With the recent changes in mortgage and financing laws, foreclosure rates have skyrocketed. Recent reports have indicated that in 2007, the number of foreclosures nationwide increased by at least 65% from the year previous. 

What is a foreclosure?
Foreclosure occurs when homeowners are unable to pay their mortgage payments or meet agreements for making payments. As a result, the bank repossesses the home and it is either sold on auction or in the open market.

The foreclosure process is a lengthy one, with the actual foreclosure being the final step. You are not in danger of losing your home if you simply miss a mortgage payment or two. While foreclosure laws and time limitations vary from state to state, typically a lender will begin the foreclosure process after three to six months of missed payments. At this point, also known as pre-foreclosure, the bank or lender will issue what is known as a Notice of Default (NOD) to the homeowner. This indicates that the home is in danger of being foreclosed or auctioned off. 

The homeowner has approximately three months to bring the loan current or make arrangements with the lender. If this is not done, a Notice of Sale (NOS) is delivered to the homeowner and posted on the property, and an auction date for the home is set. This date is also published in local newspapers and the County Recorder's Office in which the property is located.

The property is then auctioned to the highest bidder. The lender sets the opening bid, which is equivalent to the balance of the loan, the interest, and fees. In the event that no one bids on the home or there are no bids over the opening bid, the attorney who is overseeing the sale purchases it for the bank.

If your home does end up going into foreclosure, it will have a negative affect on your credit score. Typically, if you face foreclosure you can expect your credit score to go down about 300 points. If you had good credit, say, in the 700s, it would put you to very poor credit. If your credit was already average or bad, you would be worse off.

A foreclosure, according to the Fair Credit Reporting Act, can stay on your credit report for up to seven years. However, mortgage lenders will agree that after around three years, you will probably be able to qualify for a mortgage again at a reasonable interest rate.

The entire process provides the homeowner with time and opportunities to either bring their loan current or make arrangements with the lender. If you are having financial difficulties, you can still avoid foreclosure with the following tips:

Don't ignore letters, calls, etc.
Keep in mind that your lender does not want to take your house from you; they simply want you to pay your bills. If you miss a mortgage payment, your lender will issue late notices. Lenders are more likely to work with you and help you reach an agreement or payment plan if you contact them and let them know what is going on rather than avoiding their calls, letters, and so forth.

With that in mind, you should open, read, and respond to all of your mail with regards to late payments and foreclosure. Don't wait until you get foreclosure documents before you contact your lender. If you know you are going to have a problem paying your mortgage, contact your lender immediately to discuss your options with them.

If your inability to pay your mortgage is temporary, a lender may be willing to enter into a forbearance agreement with you, especially if it set back such as the loss of a job or an injury. This type of agreement will lower or sometimes delay your payments for a certain period of time. This can be difficult to do, however, because you must prove to the lender that it is a temporary problem and you are not actually trying to delay an inevitable foreclosure.

Educate yourself.
You should be aware of your rights and what to expect with the foreclosure process, so you will need to familiarize yourself with the foreclosure laws in your state, as the timeframe and process differs from state to state. For example, in Texas a home can be completely foreclosed in as little as 45 days; in other states the process can drag on for over six months.

In addition to learning the laws, you should also be aware of foreclosure prevention options. This is also called loss mitigation and can be a valuable tool in helping you keep your home. The government's housing website, www.fha.gov/foreclosure/index.cfm., is a good place to go for more information on loss mitigation.

You can also get more information on keeping your home through HUD counseling. This free or low-cost service is provided by the U.S. Department of Housing and Urban Development. Counselors will help you to understand your rights as well as the foreclosure process. They will also help you get your finances in order and assist you in negotiations should the property go to auction. You can find out more about this service by calling (800) 569-4287.

Get your finances in order.
If you are finding it difficult to make your mortgage payment, you can avoid foreclosure by stepping back and examining your finances and budget. This could mean getting rid of nonessentials such as cable television, gym memberships, and cutting back on eating out. Your HUD counselor can help you with this.

It is also important at this point to prioritize the way you spend your money. Unless you have healthcare bills that must be paid in order to continue treatment, meeting your mortgage payments should be your first priority. Delay payments on such things as credit card debt until you get your mortgage paid. You may also consider consolidating your debts into one payment, which may help save you more money each month as well.

In addition, you may want to consider finding out who in your home can pick up an extra job, or if you have anything you can sell in order to make your mortgage payment. This could include selling a car and using just one, or selling anything else you might be able to sacrifice in order to help you meet your mortgage.

Consider other options
If you are in danger of foreclosure and don't want to lose your home or have a foreclosure on your credit score, you can still pay back your loan in a number of ways.

Sell your home
A foreclosure on your credit score will make it difficult at best to secure another home loan for years. You can avoid the foreclosure process altogether, as well as the damage it will do to your credit score, by selling your home and paying the bank what you owe on your home. There are obvious downsides to this-you will have to move and most likely downsize your living arrangements, but most people find this preferable to dealing with the emotional and financial damages that a foreclosure causes.

See if you can refinance your loan
In some cases, a lender will allow you to refinance your loan for a lower interest rate, resulting in lower monthly payments in many cases. Sometimes, this will be enough for you to make your mortgage payments each month. This is one situation, however, when the sooner you contact your lender, the better. But this should be one of the first things you discuss with your lender as soon as you feel you might have trouble meeting your monthly payments. If you already have late payments that are owed, you may refinance and find that the interest rate will be too high to lower your monthly payments.

Avoid prevention companies
You may be approached by foreclosure prevention companies that will promise to negotiate with your lender. While in many cases these are not scams, they still charge large fees, sometimes thousands of dollars. Keep in mind that companies that charge you for these services will offer the same advice and negotiations that your free or very low-cost HUD counselor will. It is best to avoid these prevention companies.

At the same time, be aware that if you are in the foreclosure process, you will more than likely be receiving unsolicited mail from a variety of scam artists who promise to save your home from foreclosure. The foreclosure process is a stressful time, but don't allow yourself to fall victim to such scams. Before you sign anything or agree to any kind of "recovery" service, speak with your lender or HUD counselor. More often than not, these companies will simply take your money and run. IT would be best to put the money you would spend on prevention services towards your mortgage payments.