secure

FHA Secure is designed to help people who are good borrowers but were steered into teaser mortgage rates.

To qualify for FHA Secure, you must meet the following five criteria:

  • A history of on-time mortgage payments before your teaser rates expired. You may even have missed several months of payments.
  • Interest rates must have reset, or will reset, between June 2005 and December 2009.
  • Offer a minimum of 3% cash or equity in your home.
  • You have a sustained history of employment.
  • You can prove that you have sufficient income to make the mortgage payment.

The package includes a premium you have to pay for mortgage insurance (which is supposed to prevent risks to the taxpayer of the program).

To learn more, see: offsite link or call: 866.733.0377.

Making Home Affordable Program

Under the Making Home Affordable Program, the federal goverment has set upa  program to refinance or modify mortgage loans to reduce payments for struggling home owners.

The program is for eligible borrows who are current on their mortgages but have been unable to take advantage of lower interest rates because their homes have decreased in value.

You may be eligible for this program if each of the following apply to you:

  1. You are the owner occupant of a one to four unit home,
  2. The loan on your property is owned or securitized by Fannie Mae or Freddie Mac.
  3. At the time you apply, you are current on your mortgage payments. Current means that you haven't been more than 30-days late on your mortgage payment in the last 12 months. If you have had the loan for less than 12 months, current means that you have never missed a payment.
  4. You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house,
  5. You have income sufficient to support the new mortgage payments.
  6. The refinance improves the long term affordability or stability of your loan.

If you don't know if your loan is owned or secured by Freddie Mac or Fannie Mae, you can either ask your lender or call:

Fannie Mae: 800.7FANNIE (8:00AM to 8:00PM ET) or go to offsite link 

Freddie Mac: 800.FREDDIE ( 8:00AM to 8:00PM ET) or go to offsite link

To learn more, see offsite linkor call 888.995.4673.  Have information about your mortgage available, including name of lender and mortgage number. You can also contact your mortgage service company or lender. If you have a loan that involves Fannie Mae, you may also contact any Fannie Mae approved lender.

Professionals Who Can Help

A professional can provide advice about your options, including information about the various government programs which have been put into place to help. A professional may have advice about how someone in your position could best negotiate with the lender or company that services the mortgage.

A professional can also let you know about a defense you hadn't thought of. For instance, in some states, such as Oregon, there are laws against taking advantage of a vulnerable person. A "Vulnerable person" is defined to include people over age 65 and people who have a health condition as well as other vulnerable people.

Consider starting your search for professional help with the least expensive professionals first - HUD approved housing counselors. They work for free. You can find a HUD approved housing counselor at: offsite link or call 888.995.HOPE (4673). It may also help to speak with a knowledgeable real estate broker who has been involved in foreclosures may be able to give you advice or contact the lender for you for free.  (If you want overall help with your finances, also consider speaking with a credit counseling service (the free variety). To learn more, see Credit Counseling Service.

 Also consider the following resources which are listed in no particular order:

  • Institute for Foreclosure Legal Assistance. See: offsite link
  • Neighborhood Works America, a non profit organization that offers counseling. offsite link. Tel.: 202.220.2300.
  • U.S. Department of Housing and Urban Development lists approved counseling agencies. offsite link or call 800.569.4287.
  • Mortgage Bankers Association. Links to resources at offsite link  Click on Foreclosure Prevention Resource Center.
  • Financial planners
  • Foreclosure rescue companies. Note: foreclosure rescue companies are not licensed. Check a company's reputation before proceeding, for example with the Better Business Bureau ( offsite link)
  • Lawyers. 
    • Lawyers can advise you and can also negotiate for you with the lender or servicing company for a concession. 
    • Look for a lawyer who has experience in mortgage foreclosures. For example, offsite linkwhich runs U.S. Loan Modification Service. For information about finding a lawyer, click here.

How To Avoid Foreclosure Scams

Consumer Reports suggests you follow the following guidelines to avoid foreclosure scams:

  • Get everything in writing, including the firm's services and refund policies.
  • Don't sign any contract unless you've read it thoroughly and understand it.
  • Don't pay the entire fee up front.
  • Don't give anyone else the right to your deed, even for a day.
  • Pay your mortgage only to your lender during the modification period.

We add:  Check the organization that offers to help with the Better Business Bureau.  See offsite link

Scams to be aware of:

  • Foreclosure rescue companies that ask you to sign over the deed to your residence while they work on  your problems. 
  • Companies that  ask that payments be made to them instead of the lender while they work out a loan modification. .



Paperwork You Will Need For A Loan Modification

  • Copy of tax returns for the last two years for each person listed in the mortgage. 
  • With respect to your income:
    • A list of all sources of income. 
    • Proof of income from each source. For example, if you are an employee, a recent pay stub. If you are self employed, a profit and loss statement.
  • A list of all your expenses. 
    • At least for the larger expenses, proof of the amount of the expense. 
  • If your medical expenses are substantial compared to the amount of your income, include a letter from your doctor describing your diagnosis,your medical history and current medical condition.