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How to avoid foreclosure

A few ways to stave off the tragedy

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• Talk to your lender immediately. The minute you start to get behind on a mortgage payment, call your lender. "As long as you communicate with them, they're going to work with you," says Todd Mark, director of consumer relations at the Consumer Credit Counseling Service of Greater Atlanta. Oftentimes lenders will set up special payment plans to get you back on track or extend your mortgage by a couple months without penalty. The worst thing you can do is avoid the lenders and expect the problem to go away.

• Think about selling. Though you may be giving up your dream house, selling it will save you the hassle of getting a foreclosure notice. It'll also get you some money to help you move.

• File for bankruptcy. If all else fails, you can file for bankruptcy practically up until the hour before the foreclosure auction begins. "It ceases collection of all accounts," Mark says. Though you don't want to wait until the 11th hour, filing will force the foreclosure to be put on hold while the bankruptcy court decides how you should pay off your debts.

Know Your Terms

The mortgage industry practically has its own language, and not understanding their terms could lead you down foreclosure lane. Here are a couple phrases that are musts for homeowners:

• Foreclosure: The process in which a house is sold off when the homeowner breaks the agreement with the lender by defaulting on his or her mortgage payments.

• ARM: Adjustable-rate mortgage. This is one of the most popular products out there. It allows homeowners to initially pay specific amounts at a lower-than-average interest rate. After an agreed-upon period of time, the interest is adjusted according to an index.

• "Upside down": When a homeowner ends up owing more money than the house is worth. You don't want to carry this label.

• Credit score: A score, which ranges from 300 to 850, that helps lenders determine how likely you are to repay your debts. The higher the score, the more options you'll have with loans. The average credit score is around 680.

• Prime rate: The interest rate that banks charge large institutions. It serves as a benchmark for most other loans.

• Sub-prime lending: An industry within the mortgage industry that preys on people with less-than-perfect credit. Lenders offer loans to riskier individuals and cover their butts by packing on hefty interest and charging fees up front.

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