How to Stop Foreclosure at the Last Minute?
The idea of losing your house to foreclosure is disheartening and terrifying. There’s the immediate concern of finding a place to live and the more far-reaching damage to your financial security down the road. Nonetheless, the worst thing you can do is let fear keep you from taking action. In other words, you need to do something. Luckily, there are ways to keep you and your family safe.
As soon as you suspect you may have a problem repaying your loan, contact your lender. Instead of an empty residence, a lender would much rather have a paying tenant. Getting in touch with your lender is the first step to stopping the foreclosure process, or at least buying you some time to consider filing for bankruptcy or a lawsuit to block the sale. In some cases, you can find a solution that benefits everyone involved.
Let’s go through strategies to stop foreclosure at the last minute to avoid losing your home, and learn everything about the options available to you.
What Is a Foreclosure?
Foreclosure is the legal procedure by which a lender attempts to recoup the amount owed on a delinquent loan by seizing and selling the mortgaged property. Default is typically caused when a borrower misses a certain number of monthly payments, but it can also occur if the borrower fails to comply with other mortgage terms.
Mortgages are standard since few people can afford to pay cash for a home. There won’t be any issues as long as the borrower keeps up with the mortgage payments. However, the lender must be able to recuperate its losses if the borrower stops making payments.
Thus, the home itself serves as collateral for the loan. If the borrower defaults on their mortgage, the lender can foreclose on the property, take ownership of the home to sell it, and hopefully retrieve part of the money owed to them. The borrower’s credit will take a seven-year hit after a foreclosure, and the homeowner will be forced out of the house.
How to Avoid Foreclosure – 5 best ways
You’ve probably read or heard someone say that you should aim to have six months’ worth of living expenses saved up in case of an emergency. The loss of income that would have gone toward mortgage payments constitutes a dire situation. In the meantime, you can use those funds to keep up with home payments while you look for new employment.
There are choices available if you don’t have a savings buffer and are worried about making your monthly mortgage payments. If you haven’t fallen behind on payments yet, you have more time to find alternative ways to avoid foreclosure.
Refinancing the loan is an option for those who have been making their payments on time. A lower interest rate through refinancing should result in smaller monthly payments. You should consider the fees and other expenditures to determine whether this option is worthwhile.
If you’ve gone behind on your payments, you still have options. The length of time you’ve fallen behind and your ability to catch up will determine your choices. So, here are the last minute strategies to stop foreclosure.
File for bankruptcy
Filing for bankruptcy should only be considered as a last option. It can severely damage your credit score and may not even be enough to save you from losing your home. However, if you’re down to the wire, meaning the foreclosure auction is imminent, filing for bankruptcy is your greatest bet for stopping it quickly.
After a bankruptcy petition is filed, all collection activities must cease immediately, including those involving your mortgage lender. An “automatic stay” would apply in this situation. Even if the mortgage lender requests the court to resume the foreclosure, you’ll have a few more months to find a new job or fix whatever short-term financial difficulty prevents you from paying your bills. You can negotiate a repayment plan with your creditors and possibly keep your home from being repossessed in this way.
There are two different kinds of bankruptcies. Those who wish to maintain their homes should file for Chapter 13 bankruptcy, which allows them to reorganize their obligations and make payments over three to five years. If you’re trying to buy time and know you’re going to lose your house anyhow, Chapter 7 bankruptcy (which involves liquidating your debts) could be the best option. During that time, you can put money aside to spend on a future rental.
Modify your loan
Before things get so bad that filing for bankruptcy or lawsuits is your only option, consider applying for a loan modification, which could reduce your interest rate or possibly forgive some of the principal owed. Perhaps you can convince the bank to waive the fines and fees you’ve accrued—lenders like it when borrowers pay off their mortgages rather than having to foreclose and sell the property.
You can’t put this off until the last minute, but it may prevent or significantly slow the foreclosure process. Lenders can sometimes be stopped from using dual tracking (proceeding with a foreclosure while a loss mitigation application is pending). If you continue making the modified payments, the foreclosure process will be paused if the lender agrees to the modification.
Government-run programs such as Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance can help homeowners who are behind on their mortgage payments, in addition to the loan modification programs offered by private lenders.
Get a deed
A deed in lieu occurs when your lender provides you with the option to return the deed willingly. Notably, the lender is frequently unwilling to give a deed in lieu due to the potential liability risks and the need to pay off any secondary mortgages or lines of credit secured by the property. Also noteworthy is the possibility that a deed in lieu will have the same effect on your credit score as a foreclosure. Consult a credit specialist before moving forward.
Is a deed in lieu the appropriate action for you? If you value your credit score or want to acquire another property within the next four to six years, a deed in lieu may not be the best solution for you. In contrast, if you are a homeowner unconcerned with your credit score and/or the length of time it will take to purchase a property, a loan in lieu may be the best option for you. Keep in mind that the defaulting homeowner will only have access to this option on a case-by-case basis.
File a lawsuit
It’s true that not all mortgage defaults are settled in court. A “power of sale” language in a mortgage agreement gives the lender the right to foreclose on a property without going to court, which is permissible in some states. Taking legal action against the lender may be an option to prevent or delay the foreclosure process.
Your lawsuit, in order to halt the foreclosure process, would need to show that:
- The promissory note is not in the lender’s possession.
- The bank failed to meet a state-mandated mediation deadline.
- The lender broke state law.
- The lender’s foreclosure procedure fell short of legal requirements (as determined by state law)
- The lender made another major mistake.
There is danger in trying this. You will lose your case, and the foreclosure will go forward if you don’t provide sufficient evidence. If the court finds your lawsuit frivolous, you may be required to pay the lender’s legal fees and court costs.
Sell your house quickly
There will be a lot of offers from real estate investors to buy your home. Many offer immediate cash sales and payouts.
However, the majority still require a minimum of seven to ten days, and frequently longer, to close. Remember that you continue to accrue back interest and late fees with each passing month and that once your lender begins formal eviction procedures, you quickly rack up thousands of dollars in marketing and legal fees.
If you are considering selling, seek this alternative as soon as possible. Note that selling your home does not necessitate relocating. You can negotiate a lease-option agreement with buyers, allowing you to remain in the home as a tenant, possibly with the option to repurchase the property. In most circumstances, however, it is preferable to sell the property entirely; if you cannot afford the original monthly mortgage payment, you will likely not be able to afford the rent payment to the buyer.
A speedy sale of your property is only possible if you have equity. Otherwise, you would require lender clearance for a short sale, which you must arrange as soon as possible following your default. Once a lender files for foreclosure, the door is permanently closed.
The Bottom Line
Now you know how to stop foreclosure at the last minute. The process of foreclosure can be stressful and aggravating. Numerous measures must be taken to ensure the procedure runs smoothly and avoids legal concerns with your lender and other parties involved, such as your homeowners’ association or mortgage business.
Depending on how quickly you can complete each phase, the average duration of the foreclosing process is roughly six months, which means there’s still plenty of time before it occurs.