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The New Bankruptcy: Will It Work for You?

Selling Your House in a Tough Market

Foreclosure: Articles and FAQs

Guide to Avoiding Foreclosure (HUD)

Avoiding Foreclosure: State Resources (HUD)

Foreclosure Survival Guide

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Foreclosure Survival Guide (1st Edition)

When You Miss Your First Payment

If you have decided that you’ll ultimately have to give up your house because your mortgage payments are no longer affordable (if they ever were), the first step toward benefiting from your foreclosure is to stop making your mortgage payments. Open up a savings account in which to deposit as much as possible of the extra money you now have.

Depending on where you live, and your lender’s policy regarding foreclosures, you likely will be able to miss your payments for at least three months (very possibly as many as five months) before your lender starts formal foreclosure proceedings. In all but a couple of states (check your state’s page in the appendix to see what kind of notice you’ll get), you’ll know when the lender takes this step because you’ll get a notice in the mail. If you get help from a nonprofit housing counseling agency and try to work something out with your lender (even though you privately think you’ll be giving up your house), you might gain an extra month or two before the lender gives up on you and starts foreclosure proceedings. (See Ch. 4 for information about nonprofit housing counselors.)

So, from the time you decide to stop making payments until the time you receive notice that foreclosure proceedings have begun, you can live in your home for at least three months (maybe five or six) payment free. But that’s not all. Keep reading.

When You Stay, Everybody Wins

You might feel a little guilty about staying in your house after you become unable to keep making payments on it or after it’s actually auctioned off in foreclosure. But what you might not realize is that by staying, you’re doing your neighbors—and probably even the lender or new owner—a favor.

It’s well documented that foreclosures tend to cluster in certain communities. And when there are several empty houses in a neighborhood, it’s very obvious. Lawns are overgrown with weeds or brown for lack of water; flyers pile up on porches. Maintenance is neglected. The signs of neglect quickly attract vandals, thieves, and transients. Graffiti appears on fences as copper pipe and appliances disappear from the vacant houses.

Some cities, including Cleveland, Baltimore, and Minneapolis, have actually sued lenders to recoup the costs of dealing with the problems caused by abandoned houses. The cities say they have had to pay more to their fire and police departments and have lost property tax revenue. They have also demolished some houses that were past saving and are now suing for the costs of demolition. (National Law Journal, May 9, 2008.)

When you stay in the house until a new owner is ready to move in, you’ll help maintain its value—and that of your neighbors’ houses. So let go of the guilt and remind yourself that you’re doing a good deed.