The California Foreclosure Prevention Act was introduced in an attempt to slow the torrent of foreclosures flooding the state – and with many more to come – and to allow extra time for lenders and borrowers to agree on loan modification terms.

Realistically, nobody expected it to make much of a dent in the number of foreclosures, given that so many people simply can’t pay the mortgage owing to California’s  escalating unemployment and poor economy, not to mention the huge price drops that have put them a long way under water.

However, it was hoped that the California Foreclosure Prevention Act would at least force mortgage companies to make more of an effort to modify loan conditions for struggling homeowners.

Unfortunately, this hasn’t worked either, since all the big mortgage lenders were granted exemptions from the new law as soon as it went into effect. This essentially renders the law useless and leaves most distressed borrowers no better off, as the exempt lenders account for over 90% of properties presently under threat of foreclosure in the Golden State.

Federal government efforts to help those facing foreclosure – such as the Making Home Affordable program and the HOPE hotline on 888-995-HOPE or www.hopenow.com – can benefit some of California’s distressed homeowners. State authorities have also teamed up with Spanish-language TV network Univision to provide information and assistance to Spanish-speaking mortgage-holders. There are also community-based counseling programs across the state.

This would give the lender some cash flow while waiting for the market to rebound, and keep homes occupied and off the market, where they would contribute to delaying the housing price recovery. As the name suggests, the aim is also to keep neighborhoods from deteriorating because of mass foreclosures, as well as to remove the need for families to look for alternative accommodation.

Even if the Neighborhood Preservation Act does become law, we still don’t know how many lending institutions would actually make use of this facility.

It has been suggested that this legislation should be accompanied by a law that gives homeowners the right to remain in their homes as renters. If a renters’ right law of this nature could be enacted quickly, it would help Californians cope with the huge wave of foreclosures expected in the state over the next three years when a million option ARM mortgages reset at sharply higher levels.

Related Articles:

• The California Mortgage Crisis: No End in Sight
• US$18 million Website to Help Americans Recover from the Financial Crisis
• Alternative Options When You’re Facing Foreclosure

This means that the house or apartment will no longer be yours, and you will be evicted!

If you act quickly, however, there are a number of steps you can take to help prevent this from happening.

Keep in mind that mortgage companies don’t actually want to take over people’s properties – they would much rather see borrowers stay in their homes – and are often willing to work out a deal, at least temporarily.

Here are 10 Tips on How you can avoid foreclosure:

1. Contact your mortgage company if you can’t pay: It is very important that you call your lender as soon as your personal financial crisis gets so bad that you’re looking at missing a mortgage payment. The earlier you do this, the better.
2. Get impartial, free advice: The Homeownership Preservation Foundation (call them on 1-888-995-HOPE) can also advise you about how to talk to your lender and what your options are. Alternatively, you can get help and advice from the Department of Housing and Urban Development (HUD). Find a HUD-approved housing counselor near you or call 1-800-569-4287.
3. Open and respond to any mail from the lender: Early on in the process they will send you advice on how to avoid foreclosure and hold on to your home. If the problem escalates, you will receive letters about impending legal action and court appearances. If you respond promptly and take the action suggested, the lender will be more inclined to see you as an honest and co-operative customer.
4. Stay in your home: If you move out you might not qualify for assistance, so it’s best to stay put while the problems are being sorted out.
5. Be aware of your mortgage rights and obligations: Study your mortgage papers to see how your loan issuer is entitled to act if you miss any monthly payments. You should also find out about the foreclosure laws and procedures that apply in the state where you live.
6. Understand your options: Depending on your situation and your lender, there may be a number of options available to you. For instance, the mortgage company could offer you a repayment plan or a modification of the loan terms, or if that doesn’t work they might agree to a short sale or a deed-in-lieu. For more details see Your Options When You’re Facing Foreclosure.
7. Watch your spending: Along with healthcare, keeping your home should be your top priority. In other words, you need to get used to spending less on other things like entertainment, cable TV, memberships and eating out in order to avoid being made homeless. Also, don’t forget that paying your mortgage is more important than your credit card and other unsecured debts that are cancelled if you go bankrupt.
8. Cash in your assets: Do you have stocks, jewelry, a car or other assets you can sell? Clean out your house and have a garage sale or sell some things on eBay to raise cash. Get a second job to bring in a bit more. Even if you don’t raise enough to get out of trouble, it shows the lender you are trying.
9. Don’t pay for foreclosure prevention: You need every penny to pay the mortgage with, so don’t deal with companies that promise to negotiate with your lender and charge you hefty fees. You can deal directly with the bank or mortgage company, or speak to a HUD approved housing counselor.
10. Beware of foreclosure recovery scams: There are companies that say they can act on your behalf to stop your foreclosure. Be very wary, as this often means you have to sign over the property title to the company and then pay them rent every month in order to stay in your home. In other words, you lose the house or apartment anyway! Never sign any legal documents without consulting an attorney or a reputable real estate professional with experience in this area.

