With the recent mortgage crisis and economic downturn, there are countless people going through difficulties which often lead to foreclosure. It's a devastating event - when you've worked so hard to acheive the "American Dream" to have it ripped away from you. But it's been happening quite frequently, lately. Unexpected life changes contribute to the rise in foreclosures – particularly those that impact a family's finances, such as:

What makes it so difficult to think about your options when you are facing a crisis is that you are so focused on the problem at hand, and are not likely to have the time or energy to consider how it could impact other aspects of your life. That is why it is best to have a plan in place before you run into trouble.

By having a "Plan B" in place, you won't have to scrutinize and organize your finances while you are stressed about finding employment or dealing with a major illness. The plan will already be there – you will need to just follow it.

Financial warning signs

Sometimes, there isn't a major life event signaling potential trouble – you simply may be having a difficult time properly managing your finances. Don't underestimate (for instance) how damaging credit card debt can be to your financial health. Credit problems often take a toll on your ability to cope with your mortgage. It is important to realize that financial difficulties in one area can, and often do, spill over to other areas. These difficulties are all warning signs of financial problems that can lead to foreclosure on your home if you do not act quickly. They include:

• Maxing out credit cards
• Using credit to pay for day-to-day expenses, such as groceries, utilities, etc.
• Being unable to pay your bills on time
• Paying only the minimum amount on credit cards
• Applying for new credit cards after maxing out on existing ones
• Having to choose which bills to pay

Talk to a housing or finance counselor immediately if you see these signs in your lifestyle. You may be able to get your finances back on track before foreclosure becomes a reality.

Knowing that Plan B can be critical is a first step, but what should your plan include? Most important to your contingency plan are to:

If after you've put Plan B into action you still find yourself having trouble paying the mortgage, you should:

• Call your lender.
  This is the single most important thing you can do. Lenders want borrowers, not properties – they would prefer to see you keep your home. Most will work with you while you get back on your feet.

• Be honest with your lender.
  Different situations require different solutions. It will matter to your lender to know if your financial problems are temporary, for example, due to an injury that puts you out of work for a few months, or are more long term, such as a cut in pay or a layoff.

• Know what you owe.
  Have a clear picture of what your debts are and make your mortgage the priority if you have to make choices. Debt collectors can be very aggressive, but if you can't pay all your debts, make sure your home is protected from foreclosure by paying your mortgage.

• Talk to a housing counselor.
  A non-profit housing counseling agency may be able to help you restructure your bills so that you have an easier time paying them. Additionally, they can help you create a budget that suits your specific needs.

• Contact a housing non-profit.
  A housing non-profit can give you valuable advice. The HOPE National helpline, 888-995-HOPE, is dedicated to helping homeowners facing foreclosure 24 hours every day. Spanish – speaking counselors are available.

Dos and Don'ts of Foreclosure