The sharp rise in foreclosure activity in recent months does not paint a pretty picture for distressed borrowers: 437,000 foreclosure filings were reported in the first quarter of this year, according to RealtyTrac.

If you are falling behind on your mortgage payments — or if you’re already delinquent — it’s important to know what your options are and what to expect ahead.

Here are seven options to help you avoid foreclosure:

Renegotiate with the Lender
Step one is to contact your lender as soon as you know you can't make a payment. The faster you move the more options you’ll have to fix your financial future. Borrowers have the option of renegotiating their loan with the lender. Negotiate a plan that will enable the loan to be back in service. Lenders don’t want the property back, they want to keep their loan portfolio full of performing loans — not defaulting loans. Lenders say that the sooner they hear from a delinquent borrower in trouble, the easier it is to negotiate a solution.

Reinstatement
Prior to a foreclosure sale, borrowers have the right to reinstate a delinquent loan. The reinstatement option gives homeowners the opportunity to make up back payments plus any incidental charges incurred by the bank such as filing fees, trustee fees and legal expenses. Paying off the reinstatement amount will cancel the foreclosure and enable the homeowner to continue to live in the home as if no default occurred. For many delinquent borrowers, however, reinstatement is not an option because they are deep in debt and cannot make up back payments, plus other expenses. Consult with a real estate attorney or an experienced real estate broker because reinstatement laws vary from state to state.

Forbearance
One of the most overlooked foreclosure options a borrower has is forbearance. Forbearance is the postponement for a limited time of a portion or all of the payments on a loan in jeopardy of foreclosure. Partial or full payment waivers had their origins in the Great Depression. A lender expects that during the moratorium period the borrower can solve the problems by securing a new job, selling the property or finding some other acceptable solution.

Depending on your lender, you may be able to restructure your loan. For example, delinquent mortgage payments may be added to the loan balance or the borrower could be given more time to bring the late payment current. Some mortgage companies are able to arrange a repayment plan based on your current financial situation. You may qualify for this option if you recently lost your job, became ill and lost your source of income. Call your lender and inquire if you meet the requirements for forbearance.

Redemption
To redeem a loan, the borrower must pay off the loan in full. Borrowers may accomplish this by refinancing (with a family member cosigning perhaps) or by a friend or relative bailing out the borrower in exchange for equity or some other financial arrangement. Again, redemption rights — like reinstatement rights — vary from state to state. Most states permit redemption up to the foreclosure sale.

Sell the Property
For owners who don’t care to save the property, or who have no other choice than to let the property go, selling the property may be a smart choice. If you have enough equity in the house to allow you to pay off the mortgage in full, then a sale is usually your best option. This option preserves your equity and what’s left of your credit score. Selling also leaves you in a much better financial position should you want to buy another home in the future.

Deed in Lieu of Foreclosure
For homeowners who have no opportunity to reinstate, redeem or even sell their property and just want out of the property, a deed in lieu of foreclosure may be viable foreclosure option. Essentially, a deed in lieu of foreclosure is a transfer of title from a borrower to the lender, which the lender accepts in full satisfaction of the mortgage debt. With this option, a borrower voluntarily “gives back” their property to the mortgage company. You won’t save the house, but you do avoid the trauma of foreclosure and reduce the negative impact on your credit.

Bankruptcy
Filing bankruptcy is not a permanent cure of foreclosure, but it can temporarily halt the foreclosure process. Once a borrower in default files a petition for bankruptcy, foreclosure proceedings stop immediately. A homeowner, however, must hire an attorney in order to file bankruptcy, which can be expensive. Before considering this option, a homeowner should consult a real estate attorney.

On the other hand,  by doing nothing, homeowners will lose their home and any equity they have earned, plus damaging their credit at the same time. Moreover, some states allow lenders to go after borrowers in court for any deficit between what the house eventually sells for and what the homeowner owes. In any event, homeowners who decide to choose none of the options above are literally putting their heads in the sand and hoping they’ll win the lottery and avoid foreclosure.

At RealtyTrac, we want you know what your options are if you’re facing foreclosure.

At first glance, the numbers that Dr. Christopher Cagan works with on a daily basis look scary – especially when he’s talking about billions and trillions of dollars.

Despite so many zeroes and commas in his numbers, however, Cagan assured industry professionals attending a recent meeting of the Real Estate Research Council of Southern California that those very long numbers will have little impact on the national economy, although they will pack quite a punch for the people most immediately affected by them – lenders, borrowers and investors.

“This will not break the economy or the lending industry,” Cagan said. “This is part of the business cycle, but it does not control the business cycle. We’re in the 17th year of the current 15-year business cycle.”

Based on his latest property surveys (conducted December 2006), the Director of Research and Analytics for First American CoreLogic concluded in his latest report titled, “Mortgage Payment Reset: The Issue and the Impact,” that marketplace remediation has already begun as borrowers and lenders negotiate refinances whenever possible.

Confirming what RealtyTrac has reported previously, Cagan noted that it is borrowers who went with either sub-prime loans, or loans with smaller teaser rates initially to finance their home purchase, who stand to bear the greatest burden as the onslaught of foreclosures continues for years to come.

Equity is the primary issue involved. Homeowners who bought during or before 2003 should have plenty of it — enough, at least, to be able to refinance out of a less than desirable loan situation. It’s the loans with teaser rates and sub-primes that pose the much higher risk of foreclosure, and Cagan’s numbers bear that out.

