Foreclosure is a nightmare scenario for any homeowner. Not only would it cause trauma and heartache to your family, a foreclosure stays on your credit report for seven years.
However, after dealing with a family emergency, it left you unable to keep up with your mortgage payments for months on end. Then one day, you receive that dreaded notice of foreclosure sale in your mailbox. It warns ominously that if you aren't able to make payments after a certain period, your home will be auctioned off.
Is there a way to stop the foreclosure in its tracks?
Fortunately, there are plenty of ways to stop a foreclosure.
In this article, we'll walk you through what goes on in a foreclosure process, and how to stop it--even at the last minute.
The Foreclosure Process
First things first, missed mortgage payments do not automatically make a foreclosure.
It typically takes up to three months of missed payments before your loan servicer generally considers your loan to be in default and you receive a foreclosure notice in the mail.
Federal law dictates that once you receive the notice, you have 30 days to get current with your mortgage payments before your lender can legally take possession of your home and hold a foreclosure sale in order to recoup the debt you owe.
The worst thing that you can do is take no action. Once the foreclosure process is initiated, your lender has two options in repossessing your home:
In this type of foreclosure, the lender obtains a court order to repossess the house and have it auctioned off. The proceeds from the sale will be used to pay off the debt, attorney fees, and other costs associated with the sale.
Depending on state law, the lender may obtain a deficiency judgment against the borrower. If the money from the foreclosure sale fails to cover the total loan amount, the lender can collect the balance from the borrower.
Non Judicial Foreclosure
In some states, the lender doesn't have to go to court to effect this type of foreclosure, resulting in a quicker resolution. Essentially, the lender can instantly sell your home if you are unable to make payments within a specified period.
When Is It Too Late to Stop Foreclosure?
The only time it is too late to stop the foreclosure is when the property has been auctioned off and turned over to the new homeowner.
As long as the sale is not yet completed, you have a chance of staving off the foreclosure sale by making your loan current.
What Are Some of the Ways to Avoiding Foreclosure?
The moment you have trouble making payments, quickly reach out to your lender and try to work out a repayment plan to cure your delinquency before it's too late, so you can avoid foreclosure at all costs.
Keep Up With Your Monthly Mortgage Payments
When you have a good grasp of personal finance, you take care not to overextend yourself financially. Bills are paid off each month, and you have some put away for investments and retirement. As long as you consistently make payments to your mortgage servicers, you won't ever have to deal with the threat of foreclosures.
On the other hand, if you already have a couple months' worth of missed payments, you can obtain a hard money loan from a private lender to make up for it. Be careful in reviewing the loan terms though, you don't want to end up in a worse situation.
Communicate With You Mortgage Lender About Loan Modification
Unfortunately, unexpected life events such as job loss or a medical emergency can cause you to miss making payments on your mortgage. When this happens, act quickly by getting in touch with your lender immediately.
Communication is key in times like this, and most lenders would be willing to extend you the help you need to get over this temporary setback:
Roll the Missed Payments Into the Principal
If you have missed months of mortgage payments, there can be late fees and penalties tacked into it, making it incredibly hard to pay off in one lump sum.
You can talk to your loan servicer for a repayment plan and have it rolled into your principal balance instead so you can chip away at it in the months to come.
Ask for an Interest Rate Reduction
A lower interest rate can make your mortgage payments more affordable, sometimes saving you hundreds of dollars each month. A reduction in interest is better than a refinance, since you wouldn't need to play closing costs and other fees.
Ask your mortgage servicer for more details.
Increase the Loan Term
You can ask to extend your loan term to make your monthly payments more affordable. You'd be paying higher interest throughout the life of the loan, but as long as you're able to make regular monthly payments, you'll avoid foreclosure entirely.
Request to Reduce the Remaining Balance on the Principal
Principal reduction is a rare form of loan modification which reduces the amount you owe. This is worth considering if your loan is currently underwater, or in other words, you owe more than your house is worth.
It is your lender's prerogative whether to grant this request, likely after looking at the current market conditions, how much debt remaining, and how much loss they'd be realizing versus if they go ahead with the foreclosure proceedings.
Switch From Adjustable-Rate Mortgage to a Fixed-Rate Mortgage
Maybe you're one of those people lured by very low interest rate offerings only for the rug to be pulled out from underneath you by a sudden doubling of your interest a few years later, leaving you unable to keep up with your mortgage payments.
