How to Negotiate an Underwater Foreclosure
You are underwater on your mortgage if you owe more than your home is currently worth. If you fall behind on your mortgage payments, your lender may start the foreclosure process against you. A foreclosure will cause you to lose your home and seriously damage your credit rating, making it harder to qualify for a new home in the future. However, programs offered by your lender and the federal government will help you negotiate to stave off a foreclosure, even if you are underwater on your mortgage.
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Instructions
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Read through your loan documents carefully. Make sure you understand what options your lender has if you miss a payment. The lender should state its foreclosure or collection process in your loan documents.
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Create a household budget to determine how much you can put towards your mortgage payments each month. Eliminate excess expenses such as gym memberships or cable TV. Subtract your remaining necessary expenses from your income to determine how much extra income you have each month.
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Contact your lender as soon as possible. Explain your financial situation to your lender and stress that you wish to avoid foreclosure. Your lender may offer a payment plan that will allow you to get caught up on your mortgage payments.
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Review the terms of the payment plan. Check your monthly budget and determine if you can afford the cost of the plan. Accept the terms with your lender or ask for alternatives if you cannot afford the payments; depending on your mortgage type and personal circumstances, you may qualify for refinancing option.
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Ask for a Principal Reduction Alternative through your lender. A PRA is a federally backed program that allows lenders to reduce the amount you owe on your mortgage to allow you to keep your home. To qualify you must have started your mortgage before Jan. 1, 2009. You mortgage payments must exceed 31 percent of your gross income and you cannot have been convicted of a felony related to a mortgage in the last 10-years, according to Making Home Affordable.gov.
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Contact a housing counselor through the U.S. Department of Housing and Urban Development if you cannot reach an agreement with your lender. The counselor may help you find a foreclosure prevention alternative.
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Tips & Warnings
Avoid for-profit foreclosure prevention companies. These companies charge you a fee to help you negotiate a foreclosure prevention solution. You can work with your lender or a HUD counselor for free.
