Buyers please click here.


Here are some options and resources for a homeowner in default

Contact the Lender or a HUD-Approved Housing Counseling Agency.
Although a common response to a problem making house payments is to ignore the lender, that is the worse course of action for a homeowner in default.  The Lender must be contacted as soon as possible.

  • To find the the list of lender contacts at:
  • Ask for the lender's loss mitigation department (or other department that handles negotiation of loans in default); explain the situation and find out if there are any loan workout options.

If the homeowner does not want to talk to the lender directly, contact a HUD-approved housing counseling agency, who can contact the lender on the homeowner's behalf.

These agencies include:



Information the Lender or Counselor Will Need

The lender or counselor will need a variety of information to determine the homeowner's options, such as:

  • Loan information
  • Monthly income documentation (pay stubs, tax returns)
  • Monthly expense documentation (utilities, child care, car payments, etc.

The lender may also require the homeowner to complete and return a loan workout package which contains information, forms and instructions, before the lender will discuss the options.


Possible Loan workout Options

There are a number of loan workout options available that will allow a homeowner to keep their home, such as:

  • Reinstatement:  Paying the total amount owed in a lump sum by a specific date in exchange for forbearance.
  • Forbearance:  An agreement to reduce or suspend payments for a short period of time.
  • Repayment Plan:  An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
  • Loan Modification:  An agreement to change the terms of the original loan to make the payments more affordable.  For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended.
  • Claim Advance/Partial Claim:  If the loan is insured, the homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current.  If so, the homeowner will be required to sign a promissory note and a lien will be recorded against the home until the loan is paid in full.


The Option to Refinance with Another Lender

If the lender will not agree to a loan workout, the homeowner may be able to refinance the loan with another lender.  For information about refinancing, go to:

Sale Options to Avoid Foreclosure

If a loan workout or refinance is not an option, the homeowner's best course may be to sell the home.  The lender may work with the homeowner to enable the homeowner to sell the home and avoid a foreclosure.  The lender may agree to a sale on the following terms:

  • Work Out Sale:  An agreement not to foreclose for a specific amount of time to allow the home to be sold and the loan to be paid off.
  • Short Sale:  In a situation where there is more debt owing against a property than the property's value, the lender may agree to allow the property to be sold for less than the loan amount and/or accept less than
    (or "short") the amount owed as payment in full.  There are tax implications and other issues to consider before entering into a short sale agreement.  AAR has devleoped a short sale addendum to the Listing Agreement,, and a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract,, to assist in a short sale transaction.  For more information se NAR's Field Guide to Short Sales,
  • Assumption:  the lender may allow a buyer to assume the loan and purchase the property even if the loan is non-assumable.


Deed-in-lieu of Foreclosure

The lender may allow a homeowner to "give back" the property.  this option may not be available if there are other liens recorded against the property.  For more information, go to


Be Aware of Predatory "Rescue" Scams

Homeowners worried about foreclosure may be susceptible to predatory "rescue" scams such as:

  • Loans with high interest rates and unaffordable repayment terms
  • Loan assumptions where the homeowner is not released from liability on the loan.
  • Offers to repay the loan or sell the property if the homeowner signs over the deed.
  • Counseling agencies that offer counseling for a fee when it is available at not cost.

Remember, if it sounds too good to be true, it probably is.  Report suspected scams to the Department of Financial Institutions at

The information contained above was compiled from the following sources:

Tips for Avoiding Foreclosure
Credit Counseling & Debtor Education (US Dpt of Justice):
Landloard Tenant Assistance:
Eviction or mortgage foreclosure assistance:
Hope Now:
Neighbor Works America:

Homeownership Preservation Foundation:
My Money Management:
AZ Law Help:

The foregoing is for information purposes only and is not intended as definitive legal advice.  You should not act upon this information without seeking independent legal counsel.

If you are interested in information on purchasing a distressed property, please click here.










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