If you have been late on your mortgage payments, you are probably worried about your mortgage going into foreclosure. Unfortunately, hiding your head in the sand like an ostrich is the last thing you need to do. Being proactive is a far better tactic to use.
Most lenders really don't want to take you through foreclosure. Not only does it cost them time and money, but they often end up with property they don't want. They'd really rather work with you to get your mortgage payments back on track. Almost every lender has a department that specifically handles accounts in default.
The best thing you can do is to go to your lender. Don't wait for them to come to you. Explain your situation to them and ask what your options are. You want to talk to them before they file a Notice of Default. Once they've done that, your options become far more limited.
A Notice of Default is a notice filed with the county public records that indicates that you are behind on your mortgage payments. Different states may have a minimum number of payments that you must be behind before the lender is allowed to file the notice. Once the notice is filed, you have additional time to bring your mortgage current. Lenders aren't required to file the Notice of Default once you are behind for the minimum amount of time. However, they have that option. Whether they do or not is up to them.
Lenders usually offer several options for getting your mortgage current. They may include adding all your missed payments to your principle amount and increasing your mortgage slightly to cover them. They may also offer you some kind of payment plan that will bring your account current by the end of the plan. A Deed-in-Lieu of Foreclosure allows you to transfer your interest in your house to the lender or loan investor.
A Short Sale is another alternative. This often happens when your current mortgage principle is more than the property is worth. The bank allows you to sell your house at current market rates. It then writes off the remainder of the mortgage. If it wasn't sold under a short sale arrangement and you sold the house for less than you owe, you would have to pay the difference when your sale closed.
A short sale may affect your credit, but it's not as bad as a foreclosure. A Deed-in-Lieu of Foreclosure will probably affect your credit the same way as a foreclosure would.
The best way to avoid foreclosure, if you can't bring your payments current, is to sell your home for more than it's worth. In some markets and economic times, that may be completely impossible. However, if you have built up quite a bit of equity in your home, or home sales are up, this is probably the best option. It certainly can be hard to give up years of memories in your home - but take the memories with you, sell the house, and save yourself years of credit grief and heartache.