Got a Foreclosure Notice From Your Lender? Here's What to Do

First, don't panic. Next, follow these steps.

Nobody buys a home intending to fall behind on their monthly mortgage payments. But sometimes, these things happen. If your income takes a hit or your financial circumstances change, you may have a hard time keeping up with your mortgage. And if you fall too far behind, your lender has the right to take steps to get repaid -- even if that means starting the foreclosure process.

Getting a foreclosure notice can be very frightening. But receiving one does not necessarily mean you'll lose your home. Here's what you need to know.

When can a lender send a foreclosure notice?

Your lender doesn't begin the foreclosure process just because you're late on a single mortgage payment. But if you miss two or more payments and become 120 days delinquent, foreclosure can begin.

Generally, you receive a notice in the mail stating that your lender intends to foreclose on your property. But foreclosure doesn't happen overnight. You'll still have an opportunity to respond to that notice and try to remedy the situation.

What to do once you get a foreclosure notice

If you receive a foreclosure notice, it's imperative that you respond immediately -- you're up against a ticking clock. You usually have just 30 days to take action after getting a notice of foreclosure before your lender proceeds. (The specifics of the foreclosure process vary from state to state.)

So what are your options once you get that dreaded notice? Here are a few that may be available to you.

1. Catch up

Lenders don't enjoy foreclosure. It's a costly, time-consuming process that takes away from what they do best -- collecting interest. If you're able to get current on your mortgage, that generally nips the foreclosure process in the bud. Of course, many people reach the point of getting a foreclosure notice because they don't have the money to pay and can't catch up. But if you can make even partial payments on what you owe, it's worth contacting your lender and seeing whether you can halt foreclosure actions.

2. Ask to modify the terms of your loan

Under some circumstances, your lender might allow you to alter the terms of your mortgage -- known as loan modification -- to help you catch up on your monthly payments and keep up with future ones. It's best to pursue this option before you become so delinquent your lender sends a foreclosure notice. But it's something you can try nonetheless.

3. Ask your lender to agree to a short sale

If your home is worth enough money to cover your outstanding mortgage balance, you can tell your lender you want to sell the home and use the proceeds from that sale to pay off your mortgage. But often, people land in foreclosure because their homes aren't worth enough to satisfy their remaining mortgage balances. If that's the case, you can ask your lender to agree to a short sale.

With a short sale, your home is sold, and the proceeds of that sale go to your lender. Your remaining mortgage balance is written off, and your lender winds up short of the full amount -- hence the name. A short sale can do less damage to your credit score than a foreclosure, so it may be worth pursuing. But at the end of the day, the result is the same -- you lose your home and there is a negative mark on your credit history.

4. Know your rights

Right now, there's a federal moratorium on foreclosures due to the coronavirus pandemic. That won't always be the case, but if you receive a foreclosure notice, it could pay to consult an attorney so you better understand your rights.

Take action and don't panic

Your first reaction when getting a foreclosure notice may be to panic, but try not to. You may have options to salvage the situation and keep your home. Alternatively, you may be able to sell your home and pay off your mortgage. That doesn't help you with housing, but it can at least protect your credit score. A foreclosure normally stays on your credit report for seven years, and during that time, it could be difficult to get another loan (mortgage or otherwise) or rent a home, so it's best to avoid foreclosure if you can.

At the same time, it pays to take steps to avoid getting a foreclosure notice in the first place. If you can't keep up with your mortgage payments, contact your lender right away -- before you miss your first payment. There are programs in place, like forbearance, designed to protect homeowners who experience hardships, so find out what options are available to you. The key, however, is to sign up for protections like forbearance before the foreclosure process begins.

Lookout! Keep an eye out for Foreclosure Rescue Schemes. You don't want to get caught up in one.