Foreclosures continue to plague the country’s housing market. January was the 11th straight month that more than 300,000 properties nationwide received a foreclosure filing. That’s a lot of foreclosures! And that’s a lot of people who find themselves unable to make their monthly mortgage payment.

What are your options, if you are a homeowner who can’t make your mortgage payment? There aren’t many, but you do have some choices.

Contact Your Lender

The firs thing to do when you can’t make your mortgage payment is contact your lender. That can be a scary thing to do, but it’s necessary. The longer you wait and the more behind you get, the fewer options you will have. By contacting your lender as soon as there’s a problem, you will preserve your ability to make choices, rather than be left with foreclosure as your only option.

Refinance or Apply for Loan Modification

Since so many people are upside-down in their mortgages, and since so many mortgage companies behaved unethically in approving loans that shouldn’t have been approved, the government stepped in to provide an option for homeowners who cant afford their mortgages.

If you meet certain requirements, you may be eligible for the Making Home Affordable Program, a voluntary program, in which banks either refinance or modify your loan, to help you better afford your mortgage.

It sounds altruistic on the part of the banks, but it’s really not.

  • First of all, it’s voluntary for the bank. They do not have to do anything.
  • Second, from the bank’s perspective, if it comes down to modifying your loan or having to sell a foreclosed home, the bank is often money ahead to modify your loan or offer you a refinance with better terms. This could mean increasing the term of the loan, cutting the interest rate, or even cutting the principal amount owed.

You have to be persistent, if you want to pursue this option. Banks are inundated with requests for loan modification, so you’ll have to be a good advocate for yourself. You should also be prepared for a long wait. This isn’t something that will get approved in a week. It will likely take months from the point of first contact. But if you’re behind on your mortgage, this is the best option for keeping your house and preserving your credit.

Get Rid of Your House

Sometimes the best thing to do is get out from under your mortgage. If you opt to sell your home, selling it the traditional way is obviously the best way to go. However, because of falling real estate values, a lot of people don’t have that option. They owe more on the property than it’s worth. You may still be able to sell your home, though, if you can get the bank to cooperate.

  • Short Sale. A short sale is when the bank agrees to let you sell your home for less than what you owe on your mortgage. A bank does not have to agree to a short sale, but if it does, it’s a good option. A short sale is less damaging to your credit than a foreclosure, and it will get you out from under a mortgage you can’t afford.
  • Deed in Lieu of Foreclosure. Instead of foreclosing on a home, sometimes a bank will accept a transfer of the deed in lieu of foreclosure proceedings. You sign the deed over, and the bank owns your house. The bank is then free to sell the house to recoup the cost of your loan.

Keep in mind that with both a short sale and a deed in lieu of foreclosure, there are tax implications. Before pursuing either of these options, make sure you consult a tax professional to find out what the tax ramifications will be.

Declare Bankruptcy

I’m not a personal fan of bankruptcy, but sometimes it’s the best option. In a Chapter 13 bankruptcy, you are allowed to keep your house, but you will have to submit a plan to repay your debts.

Before deciding on a Chapter 13 bankruptcy, you need to be sure you can actually repay your debts. If your mortgage was too big for your income, chances are a bankruptcy will not help you. But if you had a temporary issue that caused you to get behind in your payments, and that issue is resolved, a Chapter 13 bankruptcy might benefit you.

Walk Away from Your Home

This should be the option of last resort. If you can’t refinance or modify your loan, if your bank won’t agree to a short sale or deed in lieu of foreclosure, and if bankruptcy isn’t an option for you, foreclosure may be your only choice.

If foreclosure is imminent, stay in your home as long as possible. Take the money you would have applied to your mortgage payment and put it in savings, so you can afford a deposit on another place to live.

While I don’t believe people should walk away from their debts, sometimes it’s the only option. People make mistakes, economies tank, illnesses with big medical bills hit. If you’ve tried to work with your bank, and you don’t have any other option than to walk away, then sometimes you just have to walk away.

Beware of Scams

Since mortgage issues are so common right now, a lot of scammers are trying to prey on desperate homeowners. If you work with a third party to try to resolve your mortgage problems, make sure they are a reputable agency. Watch out for anyone who tries to charge you a fee, pressures you to sign over your deed, or tries to collect mortgage payments from you. There are no miracle fixes for mortgage problems, so don’t believe anyone who tells you they can quickly and easily help you out. If it sounds too good to be true, it probably is.