I would contact your lender and try to apply for a modification. It will depend on you income , your current mortgage payment and your outstanding debt. The best way to start is by contacting www.makinghomesaffordable.gov. The program has had bad press but it all depends on the lender and how they implement it.
Other options are:
1. Do Nothing- If a homeowner does nothing, they will most likely will lose their home at foreclosure auction. This is a major credit problem which will affect the homeownerâ€™s ability to obtain credit for homes, autoâ€™s etc for years. THIS IS THE MOST COMMON REACTION AND THE WORST THING A HOMEOWNER CAN DO.
2. Payoff/Refinance- Completely pay off the entire loan amount plus any default amounts and fees. Typically this is accomplished by refinance of the mortgage loan. The new loan is usually at a higher interest rate, plus there may be a prepayment penalty because of the recent default. This option is available if the home is worth more than the payoff amount of the delinquent loan and assumes the homeowners still have reasonably good credit scores.
3. Reinstatement- Paying the entire past-due amount on the mortgage loan (all missed payments, plus interest, attorney fees, late fees, taxes, and other fees). This requires the lenderâ€™s approval, particularly if foreclosure has actually started.
4. Loan Modification- Work with the mortgage lender to rearrange the conditions of the loan (add years to the loan term or increase the amount of monthly payments to repay the delinquent payments and costs over the remaining life of the loan). This may allow the homeowner to â€œcatch upâ€ without having to refinance the entire loan. To qualify, you must prove to the lender you have fixed the problem that caused the late payment. This requires lender approval.
5. Forebearance- Lender might agree to a temporary repayment plan based on the homeownerâ€™s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements. This requires lender approval.
6. New Second Mortgage (Partial claim)- In some cases, the mortgage lender may give the homeowner an additional mortgage, secured by the home. All of the new loan proceeds are used to bring the 1st mortgage up to date. From that point on, the homeowner must make payments on both the original and new loans. Depending on the mortgage lender/investor, this option might be fairly easy to obtain but must be requested by the homeowner.
7. Deed in Lieu of Foreclosure/Quit-Claim Deed- Give the property to the lender instead of letting the lender take the property by foreclosure. While less damaging than a foreclosure, this will still impact the borrowerâ€™s credit score. Banks generally require the home be well maintained, all mortgage payment and taxes to be paid current and the home must be in good condition. This requires lender approval.
8. Bankruptcy- This option can liquidate debt and or allow more time to pay the loan current. (I can refer you to a qualified bankruptcy attorney.)
. Chapter 7 (Liquidation) Completely settles personal debts BUT takes home away from the homeowner (this might delay a foreclosure long enough for the homeowner to bring the loan current or sell the home)
. Chapter 13 (Wage earner Plan) Payments are made on a plan to pay off debt in 3-5 years (Homeowner can keep the home).
. Chapter 11 (Business Reorganization) A business debt solution (similar to Chapter 7)
Any bankruptcy will have a negative impact on credit scores, but may enable a homeowner to keep the home or sell and retain equity .
9. Rent the property- This option works best when the monthly rental payment is equal to the full mortgage payment. It can also work if the homeowner has the ability to cover the shortage. To use this option, the loan must be brought current. This requires lender approval.
10. Sale- There are two types of home sales:
a. If the property IS worth at least enough to pay off the mortgage debt, the homeowner may sell home without lender approval through a conventional home sale. This is the best method for protecting a homeownerâ€™s credit score, but becomes more difficult to do as the number of missed mortgage payments increases. ,
b. If the property IS NOT worth enough to pay off the entire mortgage debt, a â€œSHORT-SALEâ€, also known as a pre-foreclosure sale, can be negotiated with your lender by a Real Estate Professional. This requires lender approval and may affect the credit score.