Foreclosure & Bank Options

You can avoid losing your home to foreclosure by reaching a compromise with your bank. The Federal Trade Commission says lenders can offer several programs to end foreclosure proceedings and keep you in your house. The FTC says the key is to contact the bank as soon as you realize you are about to start missing payments. It is even more important to contact the bank right away if you have already missed a payment.

Forbearance

The FTC says most lenders have forbearance programs, which allow your payments to be reduced or even suspended while you work through a temporary setback, such as a short-term disability. The FTC stresses that not everyone will qualify for forbearance, and that the program will not help if you are in a home that you cannot afford. Your bank will conduct a review of your finances and your temporary hardship before determining if forbearance is right for you.

Reinstatement

Reinstatement is an option if you have the money to pay your past-due amount in full -- or you can convince the bank to give you time to raise the money. For example, you may be expecting a tax return within a few weeks, or a large bonus from your company. Your bank may agree to suspend the foreclosure proceedings if you can prove that you will be receiving the money and that the amount is enough to bring your account current. Your mortgage account will be reinstated as current once you meet the deadline for paying the past due balance. If you miss the deadline the foreclosure proceedings could be resumed.

Loan Modification

Loan modification allows the bank to permanently change key terms in your loan to make it more affordable for you. The bank can reduce the interest rate, extend the term of the loan, or even cancel a portion of the balance due, according to the FTC. The agency says loan modifications are usually sought by people who are facing a long-term reduction in their income. For example, a spouse may have become permanently disabled, dramatically reducing a couple's income. Other candidates for loan modification include people who are struggling to pay their mortgage after the interest rate increased.

HUD-Approved Counseling

The U.S. Department of Housing and Urban Development does not directly offer foreclosure prevention programs, but the agency does provide trained housing counselors who can contact your lender on your behalf. The counselors know all the foreclosure prevention options available from banks, and a counselor in your community can participate in a three-way discussion with you and your bank as you seek to avoid foreclosure.