Protecting Yourself from Foreclosure

Admit the problem. If you're more than one month behind in your mortgage payments, you're at serious risk. Face up to it and take action immediately. The faster you act before you start getting foreclosure threats, the better off you'll be.

Contact your lender. Lenders aren't in the foreclosure business; they want to help you keep your home. So be proactive and contact them. If they know you want to act in good faith and bring your mortgage up to date, they'll almost certainly be willing to work with you.

Get debt counseling. Debt counseling services (be careful, because many that say they are non-profit still charge a fee) will help you organize your finances and can often negotiate with debtors to lower your monthly payments. They'll also encourage you to get rid of some credit cards and start living on cash.

Reduce spending. Many expenses can be greatly reduced without difficulty by recognizing and changing bad habits. Activities such as eating out can put a strain on the even the most carefully planned budget, if done to excess. Take an honest look at your spending habits and make any changes necessary to strengthen your financial position.

Consider lender solutions. Your lender may offer you several options for resolving your situation: selling your home, reworking your loan to lower the payments and roll the past due amount into the new loan, of placing your assets in a trust account. Consider all options carefully.

Get a reappraisal. You have a legal right to a copy of your appraisal. If you think it might be fraudulent, check with the Better Business Bureau to see if any complaints have been filed with the appraiser. If you suspect fraud, you can take action by contacting the California Department of Commerce. If you want a new appraisal, hire someone based in the area who is licensed by the state.

Clean up your credit. Order a copy of your FICO scores for $12.95 at www.myfico.com. You'll get detailed information on all your credit accounts, payment histories, and so on (even accounts you forgot you had!). This will allow you to close old accounts, correct errors in your credit history, and start improving your credit scores. Remember, the best way to improve your scores is to make all payments on time.

Refinance. If you have not refinanced or recently had your home reappraised, consider refinancing to lower your monthly payments.

Look at your health insurance. Hospital bills can send you spinning toward foreclosure. Take a close look at your health coverage, and talk to your employer's HR department about maximizing your coverage to avoid catastrophic bills.

Build an emergency fund. As you rework your household finances, set aside whatever you can each month as an "emergency fund." This fund can be used to cover unexpected expenses, such as a major home or car repair.