Ask Jack About Debt

Avoid Foreclosure - Help with Mortgage Modifications

How to Get Free Help to Avoid Foreclosure and Obtain Mortgage Modifications

If your mortgage is in trouble, there are many different things you can do. You have to decide which one is best for you based on your circumstances.

The first question you need to answer for yourself is what you would have to do to get your monthly payments into line with your income, and is that possible?

For example you might be able to make monthly payments if you could get caught up on the payments and penalties you missed. Or you could meet your mortgage payments if you could eliminate your credit card debt so you could stop making those payments

Bankruptcy. In either case, I think you should consider bankruptcy. This is not as bad for your credit as you might think, and it has some real advantages.

A bankruptcy court judge can take all the old mortgage arrears and package them up into one debt, with manageable monthly payments that might stretch out over five years. No more interest and penalties will be charged. The hole will never get deeper.

In addition, a bankruptcy court judge can eliminate or significantly reduce your unsecured debt (mostly credit card debt). This might make it possible for you to put enough money into your mortgage payments. This story illustrates a bankruptcy case.

A person I talked to was able to either make monthly mortgage payments OR her monthly credit card payments (she had $30,000 in credit card debt), but not both. For her, a bankruptcy filing makes a lot of sense. It could eliminate her credit card debt and leave her solvent. She was able to make her monthly payments on her mortgage, and to keep her house.

Bankruptcy is also very useful in stopping foreclosure proceedings and in getting the mortgage company's attention. Even if the auction date has been set and is coming up soon, everything stops when you file bankruptcy.


"Cram-downs." For many people, the only way the mortgage can be paid is if the terms are changed. Either the principle has to be lowered or the interest rate changed - or both. The nickname for this is a "cram-down." Congressman Barney Frank has tried to pass a bill that would give bankruptcy courts the right to force cram-downs, but he has run into formidable opposition. So, this has to be done through negotiation.

The good news is that you can get help with these cram-downs. There are local organizations in every state, financed by HUD, that will help you avoid foreclosure. The HUD list is available, by state: h

There is also at least one national organization offering to help you avoid foreclosure: Homeownership Preservation Foundation, ("HPF").

Founded in 2004, HPF's mission is specifically to help Americans avoid foreclosure. HPF operates a national help line that offers homeowners personalized assistance. Both the H.O.M.E. and HPF counseling services are available to any consumer who is facing a possible foreclosure of their home mortgage. This line is open 24 hours a day, 7 days a week. Dial 888-995-HOPE (4673) -- or you can reach them on the Internet at

Until recently HOPE had not been able to help many people, partly because banks would not cooperate. But recently five major lenders agreed to be more lenient in their dealings with HOPE, and the organization claims it changed its procedures. We shall see.

All assistance is free.

Do not do this without help. Lenders are really hard to deal with, partly because the company administering the mortgage has probably sold it off already and they have no reason to try to keep the mortgage in force. Often the only way they get paid is when they do the foreclosure. A true story from a foreclosure prevention agency illustrates how stupid this can be.

A man with a $495,000 mortgage could not make his payments so he went to a local HUD-sponsored foreclosure prevention agency. The agency figured out that he could afford no more than a $389,000 mortgage and got him approval for that much. They then went to the company administering the mortgage, and asked them to reduce the balance to $389,000.

The company turned them down and went ahead with the foreclosure. They ended up buying the house at auction for the outstanding mortgage of $495,000. They then listed it with a broker who sold it for $265,000! (They could have had $389,000 from the original owner, remember.) But they did not own any part of the principle, and did not care.

In the end, the original owner bought the house back for $275,000! He got a much better deal than he was willing to make, but he did have to go through the whole foreclosure mess.

A "short sale" is best if there is no reasonable way you can maintain the mortgage. Sometimes the best way to avoid foreclosure is to walk. If, after looking over your financial situation (hopefully with the help of a professional), you come to the conclusion that eliminating your credit card debt and/or cramming down your mortgage will not be enough to put you on reasonable financial footing, and your house is "under water" (your mortgage balance exceeds the current market value of your house), then the best thing for you to do might be to turn the house over to the bank and start anew.

But be careful. While this will avoid the pain of a foreclosure auction, if you simply leave your house, you will still be liable for the balance of the mortgage over and above what the bank gets for the house when it sells it. And until it sells they will be after you to make payments. Your credit will be badly damaged, almost as badly damaged as it would be with a foreclosure on your record.

The best thing to do is to negotiate a "short sale" with your lender before you leave the house. With a short sale, you agree to sign the house over to the lender without making them go through the hassle and expense of foreclosure proceedings, and they write off the whole mortgage without making any further bad entries on your credit record.

Again, I would recommend you do this with some help from one of the agencies mentioned above, but you should let the lender know that you want to negotiate something, and they should stop chasing you while you negotiate.

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