The first thing you must do is understand your options. The good news is that you do have options!! Typically there are two positions homeowners find themselves in when faced with foreclosure; 1) would like to stay in your home and work out a solution, or 2) would like to get out from under the liability of the home regardless of what happens. When you find yourself in either position be sure to understand your options as early as possible so that you can negotiate the appropriate solution accordingly.

Position #1: Stay in Your Home

If you would like to maintain possession of your home and work out a solution with your lender time is of the essence. It is never too early to contact your lender! Contact your lender as soon as you know there will be a problem meeting your mortgage olbligation not after you have already missed a payment. If you have already missed one or more mortgage payments your lender will most likely be unwilling or reluctant to negotiate a workout plan to help you stay in your home. You must start talking with your lender as early as possible and ideally not miss a payment prior to negotiating an solution with your lender.

Depending on your situation, the following are some options your lender might propose:

• Time to make up your payments.
  Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you. This is called forbearance.
• Forgiving a payment.
  If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.
• Spread out the missed payments over a longer term.
  For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.
• Changing the terms of your loan.
  If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a note modification.
• Add the back payments to your loan balance.
  If you have sufficient equity and meet the lender's lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. This is called a refinance.
• Make a separate loan to you.
  Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.

Position #2: Get out from under the liability of the home

When the lender files a Notice of Default, your options are limited. You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:

• Sell Your Home Conventionally
  Interview real estate agents to get an opinion of market value and average DOM to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing and expertise that full-service brokers offer. Compare both to determine which best meets your needs and time frame.
• Short Sale
  If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale affects credit but it's not as bad as a foreclosure. You or your agent will need to negotiate with your lender to find out if the lender will cooperate on a short sale. It is critical that you work with an real estate professional that understands the complexities and strategies for negotiating short sale transactions. Selling your property as a short sale can potentially generate a very serious tax consequence. However, there are some exceptions that allow exemptions, for details read more here.? Note: If you have more than one loan from a different lender that lender must also agree to the short sale. This situation can sometimes reduce or prevent the short sale because the second lender typically has nothing to gain.
• Deed-in-Lieu of Foreclosure
  Essentially the homeowner gives the lender a properly prepared and notarized deed, and the lender forgives the mortgage. A lender will most often pursue a deed in lieu of foreclosure when the borrower lacks any assets to make pursuing a deficiency judgement worthwhile. Getting a lender to accept a deed-in-lieu these days is particularly difficult. Lenders want cash not real estate and give then current market conditions the lenders seem to prefer short sales or letting the home forclose as alternatives. Especially if the property in question is worth more then the amount owed on it, the lender would be better off to simply liquidate the property rather than pursuing a deed in lieu of foreclosure. Many believe, but it is uncertain, that a deed-in-lieu of foreclosure will have less of an impact on your credit score than a foreclosure.
• Foreclosure
  As outlined in the promissory note, the lender obtains a court ordered termination of the borrower's equitable right of redemption. A sale date will be set and the home will be offered for sale at the court house steps. The foreclosure process typically takes several months and possession of the home will transfer on the sale date to either a buyer or back to the lender. Since Arizona is a non-recourse state the lender can not file for a deficiency judgement against the borrower to cover any existing balance of principal and fees created by a foreclosure sale amount of less than what's owed including all fees. This is true for both first and second loans that were originated to purchase the property. However, an important note is that any additional money borrowed by refinancing after the original purchase or with a HELOC (Home Equity Line of Credit) will most likely not be covered under Arizona's non-recourse policy and will likely allow the lenders full recourse and a deficiency judgement for any insuficient funds will most likely be placed on the borrower. If foreclosure is the only option and the borrower has other assets or income to protect it is always advised to seek counsel from a tax professional and an attorney. It may be advised to file for bankruptcy to help protect other assets.