These adjustable rate mortgages move with the market, so if the Fed announces an increase in interest rates, it can be catastrophic to your financial situation. Requesting your lender to lock in your interest rate can help you plan your finances so you avoid the threat of either bankruptcy or foreclosure.
File a Lawsuit to Stop the Foreclosure
If your lender is carrying out a non judicial foreclosure, you can sue them to challenge the foreclosure. While your case is being heard, the sale will be postponed. Just make sure your lawsuit has a leg to stand on, as lawsuits can be expensive and you might get stuck paying for all the court costs and lawyer fees. Here's where consulting a lawyer can come in handy.
Refinance Your Mortgage Loan
In a mortgage refinance, you pay off your current loan with a new loan, with hopefully better terms. Do note that you'll have to pay the closing expenses on the old loan, so you have the option of adding it into the loan amount rather than paying out of pocket.
Another option is a short refinance, where the lender gives you another loan for less than the original and they write off the difference. A downside of this option is your credit taking a hit since you're unable to pay what is originally owed.
Ask for Mortgage Forbearance
Forbearance is a form of mortgage relief wherein your lender may allow you to temporarily pause or reduce payments in order to help you get back on your feet. Your lender would typically allow this provided you have a valid reason such as a sudden death in the family, divorce, natural disaster, or other circumstances beyond your control.
Consider a Deed in Lieu of Foreclosure
When you're facing foreclosure, you can willingly give up ownership of your property through a deed in lieu of foreclosure ahead of time in order to avoid it entirely.
Along with handing over the keys, you'd also be voluntarily giving up on whatever home equity you may have accumulated through the years, but at least you avoid foreclosure from going on your record and tanking your credit. When you go for this option, you can try negotiating for a lump sum relocation assistance with your mortgage lender in a "cash for keys" arrangement.
Sell Your Property in a Short Sale
Doing something drastic such as selling your property short can stop a foreclosure in its tracks.
Unfortunately, in a short sale, you get nothing at all, and the mortgage company gets less than what they are owed. In effect, the remaining debt will be forgiven so your lender has to be onboard before you can proceed with this transaction. You'll be asked to present proof that you'd be unable to get current on your monthly payments in the foreseeable future, which can be demonstrated in a financial hardship letter.
Even though a short sale is a radical solution, this spares the lender from going ahead with the foreclosure process which is both expensive and time-consuming, and is usually viewed as a last resort. In turn, although your credit report will take a hit, it's not as devastating as a foreclosure and will be much easier to cure.
Do note that the IRS views the canceled debt as income, and you will have to file taxes on it so carefully weigh and explore your options before jumping into a short sale.
File for Bankruptcy
If you don't qualify for any of the above and financial help from any institution isn't forthcoming, there's still an available recourse for you: file for Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy filing, you are not at risk of losing your home. Even if your bank has already started the foreclosure proceedings against you, the moment you file for bankruptcy, the process is halted.
It may sound sweet, but not everyone can file for this type of relief.
In a Chapter 13 filing, all your debt is consolidated and a repayment plan is worked out which you are required to pay off in three to five years. Therefore, having a regular income is required. Additionally, your debts must be less than $2,750,000 in all.
Sell Your House Fast to Cash Buyers
If filing for bankruptcy sounds too extreme, and a short sale sounds like a drastic loss mitigation solution, you can try to sell your house off market.
Why off market?
Trying to sell the traditional way in the open market can take months to complete. You're on a cramped timeline here, and you want to get ahead of the auction. So, you need to find a buyer who will:
- preferably pay cash so you don't have to wait for their lender approval
- buy a house in as-is condition
- close on your house fast
Cash buyers such as investors, house flippers, and "we buy houses" companies all fit the bill.
They can give you a cash offer immediately, and once you accept, you can use the proceeds to pay off your balance, stop the foreclosure, and have some left over to start a new life somewhere else.
Final Thoughts: How to Stop Foreclosure at the Last Minute
Receiving a notice of foreclosure isn't the end of the world.
The key to avoiding foreclosure is to be proactive. We can't emphasize this enough: get in touch with your lender before anything else. You can also get expert advice from a foreclosure attorney so you're sure that you'd be taking the right course of action that is fit for your financial situation.
Here at House Buyer Network, we can help you out by connecting you with cash buyers familiar with the market in your area so you get a fair and honest offer for your home when you decide to sell.
To learn about how much we can offer you for your property, just fill in our form below with your address, your email, and your phone number. We'll get in touch with you in 24 hours, and if everything is good on your end, we can close in a week or less!
If you have any questions about our process, call us at (855) 835-2544 and we'd love to talk with you!