There are many strategies that can help if you have issues paying your mortgage. You have different options available to you depending on your circumstances, for example: if you have not missed a payment yet but you are experiencing some form of hardship, if you’ve missed one or more payments, or if the lender has served you a foreclosure notice.

If you have been served with a foreclosure notice and need help understanding which alternatives to foreclosure you qualify for, speaking to a nonprofit HUD Certified Counselor can be very helpful.

Foreclosure Alternatives

How Loan Repayment Plans Work

If you have missed payments on your mortgage, then you know that the lender will be asking you to pay all the past due amounts plus penalties. If all that money is not paid in full, then foreclosure may be forthcoming.

At this point, paying a lump sum of all the delinquent mortgage payments is just not financially possible. A repayment plan will let you repay part of the delinquency each month, along with your regular monthly installment.

Repayment Plan Eligibility

You will probably be eligible for a repayment plan for the amount that is delinquent if your financial circumstances have stabilized. If you’ve suffered a short term financial hardship that has caused you to become delinquent, but now you are financially back on your feet, then all you need is some help getting caught up. In this case, a repayment plan is a common option.

If you are considering negotiating a repayment plan with your lender, you might as well get some free advice before doing so. Talk to a nonprofit housing counselor from a HUD-approved agency and find out how likely you are to qualify for a repayment plan based on your individual mortgage and financial situation.

Loan Forbearance Plans

If you have gone through a temporary financial hardship, loan forbearance might help you get caught back up when your situation improves. Forbearance is when your mortgage payments are reduced or suspended for a short time. This can help you if you lost a job, were hit by a natural disaster, or had a temporary illness that caused expensive medical bills. To get a forbearance, you must ask your lender. You must show that your financial situation is only temporary, and that you will be able to make your regular payments again in the near future.

Different Kinds of Forbearance

Special loan forbearance: A written agreement between you and your mortgage lender. This written plan will reinstate a mortgage loan that is 90 days or more late. A special forbearance is different from other types in the relief it offers; it might give the borrower more time to get caught up, for example. It might also allow the borrower to begin making regular monthly payments while delaying repayment of the back payments owed.

Qualifying: Your total amount owed must not be more than 12 months worth of house payments. This total includes principal, interest, taxes and insurance (PITI). You’ll also need to be ready to demonstrate that your income is high enough to repay the back amount owed and continue making regular payments again.

To get a special forbearance on FHA loans, you must show that your loss of income was due to unemployment. You will be given 12 months to become employed again and then you’ll be re-evaluated.

Informal Forbearance Plan: An informal plan is a verbal agreement to get caught up within 3 months. This can be used when your financial hardship is very short-term and your income gets back to normal quickly.

Formal Forbearance Plan: A written agreement to get your loan current in 3 to 6 months.

Qualifying for formal or informal forbearance: you must be able to show that your income will allow you to get current in the allotted time period, either 3 months or less with an informal plan, or 3 to 6 months with a formal plan.

Whatever kind of forbearance you’re interested in, start by getting some free advice before you talk to your lender. Talk to a nonprofit housing consultant from a HUD-approved agency. They can help you can find out how likely you are to qualify for a forbearance based on your situation.

What is a Short Sale?

A short sale, sometimes known as a pre-foreclosure sale, is the process in which a homeowner sells their house for less than the amount owed on their mortgage(s). This must be negotiated with the bank in advance, as the short sale price is less than the amount owed on the mortgage.

Short Sale vs. Foreclosure – how does it help me?

If you are facing foreclosure and are seriously delinquent on your mortgage payments, some lenders will agree to accept the proceeds of a short sale and forgive the rest of what you owe them on the mortgage. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, while you are able to pay off the loan for less than what you owe.

Effects of a short sale on your credit

Lenders report to credit bureaus differently, with some not reporting a short sale at all. However, with a foreclosure a FICO score can drop considerably: about 200-400 points.

Buying again after a short sale

Depending on if you were late on payments before your short sale, you may buy another home immediately. In other cases, you may have to wait 2-3 years for FHA or Fannie-Mae backed loans.


In the case of a foreclosure, it takes 5-7 years to become eligible to buy another home.


Banks generally lose a substantial amount of money through foreclosing and auctioning off a house. In a short sale, the lender may save some money while recovering some of their loss. It could be a win-win situation for both you and the bank.

Important Short Sale Information

  • In many cases, both the lender and borrower receive financial incentives to perform a short sale.
  • Be sure and check with a certified professional tax adviser about the tax implications of a short sale.
  • Sometimes lenders will require you to attempt a short sale before they will consider other foreclosure alternatives such as a loan modification or a deed in lieu of foreclosure.