If you really can’t stop heading for a foreclosure, make sure you are aware of the potential alternatives to foreclosing.

The number of foreclosures is at a record high, and looks set to balloon over the next few years.

If you’re in danger of having your home repossessed, the good news is that mortgage lenders are generally quite keen to negotiate a deal to allow you to keep it.

However, you do need to demonstrate that you are willing to work with them.

What Happens During a Foreclosure?

If your home is foreclosed, you will lose all rights to it no matter how much money you have put in to the mortgage, and you will have to move out.

The foreclosure will show up on your credit report for 7 years, and you might not be able to get any type of loan during that time. In addition, your credit score will take a hit.

In cases where the lender sells your foreclosed property for less than you owed them, they are permitted to take out a deficiency judgment against you. This means you have to pay them the difference, even though you’re no longer the owner.

The only state where you can’t be pursued for the balance of the loan is California – and that applies only where the mortgage has not been refinanced.

So, what are the Alternatives to Foreclosure?

1. Special Forbearance

Your mortgage issuer might be willing to set up a repayment plan to help you catch up with missed payments. This could even include a temporary lowering of your monthly mortgage bill, for instance if you have recently become unemployed. Of course, your lender will need to be convinced of your ability to stick to the new payment schedule.

2. Mortgage Modification

Another way to reduce your monthly payments is to ask the lender about refinancing your mortgage at a lower interest rate (contingent on market conditions) and/or extending the term of the loan. You might qualify if you’re getting back on your feet financially, but are earning less than before you defaulted on the mortgage. This arrangement could be either temporary or permanent. Check your mortgage documents first, though, to ensure that there is no penalty for paying off the initial loan early and refinancing.

3. “Hard money” Refinancing

If you’re fortunate enough to have a good amount of equity in your home (it’s worth a lot more than you owe), you could apply for a “hard money” cash loan secured against the property. This would give you a lump sum to pay for the months you’ve missed. The effect of a high interest rate is negligible since you are borrowing a relatively small sum compared with a complete refinancing loan.

4. Fannie Mae HomeSaver Advance™

Ask your lender if your mortgage is owned by Fannie Mae. If it is, you might qualify for an unsecured personal loan that will enable you to make up for delinquent payments.

5. Partial Claim

Your lender might be able to apply for a partial claim on your mortgage from the Department of Housing and Urban Development (HUD). If so, HUD would make a payment to the lender to get your mortgage up to date. HUD would also grant you an interest-free loan that you would pay back over an agreed period. To qualify, you must be at least 4 months, but no more than 12 months, behind. Also, your mortgage must not be in foreclosure.

6. Pre-foreclosure sale (short sale)

This means that you sell the house or apartment for less than the value of the mortgage, with the agreement of your lender. In some cases lenders are willing to take a loss, and to release you from your obligation to pay the loan balance, in order to get the mortgage off their books and not have to foreclose and be saddled with the property. This would preserve your credit rating, but remember that you would have to find somewhere else to live.

You might qualify if the appraised property value is at least 70% of what you owe, and the property sells for at least 95% of the appraisal. You also have to sell the home within 3 to 5 months (depending on the lender’s stipulations), and to have missed at least 2 months’ payments by the sale closing date.

7. Deed-in-lieu of Foreclosure

If it’s taking a long time to resolve your mortgage default, it’s possible that your lender will allow you to “give back” the property and walk away. This way, you avoid the hassle, stigma and credit issues associated with foreclosure, but you do still lose your home. Lenders generally see this as a last resort, though, since they would really rather avoid having to become property owners.

Most mortgage lenders would prefer to conduct a short sale in this situation, particularly if they believe they could go after you to cover any shortfall. Even so, you might be able to hand over a deed-in-lieu if all other options have failed, you have tried to sell without success, and you don’t have any other mortgage in default.

8. Walk Away

As the mortgage crisis continues to escalate, an increasing number of people are becoming so desperate that they are simply abandoning their homes, suspending their payments and mailing the keys back to their lenders (known these days as “jingle mail”).

This is definitely not a good idea. Your lender will most likely foreclose on you, your credit report and credit score will suffer, and you will not get another mortgage for the next 7 years. You might also find yourself facing a deficiency judgment, where you have to compensate the lender if they sell your home for less than the mortgage (this doesn’t usually apply in California).

If you’re lucky, you might be offered the chance to sign over the property with a deed-in-lieu, but there is no guarantee of this. Another important point is that you need to remain at your address to qualify for mortgage assistance, refinancing or repayment plans – so don’t burn all your bridges by walking away!

If losing your home has become inevitable, it is really better to try to reach an agreement with your lender to avoid any nasty surprises that could make a bad situation even worse.