Saving Your Home
Foreclosure—the repossession of your home by your lender—means you will lose the property and any equity you had in it. Your credit record will be damaged and you may incur a tax liability if the lender foregoes (forgives) any part of your debt.
Foreclosure becomes a possibility when you get significantly behind on your monthly mortgage payments. You could find yourself in a position where you cannot make one or more full mortgage payments for a variety of reasons, including:
Unplanned expenses or a loss of income: An emergency car or home repair or unexpected medical bills can leave you short of funds to pay your other bills. Likewise, a long-term or permanent loss of income due to a layoff, a reduction in overtime hours, a divorce, or an injury or illness that keeps you away from work could affect your ability to make your full mortgage payment not just this month, but for many months.
A home loan that requires a large increase in monthly payments: More than ever, borrowers are in loans that are structured so that at some point (often between one and five years after you make the first payment) the required monthly mortgage payment goes up significantly. Depending on the loan terms and prevailing interest rates at the time the rate adjusts or “resets,” your monthly payment can increase by many hundreds of dollars. (See Know Your Mortgage Loans for more information about the types of loans and terms that can put you at greater risk of default.)
Predatory loan terms: A predatory loan includes unfair or deceptive terms, high rates and costly fees, payment requirements that the lender knows will be difficult for you to meet, or features that get you deeper into debt and strip your equity. Since these loans are often unaffordable from the outset, the risk of foreclosure is very great. By some estimates, one in five homeowners are at risk of losing their homes due to these types of loans. (See Avoiding foreclosure scams for more about predatory lending and how to avoid a bad loan or a scam.)
Despite your best efforts to plan for emergencies, prepare for higher payments and avoid abusive lenders, you may still find yourself in default (missing one or more payments). If that happens, you may still save your home from foreclosure by understanding your options and taking the appropriate steps.
This brochure was created by Consumer Action’s Housing Information Project. © 2007 Consumer Action. Rights Reserved.