How To Avoid Foreclosure

The guidance below is applicable to homeowners with FHA Insured loans. While a good deal of this information may apply to all homeowners in danger of losing their homes, not all of the foreclosure avoidance tools mentioned may be available to you if you have a VA or conventional loan. Additionally, HUD/FHA does not have any Loss Mitigation oversight over VA or conventional loans. Please contact your lender or a housing counseling agency.

What Happens When You Miss Your Mortgage Payments

Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe your lender an additional amount.

Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.

HUD's Pre-Foreclosure Sale Program (PFS)

Homeowners who have “defaulted” on their FHA mortgages often attempt to sell their properties in order to avoid foreclosure and to protect their credit standing. However, because of declining property values in certain areas, some homeowners cannot realize enough from the sale to pay off their mortgage balances.

Therefore, the Department of Housing and Urban Development (“HUD”) has implemented the Preforeclosure Sale (PFS) procedure. With some restrictions, homeowners who are permitted to engage in a PFS attempt to sell their homes for a fair market sale price, which can be less than the amount they owe to the lender. HUD then reimburses the lender for the difference between the sale proceeds and the outstanding mortgage indebtedness.

Benefits of the PFS Program

Delay or stop the foreclosure, marketing time. Provided the homeowner qualifies (see below for guidelines) and is enrolled into the PFS Program, the foreclosing lender will put a hold on the foreclosure for 3 to 5 months giving the homeowner time to sell the property.

No out-of-pocket expenses. All real estate commissions and closings costs are paid for out of the proceeds of the sale therefore the homeowner is not out of pocket any expenses.

No foreclosure on their credit. No deficiency judgements. Homeowners who sell their properties under this Program will benefit by avoiding the effect of a foreclosure on their credit rating and will be relieved of their mortgage obligation. Neither HUD nor their lender can pursue them for deficiency judgements.

If the homeowner is unable to sell their home through this Program and provided they were "good-faith" participants, the homeowner is relieved of their mortgage obligation. Neither HUD nor their lender can pursue them for deficiency judgements.

Cash Incentive. Homeowners who have clear title to the property (i.e. no junior liens, no judgements) will receive a cash incentive for cooperating in the program. If their home is sold and closed within the first 90 days, the homeowner will receive $1,000.00. If their home closes after the 90 day window, the homeowner receives $750.00. Homeowners who are unable to sell their property do not receive the cash incentive.

To Qualify For The Program

Most people in foreclosure qualify for this program. To qualify, the homeowner must have negative income, negative equity, a legitimate hardship, and your home must be listed with a Real Estate Broker.

Negative Income. Negative income simply means that the homeowner's monthly expenses exceed their monthy "take-home" pay. This is for everyone on the mortgage. For example, if the husband and wife are both on the loan, then their combined expenses must exceed their combined "take-home" pay. However, if one spouse is on the mortgage, the lender will only consider the income and expenses for that spouse.

Negative Equity. Once the lender has received the homeowners PFS Application, the lender orders an appraisal of the homeowner's property. The property must appraise for less than what the homeowner owes plus closing costs. For example, if the homeowner's outstanding balance including interest and late fees is $200,000, assuming 7.5% for closings costs and broker's commissions, the property must appraise for less than $215,000.

Legitimate Hardship. The homeowner must have a legitimate hardship which resulted in a verifiable increase in living expenses or decrease in income.

Call us for a free-consultation, (800) 639-6044

We have helped several homeowners just like yourself avoid the damaging effects of foreclosure. Every homeowners situation is different so please call us for a no obligation, free consultation at:

Act now. Delaying can't help. If you do nothing, you potentially could lose your home, your right to participate in this Program and your credit rating. If you have any questions, please call (800) 639-6044.