Foreclosure is a legal proceeding that ends a borrower's interest in real property because the borrower has failed to make timely mortgage payments or pay property taxes.
The existence/history of a serious health condition with unexpectedly high medical expenses and/or a reduction in income may be useful in negotiating a deal with a bank if you can find a sympathetic person (bankers are people too!). However, these facts are not defenses that will stop a foreclosure. Still, if you live in a state in which foreclosure involves a judge, it is worth letting the court know about your condition. It may make the judge lean more on your side for issues over which he or she has discretion.
As soon as you think you may miss a payment or cannot pay your property taxes, take the following steps:
- Review Survivorship A to Z's information on what to do in the event of a financial crunch to see if you have alternatives that will help keep mortgage payments to date.
- Contact your bank to alert it about your health and attendant financial situation and to find out if it has a program to revise your mortgage. Keep in mind that any reductions are generally made up at the end of the loan.
- Consider whether you can refinance your mortgage or apply for an FHASecure loan. Avoid lenders who charge excessive interest rates or closing costs. There are better alternatives.
- If you are age 62 or older, consider taking out a reverse mortgage to pay off the outstanding debt.
- Consider contacting a free or low cost credit counselor. For information about finding a reliable one, click here.
If it appears you are headed toward foreclosure:
- Learn about foreclosure prevention options in your state. State resources and HUD programs may be able to help. To find resources in your state, see: http://www.hud.gov/foreclosure/local.cfm
- Know your mortgage rights. It's in your best interest to know everything you can about your mortgage and the rights you have under the legal document. Read the fine print.
- Consider contacting an experienced real estate lawyer or a HUD approved housing counselor for assistance in working through the best option for you, and then negotiating for you. HUD counselors are free.
- Know your rights against unscrupulous brokers or banks. Check your state's law to find out if there is a civil action for abuse of a vulnerable person by unscrupulous brokers or banks. These laws allow for treble damages, including payment for emotional distress, plus attorneys' fees. Usually these laws apply to people over age 65 and to people who meet a definition of "disability." If you don't qualify because of age, you may be able to qualify because of your health condition. In addition to your physical physical condition, mental conditions such as depression may count as a disabling condition.
- Give legal documents your utmost attention. If you receive legal documents, read them carefully or take them to your lawyer or a legal services lawyer. You only have a short time to answer legal papers. Your answer may delay the foreclosure action to give you time to resolve the problem. If you ignore the documents, your house could be sold against your will in as little as two months depending on the laws of your state.
- Consider alternatives such as:
- A "short sale."
- Handing over a deed in lieu of foreclosure.
- Filing for bankruptcy. (A bankruptcy court cannot modify the terms of a mortgage because of federal law).
If a foreclosure action is started against you:
- Do not ignore any legal documents you receive.
- Contact the bank immediately to try to work out a solution.
- Find out how much time you have to stay in the property.
- Make alternate plans to leave the property, if necessary.
- Read our information about foreclosure. Click here.
- If you receive annoying phone calls from your bank, you can insist that contact be in writing instead of phone calls. A creditor is limited on the contact they can make with you. Keep a record of all conversations. For more information see: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm
- If a bank forgives a debt, the amount that is forgiven is considered to be income for tax purposes. If the home is your primary residence, you may avoid having to pay tax on the income.
- Watch for scams. For example, avoid foreclosure prevention companies that promise they can stop foreclosure immediately if you sign a document. You may be turning over your property and becoming a renter. Also avoid companies that promise to save your home for a small fee. You don't need to pay fees for foreclosure help. Do not pay fees to negotiate with your bank. You can do it yourself or call a HUD approved housing counselor for help. (To find a nearby HUD approved counselor, click here .)
- Members of the military and veterans have special rights regarding mortgage interest and foreclosure thanks to the Servicemembers Civil Relief Act. To learn more, see: http://www.homeloans.va.gov/veteran.htm
Keep in mind: Though your home is important to you, your health and your family are more important. If the only way you can avoid foreclosure is to use all your assets, you may be better off letting go of your house and renting until you get on your feet again.