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Mortgage foreclosure continues to occur at rapid pace. An article recently published at Bloomberg News predicts nearly 4 million American homeowners will be served with a notice of default by the end of 2010. While foreclosure rates appear to be epidemic, there is light at the end of the tunnel.

Borrowers facing mortgage foreclosure need to be proactive in contacting their lender. Many homeowners have expressed frustration with banks; particularly when Obama’s Making Home Affordable program was in place. While it is true connecting to a human being at mortgage companies can be challenging, it is crucial to remain persistent in attempt to work out foreclosure prevention strategies.

Several options exist to help borrowers avoid foreclosure. Common strategies include: loan modification, refinancing mortgages, forbearance agreements, real estate short sales, and deed in lieu of foreclosure. While the latter does not stop foreclosure it is sometimes has less impact on borrowers’ credit than foreclosure.

Loan modifications are offered to borrowers experiencing temporary financial problems. Borrowers must be able to cure past due amounts within a few months. Mortgage lenders can modify the loan according to borrowers’ needs.

Banks can temporarily suspend payment obligations; reduce payment amounts; or lower the rate of interest so borrowers can get caught up. Some mortgage providers roll one or two months of payments to the end of the loan. Others require mortgagors to submit partial payments during the modification period. The only way to know what options are available is to contact your lender.

Mortgage refinance requires borrowers to take out a new loan to pay off existing mortgages. Those with poor credit may not qualify for refinancing, nor will those who have entered into preforeclosure. Many considerations must be given to mortgage refinance. It is best to consult with a mortgage specialist to determine if this is the best foreclosure prevention strategy.

Real estate forbearance can be a good option for borrowers able to cure mortgage arrears in a short period of time. When forbearance agreements are in place, borrowers are required to pay their regular loan payments along with additional funds which are contributed toward past due amounts.

Lenders cannot commence with foreclosure action when forbearance plans are in place, unless mortgagors default on the contract. Mortgage forbearance plans typically last between three and six months.

Real estate short sale agreements allow borrowers to sell their property for less than owed on the loan. Short selling is a complex process that can take four to six months to complete. This type of transaction is handled through bank loss mitigation. Some banks accept the return of the property as payment in full toward the note, while others persue borrowers for the difference between the purchase price and loan balance. It is best to work with a short sale specialist or real estate lawyer.

Deed in lieu of foreclosure is last option available to borrowers facing mortgage foreclosure. In a nutshell, borrowers give the property back to the bank and walk away. Similar to short sales, some banks issue deficiency judgments when property is sold for less than owed on the loan.

Borrowers in need of foreclosure prevention information should visit the Department of Housing and Urban Development website at HUD.gov. A list of nationwide housing counselors is available offering no- or low-cost counseling services.

Before you go along with the crowd that believes all foreclosures create bargain sales – especially since the properties are often in areas of high crime – be aware that foreclosures come in all prices. Some are bargains and some are not.

The Real Deal About Foreclosure Prices

Finding foreclosed properties being sold for 30-40% less than their market value is not as common as locating those being sold for just 5% less. Prices mainly depend on the condition of the houses as appraised by the lender.

Even the environment of the home will affect how they price it. Therefore, although this does not typify foreclosures, you might find a cheap foreclosed home in a crime-ridden neighborhood. In fact, these types of neighborhoods most likely hold the cheapest foreclosed properties if you’re comparing homes of equal condition.

What to Expect

What you should NOT expect is to find an inexpensive house in relatively good condition where you sell it for a huge profit. Most likely, that type of home would be more readily available in a less desirable part of town.

As a result, you might then have a problem either attracting somebody who will buy it at all, or coming across someone who wants to buy and has that kind of money available for a purchase.

In the situation where you’re actually in a well-kept neighborhood, you can pat yourself on the back; but that’s somewhat of out of the norm. Otherwise, you’ll probably either have to unearth a person who wants to buy the home and rent it out, or you’ll need to rent it out yourself.

It’s More Work Than You Think

No matter what you’re looking for and where you suspect you might find it, it’s going to take some time and effort (“sweat equity”) to locate the best deal. Remember that this is a business deal for the bank. They aren’t just trying to get homes off their hands – they’re selling.

If you do find something inexpensive, start off with some healthy skepticism. Between eviction issues and all the repairs a lot of them need, your work isn’t finished.

A Final Note

Though it may not be quite what you thought, there still might be a foreclosed home that will work for you. In this ugly economy, there are many types of foreclosures for a wide range of prices and in various conditions.

Don’t expect to pinpoint the “perfect” home for a steal. If you do, great. But that just isn’t the norm. For example, you might identify nice, waterfront property that’s been foreclosed, and this is where you’ll usually see just a 5% reduction in price from the market value.

You go for inexpensive if you don’t mind repairs and/or a rougher neighborhood; you’ll pay more for a quality home. Though perhaps disappointing, you will likely not find both in one foreclosure deal.