Short Sale Help

If you are considering doing a short sale on your home then it will help to get some free advice before contacting your lender. Talk to a nonprofit housing counselor from a HUD-approved agency and find out the details of how a short sale may benefit you based on your individual mortgage and financial situation.

What is a Deed-in-Lieu of Foreclosure?

If all else fails and you won’t be able to save your home, you may qualify for a deed in lieu of foreclosure. In its simplest form, a deed-in-lieu of foreclosure allows you to give the house back to the lender and avoid foreclosure proceedings altogether.

The Benefits of a Deed-in-Lieu

The deed-in-lieu offers several advantages to you. Primarily, you are immediately released from most or all of the personal indebtedness associated with the defaulted loan. Besides avoiding the public notoriety of foreclosure proceedings, your credit suffers less as well.

Lenders are willing to do a deed in lieu of foreclosure because they can reduce the time and cost of repossessing the house with a foreclosure. Additionally, banks lower their risk of the borrower seeking revenge (material theft and vandalism before sheriff eviction) as well as the being in a more advantageous position if the borrow subsequently files for bankruptcy.

Things to Consider with a Deed in Lieu of Foreclosure
  • Your home may need to be listed for sale (or attempt a short sale) before the lender will consider this option.
  • Many lenders have cash incentives to help borrowers relocate. Cash incentives, sometimes called Cash for Keys, can help pay for the expense of relocation.
  • When applying for a loan in the future, lenders may ask if you’ve had a foreclosure or a deed in lieu of foreclosure in the past 7 years. This will have a negative impact on future home buying.

Getting Help with a Deed-in-Lieu of Foreclosure

When considering a deed-in-lieu of foreclosure, it helps to get some free advice before negotiating with your lender. Talk to a nonprofit housing counselor from a HUD-approved agency and find out the details on how a deed-in-lieu works, if it’s right for you, and how to get cash incentives based on your individual situation.

What is Cash for Keys?

If foreclosure is imminent, and you are considering a deed in lieu of foreclosure, some lenders are willing to offer “Cash for Keys,” whereby the lender will actually pay you to vacate the home in a timely fashion. The money you receive in exchange is intended to pay for your relocation costs.

How it works

It is in the bank’s best interest to forego the cost and time involved in carrying out a foreclosure. When the bank agrees to give you cash to move out on a mutually agreed upon date, you agree to maintain the property and leave it in a “broom sweep clean” condition. Often the cash is paid upon or after your exiting the property.

How to get a cash incentive in exchange for moving out

If you are considering a deed in lieu of foreclosure, your bank may have a Cash for Keys program that you qualify for.
When facing foreclosure, bankruptcy can be an option to help you keep your home.

Similar to a foreclosure, bankruptcy is devastating to your credit rating. However, keeping a roof over your head with damaged credit is better than losing your home.

If you file for bankruptcy protection, foreclosure proceedings may be stopped. In this situation, unlike loan modification or short sale, you do not need to get your mortgage lender’s agreement before proceeding.

How will bankruptcy save my home?

With a chapter 7 bankruptcy, your debts are wiped out by the court. You will be able to request exemptions for important assets like your home and car. Because you may not be required to make your other debt payments (like credit cards and medical bills), income is freed up to be put toward your house payment.

In a chapter 13 bankruptcy, you and the court create a plan to repay your creditors over a 3 to 5 year period. The court may wipe out a portion of your debt. The court will look at your finances closely, and may monitor your progress while you are on this plan. Your mortgage lender may not proceed with foreclosure during this period so long as you are under chapter 13 protection and you make all of your debt payments.

It is crucial for consumers who declare bankruptcy to change their future behavior so they do not end up in the same situation down the road. Having all of one’s debts wiped out by the court creates a strong temptation to acquire more debts (at much higher interest rates, thanks to the damage bankruptcy has done to one’s credit rating).

How to start the process of declaring bankruptcy

Housing Counseling

You can start by calling a nonprofit housing counselor from a HUD-approved agency to help you determine if bankruptcy is a solution to help you keep your home and achieve debt relief.

Pre-Bankruptcy Counseling

Bankruptcy is not right for everyone. The bankruptcy counselors at www.bkhelp.org can help you determine if this is the right option for you. They are also approved by the Executive Office for US Trustees and the U.S. Bankruptcy Administrator to provide bankruptcy counseling in accordance with federal laws. This approval does not imply an endorsement of those services.

However, as a requirement in filing bankruptcy protection, you must complete a 2-hour approved debtor education course. Go to www.bkhelp.org for more information about this educational requirement.

Hire an Attorney

Consumers seeking bankruptcy are strongly recommended to employ the services of a competent attorney. A bankruptcy lawyer will guide you through all of the steps of the complicated bankruptcy process.

Change Your Personal Finances

Credit.org can teach you strategies for managing your personal finances so you can avoid future financial difficulties.

get the financial advice that is right for you