How to Avoid Foreclosure and Save Your Home

If You Cannot Afford to Live in Your Home Anymore

You have a few choices. First, if you have equity in your home, you can opt for a preforeclosure sale -- once the home is sold and the loan is paid off, the remaining equity goes to you. Alternatively, if you don't have enough home equity to take a profit after the sale, you can simply turn the deed of your home over to the lender -- this option is known as a "deed-in-lieu of foreclosure." Obviously, turning over your deed is not necessarily the most appealing option, but it does avoid the scars of foreclosure on your credit report and financial history.

You can also apply for a Federal Housing Authority insurance loan if your home is backed by an FHA-insured loan. In this scenario, the government will pay off your debt and let you start fresh with your mortgage. The money is not free, though -- after you sell your home or pay off your first mortgage, you owe the government the money they loaned you to wipe out the foreclosure notice.

Can You File for Bankruptcy to Avoid Losing Your Home?

Yes. Similar to a company filing for Chapter 11, you can file for Chapter 13, which allows you to pay off your debt over the next 60 months. Keep in mind, by taking this step, you may save your home, but it is also a major drag on your credit report. In fact, it has a major domino effect on your credit worthiness -- resulting in an increase in the interest rate on any loan you are able to secure -- including that of a credit card.

Scams That Homeowners on the Brink of Foreclosure Should Watch Out For

Unfortunately, if the solution to your financial woes sounds too good to be true, it usually is. First, avoid any person or agency that offers to perform services for you for a fee that you could easily do for yourself, such as negotiating a revised payment plan with your lender. Also, be wary of people who position themselves as "buyers" who can help you escape your financial trouble by offering to assist in selling your home and paying off your mortgage, if you first move out of the property and sign over the deed to the house to them.

In this type of scam, known as equity skimming, the so-called buyer would then rent out your house, collect monthly rental fees, but not pay the mortgage, thereby letting your home slip into foreclosure -- and at the end of the day, you may still be responsible for any outstanding fess after the home is sold at auction.

Mellody Hobson, president of Ariel Capital Management in Chicago (www.arielmutualfunds.com) is "Good Morning America's" personal finance expert.

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