If you fall even one month behind on mortgage payments, it's time to take immediate action because the consequences for non-payment are severe. The best way to avoid foreclosure is to communicate openly and honestly with the lender and try to work out an affordable payment plan during a time of financial stress. Reach out for assistance as soon as you sense you're in trouble, ideally before any payments are late. If payments are already late, there are several repayment options to try to avoid foreclosure:
* Reinstatement: This is where the amount owed in arrears, plus late fees, is paid off to bring the mortgage current. Obviously, this strategy can only work if the borrower has access to fairly large sums of money such as loans from family members or a 401(k) plan or proceeds from the sale of a car.
* Deferment: This is where a lender agrees to suspend mortgage payments for a specified period of time. Deferments are usually not granted unless a borrower can document a large forthcoming source of income such as an inheritance or court settlement.
* Recasting: This is where a delinquent mortgage is restructured to extend the period of the loan, thereby lowering the monthly payment.
* Second mortgages or home equity loans: If there is sufficient equity in the home and the borrower qualifies, another loan could be used to bring the first mortgage up to date. This strategy can only work if there will be sufficient income in the future to repay both mortgages or to carry the house until it can be sold.
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