DECIDING ON A COURSE OF ACTION

Almost every one of my clients comes in to my office wanting to save their home from foreclosure. I get that. However, the cost to keep a home from foreclosure - in both money and stress - can be quite high, and possibly more than the homeowner can truly afford. Only you can decide how far you are willing to go to keep your home, and at what point it makes sense to consider other alternatives.

When deciding what to do about a possible foreclosure, the first question is whether you can keep your home. This determination is primarily a financial one - whether you have, and will continue to have, enough money available each month to make monthly mortgage payments in an amount that will eventually pay off the entire mortgage. Both the homeowner and the lender have to agree that the homeowner can afford to keep the home, usually on terms established by the lender.

The second question is whether you should keep your home. This one is a little more fuzzy, and is based on factors such as ability to deal with stress, risk tolerance, organizational skills, and time limits. This answer may also change as a homeowner goes through the foreclosure process and attempts different alternatives.

The third determination is whether a foreclosure alternative would work, and, if so, which one(s) to pursue and when.

So, how do you know what to do?

Step 1: Consider your resources.
Take stock of everything available to you, including:

Money. This means your income, expenses, available savings, whether you have assets you can sell, and how much you can borrow from friends and relatives, if necessary. I recommend doing a full review and evaluation of your financial condition, including determining where you have been spending your money, cutting expenses, looking for ways to increase income, preparing a realistic budget, and prioritizing your debts.

Do not take money from your retirement accounts to pay your mortgage
without first consulting with a bankruptcy attorney.
Home equity. In order to have equity in your home, your home has to be worth more than you owe on it. The more equity you have, the more you have to protect. Having equity may allow you to sell your home, refinance, or get a reverse mortgage. If, however, you owe significantly more than your home is worth, other options, such as a short sale, might work better for you.

Time. The earlier in the foreclosure process you start, the more options you have. If you are behind on your payments, the amount you owe goes up every month you miss, and will start to include late charges and other fees. Also, there are very short and relatively inflexible deadlines when dealing with the Indiana court system; if you wait until one week before the sheriff's sale, your ability to keep your home, even in short run, becomes very, very limited.

Expertise. Most people (including attorneys) find themselves in over their heads when facing foreclosure. Don't be afraid to ask for help. Professional counseling is available. Your "people" can include housing counselors, bankruptcy attorneys, consumer and foreclosure defense attorneys, and not-for-profit credit counselors. See the Resources page for ways to find them. And don't forget friends and relatives. You're going to need moral support to get through this.

Before getting help from someone who guarantees or promises that they will save your home, make sure the deal is legit. There are many scammers posing as good Samaritans who will take your money (and sometimes your house) and leave you worse off than you were before.

Step 2. Determine and prioritize your goals and needs.
These can vary widely, and conflicts are common. Typical goals include:

• Stay in the home because the payments are current, even though the lender says they aren't.
• Stay in the home, and bring the mortgage payments current.
• Stay in the home, but reduce the monthly mortgage payment.
• Sell the house before foreclosure to save any remaining equity.
• Move out, but delay the foreclosure as long as possible.
• Prevent the lender from trying to collect more money after the house is sold.
• Avoid bankruptcy.
• Provide stability for children.
• Keep money saved for retirement.
• Protect a credit score.

Step 3. Do the calculations.
I highly recommend working with a non-profit credit or housing counselor or an experienced attorney to do this. If you decide to do this on your own, see the Resources page for additional assistance.

Step 4. Determine what makes sense for you.
If, after you review your finances, you think you have the means to keep the home, then you should consider the home retention options. If you can't afford keep the home, or decide that it makes more sense to walk away, then consider the non-retention options.