Using your credit responsibly will help you avoid foreclosure. Before you make an investment in a home, make sure you can afford to pay the mortgage and all your other monthly bills. You should have a nest egg in case of an emergency such as a job loss or illness that can cover your mortgage and bills for at least six months to a year. Even if you qualify for a larger mortgage, don't get in over your head. Purchase a smaller home or a home in a less expensive neighborhood so that you are comfortable with your mortgage payments, and you have enough disposable income to do the things you want and enjoy our life. There are times that emergencies occur or financial hardships hit, so don't despair. There are options for you to keep your home and avoid a foreclosure.

Mortgage Modification

A mortgage modification is the most popular option right now for upside down borrowers who owe more on their mortgages than they can sell their homes for in today's real estate market. A modification means that your lender will modify your existing loan by either lowering the interest rate and/or extending that loan term so you have a lower monthly payment that you can afford. A modification is a temporary solution until you get back on your feet financially so make sure you can afford to make the new payments otherwise you could risk losing your home if you default on your mortgage.

Short Sale

For borrowers who are upside down on their mortgages and cannot afford to keep their homes, short sales are the next best alternative to avoiding a formal foreclosure. You still end up losing the home, but you don't have to spend money on defending yourself in a foreclosure action. The main thing to remember when negotiating a short sale with your lender is that you don't want them to come after you later for a deficiency judgment. Not all states allow deficiency judgment though. Check your state laws. Whether your state allows them or not, you should get something in writing at the time you negotiate the short sale that the sale proceeds satisfy your loan debt so you can walk away debt free. Also, ask your lender to report the sale as satisfied or paid as agreed so you will have less damage to your credit. A short sale remains on your credit for seven years.


Refinancing means you pay off your exiting loan with a new lower interest rate fixed mortgage. You must have equity in your home to qualify for a refinance. Refinancing only makes sense if you lower your interest rate by at least 2% so your monthly mortgage payment will be lower.


A reinstatement is when you pay your past due fees and penalties current, and your lender reinstates your mortgage. You need to continue making your payments on time, or you could risk losing your home to foreclosure.


Bankruptcy is a last option. Borrowers that have too many debts and cannot afford to pay them benefit from bankruptcy. Bankruptcy prevents your creditors from trying to collect any debts against you. You can get unsecured debt discharged in a Chapter 7, a complete liquidation, and decide whether you want to keep your home by negotiating with your lender. A Chapter 13 is a reorganization of all your debts over a 3-5 year term. After you complete the payment plan, all your unsecured debts are discharged.

The worst decision you can make is to do nothing. Ignoring the situation will only make it worse. Deciding to walk away is not a good option either. Talk to your real estate foreclosure defense attorney to find out your legal rights and obligations. The attorney can assist with negotiations with your lender. Lenders prefer to resolve the matter so that you avoid foreclosure, and they do not incur foreclosure expenses.