Tips: What Should I Do If I Can't Pay My Mortgage

What should you do if you can't pay your loan?

1. Call your lender immediately. The sooner you contact your lender (look for the toll-free number on your monthly statement), the more options will be available to you. Ask for the loan mitigation department.

2. Talk with a reputable credit counseling agency. You can call the Homeownership Preservation Foundation (toll-free 888-995-HOPE) or find a local HUD-approved counseling agency (toll-free 800-569-4287 on weekdays) or go to http://www.hud.gov/.

3. Know your loan modification options. Depending on how quickly you call your lender, the following loan modification options may be available to you:

• Forbearance (an agreement to temporarily let you pay less or nothing while you get back on your feet);
• Reinstatement (pay the total amount you're behind in a lump sum by a certain date);
• Repayment plans (you'll be given a fixed amount of time to repay the amount you're behind by combining a portion of what's past due with your current payment);
• Loan modifications (a written agreement between you and the lender that permanently changes one or more of the original terms of your loan to make it more affordable, such as extending the loan term or lowering the interest rate).

If your financial circumstances have changed so much that you can no longer afford to keep your house, your mortgage company may offer you one of the following options to forestall the foreclosure process:

• Loan assumption. Even if your mortgage isn't assumable, your lender may allow someone else to take over the payments and bring the loan current. This may allow you to sell your home.
• Short sale. This option, which has been in the news lately, allows you to sell your house for less than the amount that is owed on the mortgage. Recent, but temporary, changes to the IRS tax code mean that the difference between what you owe and the amount you're selling for may no longer be taxable as income.
• Deed-in-lieu of foreclosure. You may be able to transfer title to your property to the mortgage company in exchange for the complete cancellation of your mortgage debt. In most cases, your lender will have required you to try to sell the house for 90 days before a deed-in-lieu will be considered.

If you find the possibility of foreclosure to be overwhelming, and want more information, be wary of going to friends and family or even the Internet for guidance. There could be a lot of misinformation going around. You could also wind up being snared by Internet scam artists posing as credit counselors or in a foreclosure rescue scam. The best place to start your search for information on the foreclosure process is at the HUD.gov Web site.