Insured Mortgage Loan Servicing of Delinquent, Default and Foreclosure with Service Members Act

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U.S. Department of Housing and Urban Development

HOW TO AVOID FORECLOSURE

This booklet explains how property
owners can avoid losing their homes
because of delinquent payments.
Este folleto explica a los propietarios
de casas como evitar perder su hogar
debido al incumplimiento en los pagos.
Para información en español
llame a la entidad que le dió el préstamo.
www.hud.gov

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Q:

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WHAT HAPPENS WHEN I MISS
MY 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 HUD 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.

Q:

WHAT SHOULD I DO?

1. DO NOT IGNORE THE LETTERS FROM YOUR
LENDER. If you are having problems making your payments, call or write to your lender's Loss Mitigation
Department without delay. Explain your situation. Be
prepared to provide them with financial information,
such as your monthly income and expenses. Without this
information, they may not be able to help.
2. Stay in your home for now. You may not qualify for
assistance if you abandon your property.
3. Contact a HUD-approved housing counseling agency. Call
1-800-569-4287 or TDD 1-800-877-8339 for the

housing counseling agency nearest you. These agencies are
valuable resources. They frequently have information on
services and programs offered by Government agencies as
well as private and community organizations that could
help you. The housing counseling agency may also offer
credit counseling. These services are usually free of charge.

Q:

WHAT ARE MY ALTERNATIVES?
You may be considered for the following:
Special Forbearance. Your lender may be able to arrange a
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repayment plan based on your financial situation and may
even provide for a temporary reduction or suspension of
your payments. You may qualify for this if you have recently
experienced a reduction in income or an increase in living
expenses. You must furnish information to your lender to
show that you would be able to meet the requirements of the
new payment plan.
Mortgage Modification. You may be able to refinance the
debt and/or extend the term of your mortgage loan. This
may help you catch up by reducing the monthly payments
to a more affordable level. You may qualify if you have
recovered from a financial problem and can afford the new
payment amount.
Partial Claim. Your lender may be able to work with you
to obtain a one-time payment from the FHA-Insurance
fund to bring your mortgage current.
You may qualify if:
1. your loan is at least 4 months delinquent but no more
than 12 months delinquent;
2. you are able to begin making full mortgage payments.
When your lender files a Partial Claim, the U.S.
Department of Housing and Urban Development will pay
your lender the amount necessary to bring your
mortgage current. You must execute a Promissory Note, and
a Lien will be placed on your property until the Promissory
Note is paid in full.
The Promissory Note is interest-free and is due when you
pay off the first mortgage or when you sell the property.
Pre-foreclosure sale. This will allow you to avoid
foreclosure by selling your property for an amount less than
the amount necessary to pay off your mortgage loan.
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You may qualify if:
1. the loan is at least 2 months delinquent;
2. you are able to sell your house within 3 to 5 months; and
3. a new appraisal (that your lender will obtain) shows
that the value of your home meets HUD program
guidelines.
Deed-in-lieu of foreclosure. As a last resort, you may be
able to voluntarily “give back” your property to the lender.
This won't save your house, but it is not as damaging to
your credit rating as a foreclosure.
You can qualify if:
1. you are in default and don't qualify for any of the other
options;
2. your attempts at selling the house before foreclosure were
unsuccessful; and
3. you don't have another FHA mortgage in default.

Q:

HOW DO I KNOW IF I QUALIFY FOR
ANY OF THESE ALTERNATIVES?

Your lender will determine if you qualify for any of the
alternatives. A housing counseling agency can also help you
determine which, if any, of these options may meet your
needs and also assist you in interacting with your lender.
Call 1-800-569-4287 or TDD 1-800-877-8339.

Q:

SHOULD I BE AWARE OF
ANYTHING ELSE?

Yes. Beware of scams! Solutions that sound too simple or
too good to be true usually are. If you're selling your
home without professional guidance, beware of buyers
who try to rush you through the process. Unfortunately,
there are people who may try to take advantage of your
financial difficulty. Be especially alert to the following:

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Equity skimming. In this type of scam, a “buyer”
approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a
sum of money when the property is sold. The “buyer”
may suggest that you move out quickly and deed the
property to him or her. The “buyer” then collects rent for
a time, does not make any mortgage payments, and
allows the lender to foreclose. Remember, signing over
your deed to someone else does not necessarily relieve
you of your obligation on your loan.
Phony counseling agencies. Some groups calling
themselves “counseling agencies” may approach you and
offer to perform certain services for a fee. These could well
be services you could do for yourself for free, such as negotiating a new payment plan with your lender, or pursuing a
pre-foreclosure sale. If you have any doubt about paying for
such services, call a HUD-approved housing counseling
agency at 1-800-569-4287 or TDD 1-800-877-8339.
Do this before you pay anyone or sign anything.

Q:

ARE THERE ANY PRECAUTIONS
I CAN TAKE?

Here are several precautions that should help you avoid
being “taken” by a scam artist:
1. Don't sign any papers you don’t fully understand.
2. Make sure you get all “promises” in writing.
3. Beware of any contract of sale or loan assumption where
you are not formally released from liability for your
mortgage debt.
4. Check with a lawyer or your mortgage company before
entering into any deal involving your home.
5. If you’re selling the house yourself to avoid foreclosure,
check to see if there are any complaints against the
prospective buyer. You can contact your state’s Attorney
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General, the State Real Estate Commission, or the local
District Attorney’s Consumer Fraud Unit for this type
of information.

Q:

WHAT ARE THE MAIN POINTS I
SHOULD REMEMBER?

1. Don't lose your home and damage your credit history.
2. Call or write your mortgage lender immediately and be
honest about your financial situation.
3. Stay in your home to make sure you qualify for assistance.
4. Arrange an appointment with a HUD-approved housing
counselor to explore your options at 1-800-569-4287
or TDD 1-800-877-8339.
5. Cooperate with the counselor or lender trying to help you.
6. Explore every alternative to keep your home.
7. Beware of scams.
8. Do not sign anything you don't understand. And remember that signing over the deed to someone else does not
necessarily relieve you of your loan obligation.
Act now. Delaying can't help. If you do nothing, YOU
WILL LOSE YOUR HOME and your good credit rating.
Visit our web site at www.hud.gov.

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U.S. Department of Housing and Urban Development
Office of Single Family Housing
451 Seventh Street, SW
Washington D.C. 20410-3000

May 2001
HUD-PA-426-H