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Today hundreds of thousands of homeowners are in a position known in this industry as "upside down". These are usually folks who bought their home during the real estate boom at 95% or even 100% financing and with the declining property values, they now owe more than the home is worth. If on top of that, they had an adjustable rate mortgage(ARM) which recently adjusted or worse yet, one of those option ARM's with negative amortization, chances are they are struggling financially.

Many people who fit that pattern call to find out what can be done. Well, there are several steps that you can take before surrendering your home in foreclosure:

• Call your lender and try to renegotiate the loan. It is in the lender's best interest to try to negotiate a win-win solution for both of you because first, it is very expensive for the lender to foreclose your property and second, chances are the lender already has a large inventory of foreclosed properties. When you call, don't waste your time with the first attendant and instead ask for their loss mitigation department. A word of caution here. If you are current in your mortgage they will not negotiate with you. Be careful of the companies that promise to do that for you. They are propping up everywhere these days. Some may be reputable but there are a few that are not. Just ask your friends or check with your local Better Business Bureau or state attorney's office before hiring one.
• If you happen to have an ARM, there is a program that FHA offers called FHA Secure. FHA Secure is a refinancing option that gives homeowners with non-FHA ARMs, current or delinquent and regardless of reset status, the ability to refinance into a FHA-insured mortgage. With FHA Secure, the lender will not automatically disqualify you because you are delinquent on your loan, and the lender may offer you a second mortgage to make up the difference between the value of your property and what you owe. There are many restrictions on this program and your lender must agree to do this. For more information on this program click here.
• FHA also have a new program called HOPE. This program allows you to refinance your mortgage at 90% of appraised value. Your existing lender must be willing to take a loss on the existing mortgage in order to reduce it to 90% of property value. This is a voluntary program. You will also have to share future equity with the government when you sell the property. For more information click here.
• You can also contact one of the following agencies:
• 1.888.995.HOPE
• MyMoneyManagement: www.MyMoneyManagement.net
• IFLA - http://www.foreclosurelegalassistance.org/
HUD - http://www.hud.gov/offices/hsg/sfh/hcc/nrhci.cfm1-877-33-ACORN
• Mortgage Bankers Assoc - http://www.homeloanlearningcenter.com/YourFinances/ForeclosurePreventionResourceCenter.htm
• NeighborWorks America: http://www.nw.org/network/home.asp

• Homeownership Preservation Foundation: http://www.995hope.org/

If you can't negotiate anything with your lender, you can try bankrupty Chapter 13 to save the house. Keep in mind that this will stop foreclosure but the Trustee will re-structure your debts within a payment plan to be paid for 3-5 years including your mortgage, cars and some unsecured debts. In addition there are the legal fees which typically you pay some upfront and the rest is included in the plan. But as long as you make the payment to the Trustee the lender can't foreclose on you property.

• If you just can't pay even a renegotiated mortgage and will lose the property you have two choices. A short sale or a foreclosure. There is a third one called "Deed in Lieu of Foreclosure" but is not as common anymore and it's basically like a foreclosure. In a short sale, a buyer can buy the property from the bank at a reduced price to be determined by the lender. They may require an appraisal or may go with a Best Price Option(BPO) where they estimate the value of the property internally. This will take several months to complete. In a foreclosure, the lender will take the property away from you through a legal process. This can take a year and sometimes even more for the bank to evict you. With either option your credit will be impacted. However, for the purpose of buying your next property, although a foreclosure will remain in your credit for up to 10 years, the fact is that after 3 years you are eligible to buy again.

If you are able to pay your other liabilities on time, your credit score will not be impacted as much. However, most people have usually defaulted on their other obligations by then, thereby affecting their credit considerably. If that's the case, then you'll need the services of a credit repair company. But that's the subject for another blog.