Forestalling foreclosure

NEW YORK (CNNMoney.com) -- More and more people are raiding their 401(k) to save their homes. But if you're a struggling homeowner, there are other options outside of foreclosure.

Once you miss a payment, your lender likely reports that to the credit bureaus. And with every missed payment, your credit score goes down. Plus, you'll start getting hit with late fees.

In most cases, after 90 to 150 days, your lender will file a notice of default with a local courthouse.

"Lenders are becoming more aggressive today," says foreclosure attorney Mory Brenner of Financial Firebird Corporation. You'll probably get a letter saying the foreclosure process will start unless you become current on your payments.

If you don't become current, you may have anywhere from 2 or 3 months to a year before the house is put on the auction block, according to David Petrovich, author of "Fight Foreclosure."

Try to get a loan modification before you even miss a payment. This is probably the least onerous of the options out there, if you can get it. This is basically a change in loan terms.

A modification will lower your monthly mortgage payment or let you skip a few payments. The bottom line here is that the term of your loan can be extended.

To request a modification, call your lender and ask to be transferred to the loan modification department. Make sure you have some recent pay stubs, current or prior year W-2 forms, bank statements, property tax bills and insurance bills. If possible, obtain appraisal information for your home.

And the process can be frustrating. It could take weeks.

"It's up to you to be proactive, persistent and aggressive, says Petrovich. "Loss-mitigation departments are overwhelmed, under-staffed and under-experienced," he says.

He says lenders will likely devote more attention to your case, the closer you are to having your home sold at auction.

If you can't afford your mortgage, your best bet is to sell your home. But if you owe a lot more on your home than it's worth, you may be able to get the lender to accept less than you owe on it by negotiating a short sale.

Basically you sell the house for what you can get and the lender agrees to accept it. In some cases the deficit will be forgiven, but in other cases you may have to sign an unsecured loan for the amount. Negotiating a short sale isn't always easy.

"Lenders are not as receptive to short sales as I thought they would be," says Petrovich. "Lenders are not willing to accept these losses gracefully." You generally have to write a hardship letter indicating why you can't make the mortgage payments.

The bank usually controls the negotiations and you don't have much say in the process. And keep in mind the process is slow. It can take 4 to 5 months from the first time you submit your package.

With a deed-in-lieu transaction, you hand over the deed to your house to your lender. In return, you are released from your mortgage. This usually keeps you from having to pay any deficit that might be owed on the property.

The lender, on the other hand, avoids further legal costs related to a foreclosure. Keep in mind that lenders cannot be forced to accept a deed. In fact, in order for a bank to accept a deed in lieu, you may be required to have already tried a short sale and failed, according to Brenner.

If your bank does agree to a deed in lieu, make sure your responsibility to pay is discharged. Otherwise, you may still be on the hook for payments, according to Petrovich.