Foreclosure is one of the most traumatic experiences a homeowner can face. It forces you to move out of your home and it leaves a seven-year black mark on your credit score.

If you're facing foreclosure, it's important to contact your lender as soon as possible. They can share available options to help you stay in your home.

Refinance

One missed mortgage payment can affect your credit score, making it more difficult to qualify for a new loan. But if you act quickly to catch up, it may be possible to refinance your home before you go too far behind on your payments.

You can also try to negotiate a deed in lieu of foreclosure with your lender. In this option, you voluntarily give your property title to the lender and they cancel the rest of your mortgage debt. This is less damaging to your credit score than a full foreclosure.

Beware of lenders that advertise a "foreclosure bailout loan." These types of loans are usually high-interest mortgages, and they only help homeowners with good credit avoid foreclosure by paying off the defaulted debt. They can be dangerous to those with poor or no credit and often require a large amount of equity in the home.

Negotiate a Deed in Lieu of Foreclosure

A deed in lieu of foreclosure allows you to hand over your home’s deed to your mortgage lender. In return, the lender releases you from your debt on the property and may even agree to allow you to rent it for a while. This option should be considered only after you have exhausted other options, such as a short sale or loan modification.

Typically, you only consider this option if your mortgage is “underwater,” meaning that you owe more on the mortgage than its current market value. It can also help you avoid some of the negative impacts associated with foreclosure, such as a long wait to qualify for a new mortgage and collection attempts.

However, completing a deed in lieu will still leave your credit report with a mark, though it might not be as bad as a traditional foreclosure. Furthermore, your lender might sue you for any money that it is unable to recoup after the sale, which could leave you in debt for years.

Ask for Forbearance

Foreclosures have a devastating financial and emotional impact on homeowners. If you're facing a financial hardship, you may be able to negotiate with your mortgage lender for options that allow you to stay in your home, including forbearance agreements and repayment plans. You can also work with a HUD-approved housing counselor to negotiate a loan modification or a deed in lieu of foreclosure.

To qualify for a forbearance agreement, you will have to provide your lender with documentation of your financial hardship, including your unemployment award letter that shows the amount of money you are being paid, two recent bank statements and a full list of all debts and assets you own. Lenders will usually review these documents before approving forbearance because they want to make sure that you can resume your monthly payments when the forbearance period ends.

Forbearance will appear on your credit report, but it's much less damaging than a foreclosure, which remains on your credit for seven years. Some lenders may agree to remove a missed payment from your credit report if you ask them to do so in writing.

File a Lawsuit

A foreclosure is a serious blow to your credit score. However, it's possible to rebound from a foreclosure by controlling your debt and finances. This involves making a budget and paying down your credit card balances. A good way to get started is by talking to a consumer credit counselor. You can find one on the U.S. Trustee's website or through the National Foundation for Credit Counseling.

If you live in a non-judicial foreclosure state or your lender uses a power of sale clause that allows it to sell your home without going to court, you can file a lawsuit against the lender to stop the foreclosure process. You should ask the judge for a temporary restraining order (TRO) and preliminary injunction that stops the foreclosure while your claims are litigated.

You need to prove that the foreclosure would cause you irreparable injury that outweighs any harm to the lender caused by stopping the process. You also need to convince the judge that the foreclosure violates state and federal laws and/or your mortgage agreement with the lender.