12 Keys to Avoiding Foreclosure
	General Rule. The 12 Keys to foreclosure defense are important concepts to consider as possible options. Get legal help from a qualified attorney to determine your best options. Avoid all foreclosure rescue offers or credit repair scams.

1. Review Your Budget to Determine Your Options. Make a listing of your income and all monthly expenses. Does your income allow you to keep your home if you can reduce the mortgage payment or reduce other bills such as credit card bills and car loans? Can expenses other than your mortgage be reduced, such as contributions to retirement plans, the reduction of life insurance premiums, car insurance full coverage, car payments, premium telephone service, cable tv, etc? Can income be increased through a change of jobs or additional employment? Can credit card bills be refinanced or workout arrangements be made with credit card lenders?

2. Make Your Mortgage Payments. If you can arrange to keep your home, then continue making mortgage payments if possible. If your lender returns your payments, then save the money so that it is available to use in a mortgage workout.

3. The Priority of Payments. If you can avoid foreclosure, you should try to pay your mortgage on time. For many people, the following priority should be used:

1. Pay the following high priority expenses first.

a. mortgages and family necessities (food, health, utilities) first

b. car loans, if you plan to keep the car

c. child support and maintenance (alimony) per court orders

d. income taxes

e. debts secured by household goods

f. student loans are medium priority, ahead of credit cards

2. Then pay following lower priority unsecured debts, even if a lawsuit is threatened

a. credit card bills

b. medical bills

c. department store and other revolving charge account bills

d. loans from friends and relatives

Don’t change the priority of your payments if a lawsuit is threatened or your credit record will be damaged. Independent debt collectors rarely, if even, report to a credit reporting agency.

Don’t make payments on any property which you will lose in the long run. If you cannot keep your home, then you might also suspend making the mortgage payment, particularly if you sell it or you cannot avoid a foreclosure sale.

4. Refinancing is Usually Not Helpful. When you are having credit problems, usually a refinancing will be at much higher interest rates and costs. Often one of the results of refinancing your mortgage(s) during a time of financial duress is that your retirement assets such as IRA and 401(k) accounts will be liquidated at the new lender’s request to pay off credit card bills and other arrears. Do not consolidate other debts, such as credit card debts, with your mortgage loan. Because you are changing unsecured debt into secured debt. For many people, refinancing will be a big mistake.

5. Proposing a Temporary Workout. Determine whether your budget will allow you to keep your home, then propose a workout to your lender. Recent policy changes with almost all lenders favor workouts. This is particularly true for Fannie Mae and Freddie Mac loans, which include about 80% of all loans. FHA and VA loans are similar. See page xxx for additional information on workouts.

6. Consider Selling Your Home. If you are behind in your mortgage payments, and your options to avoid a foreclosure sale are not good, then you should consider listing your home for sale. You will almost always get a better price is you sell your home instead of going through a foreclosure sale. If you get an offer which is lower than the amount of the loans on the property, then you will need the lender’s permission to sell at a short-sale. Today, you can get low fixed-fee MLS listings for less than $500 total.

7. Delay Your Foreclosure Sale. If you can propose a reasonable workout option to the lender or you can sell your property, you may be able to persuade your lender to delay the foreclosure sale. Once the foreclosure sale is held, you generally have lost your options to keep the home. After the foreclosure sale, you can exercise your right of redemption during the following 75 days. Note: Colorado law has been amended to eliminate the right of redemption beginning January 1, 2008.

8. Consider a Deed in Lieu of Foreclosure. This is one way to avoid foreclosure sale, give your property to your lender, and walk away. The lender must approve a deed in lieu. However, even if you can avoid a deficiency judgment, you will be given an IRS 1099C where you will have to pay income tax on the amount of any debt forgiven.

9. Avoid Foreclosure Rescue Scams. Never deed your house to anyone without the advice of an attorney or HUD-approved counseling agency. Anytime you are asked to deed your home to someone who may deed it back to you, you will lose all of your equity as well as convert unsecured debt to secured debt and lose otherwise exempt assets.

10. Avoid Credit Repair Scams. All offers to “repair” your credit by removing credit report dings must be avoided. They are all scam artists or bill collectors who use novel methods to get your money. It is a violation of federal credit reporting laws to change a credit report if the change will result in an inaccuracy. It is illegal to remove accurate credit report entries.

11. Consider Using Bankruptcy to Save Your Home. A chapter 13 bankruptcy is a very commonly-used tool for saving the family home through the use of the “automatic stay” and the supervised payment plan . For many homeowners, a chapter 13 will allow the home to be kept, where the mortgage arrears is paid over a 3 to 5 year period and other debts are paid at much less than what is owed. In some cases, 2nd mortgages and judgment liens are cancelled (stripped off). A chapter 13 plan is effective even after the foreclosure process has begun. A Chapter 7 filing will help some homeowners, because usually all of their unsecured debt will be eliminated. Cars can be given to the lender to eliminate car loans and leases. Some debts such as student loans and child support are not eliminated.

12. Get Professional Help to Analyze Your Options. A good bankruptcy attorney will usually provide a free initial consultation. Part of the analysis of your available workout options depends on your position if you take a Chapter 7 or a Chapter 13 bankruptcy. If you can benefit from a bankruptcy, your lender is more likely to agree to a reasonable workout option.

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