How to Fight a Mortgage Foreclosure

Loan modification is becoming an increasingly more common tool used for homeowners trying to fight foreclosure.

Since 2006, nearly 2.4 million homeowners have lost their homes to foreclosure, and that number is expected to climb to six million before the bust is over.

First to succumb were the investor flippers, who turned their keys in to their lenders to cut their losses. Next came the below-prime adjustable-rate-mortgage borrowers, whose interest rates jumped to unaffordable levels.

Now the foreclosure bug is infecting the 12 million homeowners who are “underwater” because they owe more on their mortgage than their home is worth — a group that includes prime borrowers who had top-notch credit.

Alternatives to Foreclosure

If you’re determined to keep your home, you’ll probably need to ask your lender to modify your loan terms. Or you could file for Chapter 13 bankruptcy with a plan to repay your debts, including your mortgage.

If you can’t make the numbers work, you can give up your home but avoid foreclosure through a short sale or by using an alternate strategy called deed in lieu of foreclosure.

Those options may offer a psychological lift and help reassure future creditors about your motivation to repay. They also allow you to qualify for another mortgage sooner than if you had gone through foreclosure.

Major retail banks, such as Bank of America (which bought Countrywide), JPMorgan Chase (which bought Washington Mutual and EMC) and Citi, have announced their own loan modification-aid programs, and so has the Federal Deposit Insurance Corp. (for IndyMac borrowers).

All of them are aimed at homeowners who are already in trouble or may soon be, as long as the home is their primary residence. All told, it’s estimated the programs might reach out to more than a million homeowners. And FDIC chairwoman Sheila Bair has proposed implementing more widely her agency’s model of loan modification.

The best advice is to act quickly, if you plan to get a foreclosure or a loan modification, time is not on your side, and you need to act fast to preserve your financial security.