When all is said and done Cagan is estimating that of the 8.37 million adjustable rate mortgages (ARMs) originated between 2004 and 2006 (valued at approximately $2.2 trillion), only 1.1 million of them will result in foreclosure caused by resetting interest rates. Total value of those loans: $326 billion.

Cagan estimates total non-recoverable losses caused by reset-based foreclosures spread out over five to six years to be $112.5 billion (about $20-$22 billion per year). In a $12 trillion national economy where mortgage lending is responsible for roughly $2 trillion per year, that loss translates to about 1 percent of total lending — so not a very large impact overall.

Still, Cagan’s report has plenty of numbers that are welcome news to real estate investors, homebuyers and real estate professionals seeking bargain real estate to invest in. Based on two alternate scenarios on the future direction of the market, Cagan’s report estimates that if real estate prices continue to drop, then 70,000 more foreclosures will be created for every 1 percent of drop. Conversely, the second scenario says that should home prices rise, then 70,000 fewer foreclosures will be created for every 1 percent rise in prices.

Either way, Cagan’s numbers are another tool for members of RealtyTrac to have in hand when seeking real estate bargains around the country.

A growing number of American homeowners across the country are getting foreclosure notices, according to new data released this week by RealtyTrac.

U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments, reported RealtyTrac. There were 176,137 foreclosure filings in May, up 19 percent from April.

James J. Saccacio, chief executive officer of RealtyTrac, said a jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn't over.

“Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,” said Saccacio. “Certainly not every community nationwide is seeing an increase in foreclosures, but foreclosed properties are becoming more commonplace and adding to the downward pressure on home prices in many areas.”

Meanwhile, the Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released today, reported that the percentage of payments that were 30 or more days past due for one-to-four unit residential properties was 4.84 percent, down 11 basis points from the previous quarter, but up 43 basis points from the first quarter of 2006. The biggest increases were for delinquency rates on subprime loans, up 227 basis points from a year ago.

Late payments and new foreclosures on adjustable-rate home mortgages made to people with spotty credit histories spiked to all-time highs in the first three months of this year, the MBA said. Subprime loans entering foreclosure rose to a five-year high of 2.43 percent, up from 2 percent in the prior quarter, and prime loans rose to 0.25 percent, the highest ever, from 0.24 percent.

Top 10 Foreclosure Total
Ranked by the number of foreclosure filings, California topped the list, with 39,659 in May, and Florida was number two, with 21,704, according to RealtyTrac’s report. Ohio was number three for the third consecutive month, with 13,214 filings, followed by Texas with 9,653 foreclosure filings. Michigan took fifth place, reporting with 9,461 filings, while Georgia came in sixth with 8,294 filings. The Top 10 was rounded out by seventh place Illinois with 6,824 filings, Colorado with 6,321, Arizona with 5,918 and Nevada with 5,235 foreclosure filings.

MBA’s reported pinpointed California, Florida, Nevada, Arizona, Ohio, Michigan and Indiana as trouble spots for delinquencies and foreclosures. “Those states have special circumstances that do not reflect what is happening in the rest of the country,” said Doug Duncan, the association’s chief economist, in a statement.

Top 10 Foreclosure Rate
RealtyTrac’s report said six of the Top 10 metro areas with highest foreclosure rates were in California. Here are the metro areas with the highest rate of foreclosure filings:

1. Stockton, Calif. (1 in 88 households)
2. Merced, Calif. (1 in 100 households)
3. Modesto, Calif. (1 in 118 households)
4. Las Vegas, Nev. (1 in 127 households)
5. Riverside-San Bernardino, Calif. (1 in 145 households)
6. Vallejo-Fairfield, Calif. (1 in 147 households)
7. Sacramento, Calif. (1 in 178 households)
8. Denver, Colo. (1 in 188 households)
9. Detroit, Mich. (1 in 190 households)
10. Miami, Fla. (1 in 194 households)

View a complete list of foreclosure statistics by state.

One Southern California economist believes they’re clearly a symptom.

“I think there were troubles to start with; that’s what caused the defaults and foreclosures,” said Dr. Michael Carney, Professor of Finance and Real Estate at Cal Poly University in Pomona, Calif., and Director of the Real Estate Research Council of Southern California.

Carney was speaking at the research council’s most recent quarterly luncheon, where foreclosures were the topic of the day. Carney pinpointed the root cause of Southern California’s cooling housing market as a somewhat cryptic slowing of demand for housing in 2006. That slowing of demand had a domino effect, causing home sales to slow and home price appreciation to flatten and even go negative in the first quarter of 2007, according to Carney’s research.

The slowing sales and stagnant home prices have in turn contributed to a sharp rise in defaults and foreclosures. And rising defaults and foreclosures is not typically a one-quarter or even one-year phenomenon in Southern California, noted Carney. His 2007 outlook included foreclosures and defaults as something to watch carefully. Quipping that most economists are lucky to be right once in their lifetime, he acknowledged that investor educator Bruce Norris, who rightly predicted that home prices would double a few years ago, “may be right again” about his prediction of foreclosure rates skyrocketing in the near future.

Of course, foreclosures are caused by a more complex set of factors than just a decrease in demand for housing. That fact was reaffirmed during the luncheon's feature presentation, in which Chris Cagan, Director of Research and Analytics at First American CoreLogic, identified generous lending practices as major culprit behind the recent spate of foreclosures.