5 Ways Older Americans Can Protect Their Homes From Foreclosure

Foreclosure is high among this group, but refinancing and reverse mortgages are potential solutions.

A foreclosed house for sale
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However, a significant downside of reverse mortgages is that they come with high closing costs, which often exceed the closing costs of a standard home purchase. As such, they can substantially reduce the value of your home. Nonetheless, this may still be a good option for older Americans who have maintained a substantial amount of equity in their home, says Linda Fisher, a law professor at Seton Hall University who specializes in foreclosures. Fisher recommends talking to a HUD-approved housing counselor or a reverse mortgage counselor. A reverse-mortgage counselor may charge up to $125, but Fisher says it's a "minimal expense" for being able to keep your home.

5. Be wary of foreclosure scams and fraud. A growing number of scammers are trying to take advantage of people looking for foreclosure help, so be wary of predators. "Senior citizens, in many cases, can be more trusting because of the era that they grew up in," says Patrick Butler of Foreclosure.com. Butler says to beware of anyone who asks for upfront fees, which is illegal. To avoid a foreclosure scam, the MHA advises: "do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt," according to its website. To make sure you're receiving help from a trusted relief program, consult with a HUD counselor.

[See Housing Starts: A Guided Tour for Investors.]

6. Explore a short sale if you've exhausted all other options. If you can't find a way to keep your home through a loan modification or a reverse mortgage, one potential exit strategy is through the Home Affordable Foreclosure Alternatives (HAFA) Program.

Not long after the Home Affordable Modification Program (HAMP) was put into place, the federal government launched HAFA. This program enables you to short-sell your property, meaning the mortgage company allows you to sell your house for an amount that falls "short" of the amount you still owe. "It's pretty much a way that you can walk away from the home if you cooperate," Butler says.

Unlike with conventional short sales, a HAFA short sale releases you from your primary mortgage debt obligation after selling the property. In many cases, a relocation assistance incentive of at least $3,000 is paid to the homeowner. Some banks are now paying significantly higher incentives to struggling homeowners to increase the usage of the program, Butler says. For more information on HAFA and HAMP, visit hmpadmin.com.