When foreclosure finally strikes, the first and essential order of business is to get a handle on your finances situation. Do whatever possible and achievable to keep more money flowing in than flowing out – try to boost your income with a second job or overtime, slash unnecessary spending, and sock away as much cash as possible.

What you do with the savings and added income depends exclusively on your strategy. If you are committed to saving your house, set aside the surplus cash for reinstating the mortgage or working out a payment plan with your bank. If saving your house is a lost cause, you may choose to squirrel away as much cash during the redemption phase as possible, so you have adequate nest egg to take when you move. Tucked in the sleeves of homeowners facing foreclosure threat is the bankruptcy card – a potent card that can halt foreclosure in its tracks. When you file for bankruptcy, you get an automatic stay telling your creditors to back off.

However, the automatic stay is only temporary solution until the court approves the bankruptcy filing or one of the creditors has the stay lifted. If the bankruptcy is authorized, you can liquidate existing assets to pay off as much mortgage debt as possible and have the unpaid debts forgiven (under Chapter 7 bankruptcy) or rearrange your finances to pay off all of your debt over time (under Chapter 13 bankruptcy).
The court is very unlikely to give you the bank relief from the automatic stay if you still have sizeable equity in the property, or if you and the attorney propose a workable plan for catching up the mortgage payments.

A forbearance agreement is the same with reinstating, except that you do not need to pay a lump sum all immediately. Your bank may agree to allow you make payments each month, in addition to the mortgage payments, until you fully pay the amount past due plus any fees, interest and penalties. If you owe $4,000 in back payments, for instance, the bank may allow you to pay $500 extra for 8 months to pay it off. You may then pick up where you left off. In a mortgage modification, the bank fine-tunes your mortgage. It essentially says, “Okay, you cannot afford these monthly payments, so let’s make some changes.”

The changes can include anything that is stated inside the mortgage, including the interest rate and term. By lowering the interest rate and adding a few months (or maybe years), the bank may be able to get the monthly mortgage payments down to a reasonable range.