So much for, “It’ll never happen to me.” Nowadays, foreclosure — the legal process by which a lender forces the sale of a mortgaged property when the borrower has not met the terms of the mortgage — is hitting too many Americans too close to home. Indeed, 2010 was a record year for foreclosure filings in the U.S., where one in 45 housing units received at least one such filing, according to RealtyTrac.

The goal, says Vincent R. Barbera, a financial advisor at TGS Financial Advisors in Radnor, Pa., should be to avoid foreclosure altogether, given the damage it can inflict not only on a person’s credit rating, but on their ability to get any type of loan, a credit card or even a job. “For most people, foreclosure should be a last resort,” says Barbera, who also holds a realtor’s license, “because they need banks, creditors and a job to support their lifestyle.”

To avoid foreclosure, homeowners should:

1. Connect with their mortgage lender at the first sign they’re facing trouble making payments. “Banks today are more flexible and more willing to negotiate to avoid foreclosure,” says Barbera.
2. Seek guidance. Federal, state and local government agencies around the country offer free counseling and support for people trying to avoid foreclosure. People who work with a housing counselor are 1.7 times likelier to avoid foreclosure than those who don’t, according to the U.S. Department of Housing and Urban Development, which maintains a database of housing counselors at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Non-profits such as the National Foundation for Consumer Credit Counseling’s Homeowner Crisis Resource Center (www.nfcc.org/housing/index.cfm; 800-388-2227) can also help.
3. Pursue relief via the U.S. Government’s Home Affordable Modification Program (www.MakingHomeAffordable.gov; 888.995.4673).
4. Explore other options, such as filing for bankruptcy.

When foreclosure appears unavoidable, the priority is to emerge from the process and rebuild one’s credit as quickly as possible, says Barbera. Here’s how:

• Be proactive. Avoiding the problem won’t make it disappear. Instead, he says, “you want to own the process. Don’t let things slide.”
• Leave no stone unturned. Diligently research the foreclosure process for your area (it tends to vary widely by locality) by talking with the lender, a real estate attorney, local and state agencies, and people who have been through the process where you live, so you know exactly what to expect every step of the way.
• Get counseling from the organizations and agencies mentioned above.
• Lean on a peer support group for distressed homeowners. To find one, try searching “foreclosure support group” on Google.
• Be a levelheaded decision-maker. With so much at stake, don’t let emotions get the best of you.
• Beware for-profit “counselors” and/or negotiators who promise to lead you through the process unscathed. They tend to cost too much and deliver too little.

March 2011 — This column is provided by the Financial Planning Association® (FPA®) of Silicon Valley, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.  FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  Please credit FPA of Silicon Valley if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.