The economy is strong but even now there are many people facing the possibility of losing their home to foreclosure. Fortunately, you may avoid foreclosure by taking some critical steps. The first step is understanding some of the most common reasons foreclosure happens.

Common Causes of Foreclosure

• Loss of income.
  One of the most common reasons for foreclosure is the loss of a job or the loss of other income. Over half of homeowners facing foreclosure lost their home because they didn’t have enough income to pay their mortgage.

• Underwater mortgage.
  Negative equity in your home could lead to foreclosure especially if you need to sell your home or refinance due to some financial calamity. Almost nothing feels worse than selling your home and still owing a significant amount of debt to the mortgage lender.

• Divorce.
  Two incomes are certainly better than one, and this is especially true if your spouse makes significantly more money than you. This is why divorce is one of the leading causes of foreclosure. And if your divorce is anything less than amicable, you could find yourself unable to make mortgage payments or sell the home quickly.

• Health issues.
  Closely related to loss of income, major health issues can lead to foreclosure. Even if you have the health care and treatment you need, the medical bills alone could bankrupt you and make it difficult to make mortgage payments.

• Subprime mortgages.
  If you have less than optimal credit, you may have signed up for a subprime mortgage with high-interest rates and payments that balloon after a few years. If this is the case, you could be paying $800 a month for a few years then $1800 after a certain amount of time unless you refinance or sell. Such a large jump in mortgage payment obligations could eventually lead to foreclosure if you’re unable to pay the new mortgage amount.

• Denial.
  Things happen in life that might cause financial hardship, but if you’re unwilling to face the ugly reality of your situation, denial and avoidance may eventually lead you into a foreclosure.

If you’re facing one of the above scenarios, you might be at risk for foreclosure. But how do you know for sure?

Foreclosure Warning Signs

Since denial is a powerful force when it comes to foreclosure, many homeowners fail to recognize the warning signs that they’re heading for trouble. Let’s take a closer look at some of the signs that you may be at risk of losing your home to foreclosure.

• Using credit cards for daily expenses. Even during a financial crisis, most people prioritize their mortgage payments but if you need to depend on credit cards to pay for groceries, gas, utilities and other daily expenses, you are at risk for an eventual foreclosure.

• You can’t afford house maintenance. If you find that you’re unable to pay for ongoing house maintenance or that you need to put these expenses on credit, you’re probably at risk for foreclosure. People in a healthy financial position should have a cash reserve that can pay for the ongoing expenses associated with homeownership.

• You are always late paying bills. If you’re chronically late paying your mortgage or other bills, it’s a sign that your finances are destabilizing and that you’re at risk for foreclosure.

• Maxing out your credit cards. If you have maxed out credit cards and you have no short-term way to pay them off, you’re probably in a financial mess and may be at risk for foreclosure.

If you’re at risk for foreclosure, you may be looking for advice. And while it’s natural to look for help solving your foreclosure issue, it’s important to ignore the bad advice that’s prevalent online.

Foreclosure Don’ts

There are some things you should never do when you’re facing foreclosure. Let’s take a look at just a few.

• Don’t move out immediately.
  Even if you’re behind on your mortgage payments, you should not move immediately. Being behind on your mortgage doesn’t guarantee that you will lose your home to foreclosure. If you want to have access to many of the opportunities available to help you cure a mortgage delinquency, you must be actually living in the home. Plus, no mortgage servicer can just kick you out without going through the foreclosure process first.

• Don’t believe everything you hear.
  Not everything the servicer tells you is 100% accurate. They may not discuss all of your options with you and they may inadvertently misrepresent the “facts.” It’s best to work with an attorney or someone else who understands the foreclosure process so that they can help you understand your options and make sure that you have every opportunity to save your home from foreclosure.

• Don’t ignore letters or phone calls from your servicer.
  It can be tempting to bury your head in the sand when you’re facing foreclosure, but don’t do it. Ignoring phone calls and letters from your mortgage servicer could mean that you stay uninformed and your actions could cause the foreclosure process to move faster because you’re not in communication with the lender.

So what do you do when communicating with your mortgage lender?

Mortgage Lender Talk

When you’re talking to your mortgage lender it’s important to follow some communications best practices.

• Explain yourself.
  It’s your job to help your lender understand why you’ve missed mortgage payments. Your explanation should include proof such as letters and other documentation of your hardship.

• Only make promises you can keep.
  When you’re negotiating with a lender, only make promises that you’re certain you can keep. For example, if the lender asks you to pay $1,000 and you know you can only afford $500, tell them you will pay them $500 and do so in a timely manner.

• Keep notes of communication.
  Keep a log of all communication with your lender including phone calls, emails, postal mail, and faxes. Your logs should include the time, date, and the person you spoke with.

• Follow-up via email.
  If promises were made to you via phone, ask for a written confirmation via email. This will ensure that promises made are kept by the lender.

• Reach out to your lender now.
  Don’t wait until after the foreclosure process has begun to communicate with your lender. Reach out to your lender about your troubles as soon as you realize that you’re at risk of losing your home.

Proper communications with your lender will ensure that you get access to all the options available to save your home from foreclosure.

Avoiding Default

Falling behind on your mortgage payments doesn’t need to mean an automatic foreclosure. There are a few things you can do to avoid default.

• Reinstatement.
  If your financial problems are temporary, you can be put back in good standing and avoid foreclosure by paying the past due amount in full by an agreed-upon date.

• Repayment plan.
  If you’re unable to repay your delinquent mortgage payments in full, your lender may give you a repayment plan that allows you to avoid default.

• Forebearance.
  If you know you will be unable to make any mortgage payments for a fixed amount of time due to some issues such as a temporary disability, your lender might agree to waive or reduce payments for a few months.

• Loan modification.
  If you’re upside down on your mortgage or your monthly payments are too high, your lender may be willing to modify your loan. A loan modification could reduce your monthly payments or reduce the total amount you owe.

• Selling your home.
  If you know you can’t afford to remain in your home due to long-term financial problems, selling the property may be a smart solution for avoiding foreclosure.

• Bankruptcy.
  Whether you want to remain in your home or not, filing bankruptcy can help you discharge unsecured debt and potentially help you avoid or postpone foreclosure.

Don’t let foreclosure rob you of your home, take action to get help as soon as you realize you’re in financial trouble.