So you bought a house in 2005 at or near the top of the market and probably used an adjustable first and second mortgage in order to qualify to buy that house. Now, two or three years later that interest rate on your loan has adjusted upward and your monthly mortgage payment has significantly increased to a point that you can no longer afford to make the house payment.

You may or may not be a month or two behind the mortgage payments. The lean holder (your lender) is probably calling you asking to find out the reason why you have missed your monthly payment and you usually reply “I haven’t had a chance to mail that check”… Does this sound familiar? Are foreclosure looms in your life?

According to Hank Lopez, Countrywide’s Assistant Vice President of the Short Sale Division, it usually takes up to 8 months before a lender will foreclose on a property. After about four months calling you to find the reasons why you are behind the mortgage payments, a lender will usually file and record a Notice of Default (NOD) on the loan balance amount, including unpaid interest and approximately four months later the lender will foreclose the property. That is if you don’t do something about it!

A lender wants to see that you are pro-active! A lender does not usually want to foreclose on your home – especially in today’s declining real estate market. A lender wants you to call them and explain that you are having a hardship for making those newly increased monthly mortgage payments on your first and/or your second mortgage or whatever your reason is. Again according to Countrywide’s Hank Lopez, most lenders (lean holders) today do want you to stay in your home and they will do everything they can to help you out if you are pro-active and honest with them. Mr. Lopez even said that a lender might re-adjust your interest rate downwards to a payment that you can afford or might even wipe out your second mortgage amount if applicable.

Of course each lender is different and has its own guidelines on how to handle customers that are behind their mortgage payments. If after talking to your own lender first, and your lender has declined to help you stay in your home by re-adjusting your monthly payment to the one that you can actually afford, the next to consider is talking to your Realtor about Short Selling your house. Today most lenders would rather accept a short sale than foreclose a property – again each lender is different, so there are exemptions. If a short sale of your house is your last resort to avoid ruining your credit with foreclosure, you should also talk to your tax advisor as a short sale could have some tax implications.

To avoid foreclosure on your home, be pro-active and talk to your own lender first and be honest with them about it and then only as the last resort, talk to your Realtor about a possible short sale of your house!