How to Stop Foreclosure

Losing your house through foreclosure can be devastating, both financially and emotionally. While it may seem hopeless when you’ve fallen behind on payments, there are ways to stop foreclosure, no matter what stage of the process you are in.

What Is Foreclosure?

Foreclosure is when the lender that holds your mortgage takes your house back, usually because you haven’t made a mortgage payment for three or more months. There are steps a lender is required to take before a foreclosure is final, and you will be notified each step of the way.

The steps are:

1. Missed Payments – Federal law requires that lenders wait 120 days without a payment before starting foreclosure proceedings, but they likely will send you letters and begin calling once 60 or 90 days have passed, warning that foreclosure is imminent.
2. Public Notice – Also called a “notice of default,” this is the official start to the foreclosure process. The lender notifies the court or county clerk that they are foreclosing on the property.
3. Notice of Sale – If the court finds that the lender can foreclose, a notice of sale is filed with the court or county setting the date the lender will auction the property. This can be anywhere from 120 days to several months from when the notice was filed in a judicial proceeding. It can be as soon as 30 days in a nonjudicial one.
4. Auction – The home is sold at auction, with the bank hoping to recoup what it lost on the mortgage.
5. Post-foreclosure – Once the bank takes possession of the home, the owner who was foreclosed on, is evicted.

Stopping Foreclosure

There are many ways to stop foreclosure, or at least slow it down. The first and most obvious is to make your payments on time and catch up if you fall behind a month or two.

If that’s not possible, whatever option you choose, the earlier you start, the more successful you will be at stopping foreclosure. Don’t be afraid to contact your lender -- foreclosures cost them money and they want to avoid it if at all possible. If you are in danger of being foreclosed on, talk to your lender as soon as possible.

Which option is right for you will depend on a lot of things, including how far behind you are, how much you owe on your mortgage, what your overall financial situation is, the terms of your mortgage, and even the location of your home and your age.

Loss Mitigation

Loss mitigation means finding ways to get up to date on outstanding debt while not accumulating more debt. There are several options that may help stop foreclosure:

• Catch up on payments. If you fall behind, find a way to catch up. Some states require lenders to send you a “right to cure” notice before filing foreclosure, which gives you a set period of time to catch up.
• Seek foreclosure counseling. Call InCharge today at the number above to find out your options.
• If your financial setback is temporary, your lender may agree to pause payments for a specific period. Once you start paying again, you’ll have to pay both regular monthly payment as well as either a lump sum or installments to catch up.
• Loan modification. Your lender may agree to rework your loan so that monthly payments fit your budget better, usually extending the length of the loan.

How Loan Modifications Work

There are a number of ways that a lender might modify your loan in our to prevent a foreclosure. Here are some examples:

• Add your past-due balance to your outstanding balance and adjust your repayment term. For example, if you are $10,000 past due, instead of having to pay the full amount to catch up to current, this $10,000 could be added to your total outstanding balance and then paid back over 30 years or the number of years you have left on the loan. This will raise your monthly payment but make it easier for you to catch up and be current on your loan.
• Add years to your repayment term (for example, if you are 5 years into a 30 year mortgage, you could be re-set back to 30 years to account for the missed payments.
• Lowering your interest rate: lowering your interest rate will lower your monthly payment, thus making your home more affordable to you.
• Outstanding loan principle reduction: in this scenario, the lender would forgive a portion of your loan principle.

All of the above are designed to make your monthly payments affordable so that you can sustain homeownership for the long term.

Selling Your Home

If the goal is to stop the foreclosure and not stay in the home, there are ways to sell it. While you won’t have the home, you also won’t have the long-term negative financial impact a foreclosure brings.

• Deeds in lieu of foreclosure. You give the home to the lender, and they forgive the balance of the mortgage. While this may seem a lot like a foreclosure, it saves money, time and doesn’t go on your credit report the way a foreclosure does.
• Short sale. With approval from the lender, you sell the home for less than what you owe on it, and the lender keeps the proceeds. In some cases, you’ll be required to pay the difference between what the sale brought and what you still owe.

Filing for Bankruptcy

Both Chapter 7 and Chapter 13 bankruptcy, can stop a foreclosure – either for good or temporarily. With both, the court issues an automatic stay that stops any foreclosure proceeding. This stays in place until the bankruptcy is sorted out. Neither form of bankruptcy forgives a mortgage. If bankruptcy stops foreclosure, you will still have to make payments.

Chapter 7 liquidates most unsecured debts – credit card debt, personal loans, etc. – but not debt secured by collateral, like a mortgage or vehicle loan. It’s a better option for homeowners who won’t be able to pay their mortgage even after the bankruptcy is discharged. While it doesn’t stop foreclosure permanently, the automatic stay allows time to make living arrangements and save some money for rent. The federal government allows a certain amount of equity in a home to be exempt in a Chapter 7 filing. If you don’t have much equity, it’s not worth it to the court to sell your home to get money to pay creditors, so you would likely be allowed to keep it. But if you haven’t been able to keep up on the payments, and can’t catch up after the bankruptcy is discharged, the foreclosure would proceed.

