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Avoiding an FHA Foreclosure

The Federal Housing Authority is a government agency that regulates much of the real estate industry and insures certain home loans. Normally, the homeowner does not apply for a mortgage from the FHA but the institute that does supply the mortgage loan can receive insurance to protect its investment if the loan is defaulted and the property is foreclosed on. The purpose of such a practice is to allow lenders to provide mortgages to homebuyers in areas where property values can fluctuate, so that a foreclosed home may not be worth the full worth of the mortgage at the time of its auction or sale. As a government agency, the FHA has several programs to assist a borrower in avoiding an FHA foreclosure.

FHA Assistance

The FHA can only assist with mortgages that are insured by the FHA. Other types of loans do not fall under its protection. All mortgage holders that are in danger of defaulting on their loan should be honest with the lender. Don’t ignore letters from the lender. Many lenders have a Loss Mitigation Department that is empowered to renegotiate the loan or assist in avoiding the FHA foreclosure. The homeowner should be ready to supply the necessary information including things like monthly income and expenses. Anyone with an FHA loan can contact a HUD-approved housing counseling agency for help in finding ways to avoid an FHA foreclosure including credit counseling, government assistance and information on local organizations that can provide assistance. These agencies can also supply information on state laws on foreclosure.

Even without help from the FHA, special repayment plans can be arranged with the lender. Temporary decreases in income or expenses can be taken care of by a forbearance program that will reduce or suspend payments until the problem runs its course. The mortgage modification plan can take care of a permanent change in the ability to pay. Payments can be changed to a more affordable level. If several months of payments were missed but the borrower is able to make full payments again, the FHA can bring the payments up to date by paying the lender the arrears. This partial claim puts a lien on the property until it is paid, but only comes due after the mortgage is completely paid or when the home is sold. All of these plans help to avoid an FHA foreclosure.

As a last resort, the homeowner can sell the property for an amount of money that will satisfy the mortgage. By preventing an FHA foreclosure, the borrower can save his credit rating. Another version of this last resort is to give the property back to the lender in place of the remaining payments. Because the FHA insures the most risky mortgages, many of the borrowers require help to avoid the FHA foreclosure, but the agency is very successful with its assistance programs.