How to avoid foreclosure is a huge concern for millions of Americans. Current economic conditions, swelling unemployment rates, and a declining housing market have created an avalanche of problems in this country. Many homeowners find they can no longer afford their mortgage payment and owe more than their home is worth.

Very few options exist to help borrowers avoid foreclosure. The most common practice is to obtain a loan modification. Borrowers must be able to cure mortgage arrearages and possess the financial means to stay current on their note. Loan modifications permanently alter the terms of the loan, so lenders must consider many factors before modifying a loan.

Each mortgage lender handles delinquent accounts according to their set of established policies. Home loans can be modified to address the financial constraints of the borrower. The modified loan might include a grace period where payments are temporarily suspended or reduced.

Some banks require the borrower to become current on past due amounts before entering into a loan modification. Others will place the delinquent balance at the end of the loan and extend repayment terms. Although banks establish standard protocol, most allow flexibility when restructuring a mortgage note.

Borrowers generally work with the bank’s loss mitigation department when attempting to obtain a loan modification. When homeowners fall behind with payments, the bank turns their account over to a loss mitigator. This employee is responsible for helping borrowers develop a repayment plan to avoid foreclosure.

Most loss mitigators carry an extensive caseload and have little time to provide their undivided attention to one individual. Borrowers can increase their chance of a successful outcome by being organized and prepared before making contact with their lender.

Borrowers will need to explain their situation to the loss mitigator. Experts suggest creating a timeline of events that caused the borrower to become delinquent on their loan. Loss mitigators will require financial information including income and expenses.

It is best to create a list of income and expenses and have records available. These can include wage earning records, household expenses, credit card payments, transportation costs, insurance premiums, groceries, utilities and daycare.

Loss mitigators appreciate working with borrowers who are organized and prepared. The more information you provide the easier their job will be.

When borrowers do not qualify for a loan modification, the bank might agree to enter into a short sale arrangement. Short sales do not allow the borrower to keep their home. Instead, banks allow the property to be sold for less than the borrower owes on their mortgage note.

It is important to determine which type of short sale the lender provides. Some banks accept the sale price as payment in full and allow the homeowner to walk away without owing additional money. Other lenders issue a Deficiency Judgment based on the difference between the sale price and loan balance.

A deficiency judgment can be more detrimental than foreclosure. Borrowers must repay the balance before they can apply for another mortgage loan. In many instances, this balance amounts to several thousand dollars and can take a lifetime to repay.

Although short sales can be a lifesaver for many struggling homeowners, it is important to understand the pros and cons. When lenders engage in deficiency judgments, it might be better to let the house fall into foreclosure. All options to avoid foreclosure should be carefully considered before making a final decision.

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