With Chapter 13 bankruptcy, debt is restructured according to your income and the court agrees to a three to five-year plan to repay all debt. Once the plan is completed, any unsecured debt is discharged. Chapter 13 allows you to stay in your home, but you have to make your monthly mortgage payment as well as pay extra to catch up.

Only about half of people who file Chapter 13 bankruptcy make it to the end of the plan. If your Chapter 13 bankruptcy is dismissed, you’re back to where you started. If you are behind on your mortgage, foreclosure likely will proceed.

Filing a Lawsuit

There are strict federal and state laws, part of the Fair Debt Collection Practices Act, that protect borrowers and guide how a lender proceeds during a judicial foreclosure. Judicial foreclosures are handled by the court system, and are the most common kind.  The law regulates the timeline, procedure notification and more.

More than half the states allow nonjudicial foreclosure, which doesn’t have to conform to the same rules. With a nonjudicial foreclosure, the lender gives the borrower a period of time to catch up, and if they can’t, then the property is sold. The states that allow nonjudicial foreclosures have different timelines and rules.

Depending on state law, in a nonjudicial case, a borrower may be able to file a lawsuit to stop the foreclosure if they can prove the following in court:

• The lender doesn’t own the promissory note
• The lender didn’t follow state mediation requirements
• The lender violated a state law
• The lender didn’t follow the required steps in the process
• The lender made another error.

A lawsuit can be expensive and time-consuming. Before filing a suit to try to stop a foreclosure, you should weigh whether it’s worth it, particularly if you haven’t been able to keep up with your mortgage payments. It may be more worthwhile to try to negotiate an extension on the sale with the lender if you think you can catch up on payments, or negotiating a deed in lieu of foreclosure or some other option that won’t damage your credit and long-term finances as much.

Recovering Your Home

Every state has different foreclosure laws, but all 50, as well as Washington, D.C, allow you to catch up with what you owe, as well as fees, and stop the foreclosure before the house is sold. This is known as the “right to cure.”

A little more than half of the states also have redemption laws – for a certain amount of time after the house is sold at auction, you can still buy it back from the third party for what they paid for it, as well as the outstanding mortgage and any fees associated with the foreclosure process. This option is available for a limited time and laws vary in states that allow it. It doesn’t stop the foreclosure, but you regain your home.

Avoid Foreclosure Recovery Fees, Scams

If you are being foreclosed on, you may be contacted by foreclosure prevention companies and home recovery scams.

For-profit foreclosure prevention companies, while legitimate, charge fees than can equal two or three mortgage payments, or more. It’s money that you’re better off using to pay your mortgage. The information and services these companies provide are available to you for free from your lender, or with help from a nonprofit housing counselor.

If a firm promises to stop a foreclosure immediately if you sign a document appointing them to act on your behalf, you may be signing over the title to your property, HUD warns.  Before signing such a document, get advice from an attorney or nonprofit housing counselor.

Protections for Homeowners During the COVID-19 Pandemic

Many people struggled to pay their mortgage during the COVID-19 pandemic, and the federal government put a moratorium on foreclosures. That moratorium ended July 31, 2021, though some states extended it. Those who have lost their housing because of COVID-19 related issues may be eligible for emergency housing assistance, temporary rental assistance and more. The Consumer Financial Protection Bureau has a webpage that lists options for housing help.

Homeowner's Assistance Fund (HAF)

The American Rescue Plan Act provided almost $10 billion for states to assist homeowner.  Funds from this act may be used to pay mortgage payments, homeowner's insurance, utilities and other costs associated with maintaining a home. Homeowners who have experienced the greatest hardships are prioritized. Call the phone number above to find out if you qualify for HAF program funds.

Get Help

No matter what your situation,if you can’t keep up with your mortgage payments, nonprofit housing counselors can help you sort out options, and possibly stop foreclosure. You will not be charged if you contact a counselor at a HUD-approved housing counseling agency, like InCharge Debt Solutions.

During the confidential session, the counselor will review your financial situation, go over possible solutions to your financial challenges, and assess options for stopping a foreclosure.

If you are headed toward a foreclosure, the counselor may suggest a nonprofit debt management plan. The counselor works with your creditors to lower monthly payments on unsecured debt, like credit cards, and you make one fixed monthly payment to the agency for 3-5 years while your cards are paid down. While debt management plans don’t cover mortgage payments, they can lower your monthly credit card payments enough that you can afford to make your mortgage payments.

You may also be eligible for nonprofit credit card debt forgiveness for up to 50% of your card balances. The programs are also through nonprofit agencies, including InCharge’s Less Than Full Balance program. You pay 50-60% of your balance in fixed payments over 36 months, then the rest is forgiven.