Many homeowners wake up one morning and realize they are in a serious predicament with their mortgage payments. It may be due to adjusting interest rates, declining market values, upside down investments, or due to unexpected unemployment or illness.

Many homeowners may feel it is a hopeless situation, but there are many steps that should be taken if a homeowner is facing the possibility of foreclosure.

1. Place the home on the market immediately. If the home can be sold prior to foreclosure, any existing equity will still belong to the homeowner and the problem will be resolved.

2. Refinance. If there have been late payments on the property, the homeowner's credit rating may have slipped, but there are still a few sub-prime lenders that would entertain a refinance.

3. Work with the lender. Many lenders will agree to a repayment plan that may be different than the original note. There may also be remedies in the mortgage documents that assist the homeowner in working out a payment plan. Most lenders do not wish to be in the real estate business and will assist in salvaging the mortgage, rather than enter into a foreclosure environment.

4. Short Sale. This is becoming a more frequent transaction in the past few months and many fear it will become very common in the months to come. A short sale is when a property is sold by the owner for less than the mortgage. This occurs when the property value is less than the owed amount. Again, the lender really does not want to take the property back, where they will have to market and list the property.

5. File Chapter 7 bankruptcy. This will typically delay the foreclosure, but will not save the property. The property will eventually be foreclosed on, but the debt will be cleared for the homeowner.

6. File Chapter 13 bankruptcy. If there is hope of making the future mortgage payments, this may be the way to go. Under the court supervision, a homeowner will be able to keep the property, and repay all or portion of debt over a three to five year plan.

Unfortunately, none of the above plans are very palatable, but if a homeowner is placed in dire straits, the choices are not going to be very desirable. If there are questions or concerns regarding choosing the route to go, the homeowner should seek consultation with an attorney, accountant, or financial advisor.

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