If you’re staring down the barrel of foreclosure, you might think that losing your home is inevitable. Never mind the hit that your financial health will take if the foreclosure proceeds.
Take a deep breath. Foreclosure isn’t set in stone. In fact, there are several ways for you to prevent foreclosure and the financial damage it causes to you and your family.
If you’re trying to figure out how to stop foreclosure at the last minute, we’re here to help. Here are five ways of stopping foreclosure in its tracks.
1. File for Bankruptcy
Your first option, though it may not sound palatable, is to file for bankruptcy.
Bankruptcy is a legal term for when someone cannot pay their outstanding debts. Once you file for bankruptcy, federal law prohibits debt collectors from continuing collection activities. And since foreclosure is a form of debt collection, it cannot continue once you file for bankruptcy.
Here’s the catch: bankruptcy doesn’t clear you of all your debts. It forgives you of debts that simply cannot be paid while a mediator works with your creditors to find some form of repayment based on assets that can be liquidated.
So really, all that bankruptcy does is buy you more time to find ways to repay your debts.
Chapter 13 vs. Chapter 7 Bankruptcy
Bankruptcies in the United States fall under one of two categories:
- Chapter 13 bankruptcy
- Chapter 7 bankruptcy
Chapter 13 bankruptcy, or reorganization bankruptcy, is the best option if your goal is to keep your home. In this form of bankruptcy, you restructure your debts and repay the value of any nonexempt assets over three to five years.
This type of bankruptcy is helpful because it frees you up from certain unsecured debts, like underwater second or third mortgages (since they’re considered unsecured loans).
Chapter 7 bankruptcy, or liquidation bankruptcy, won’t save your home, but it will give you time to delay foreclosure proceedings. In exchange for wiping out qualifying debt, you agree that your trustee can liquidate (sell) some of your property to pay back your debt.
2. Loan Modification
If you don’t want to file for bankruptcy, another option is to talk to your lender about a loan modification.
It’s best to seek a loan modification before your house is foreclosed, but it does stop foreclosure in its tracks.
That’s because lenders are not allowed to engage in dual tracking, which is when a lender continues to foreclose on a house while also considering the borrower for a loan modification.
If the loan modification is approved, your foreclosure will be halted permanently–at least, as long as you keep up with the modified payments.
A Word on Dual Tracking
However, if you want to take advantage of dual tracking, you have to understand the laws around it.
Federal law prohibits lenders from continuing to seek foreclosure if the borrower is also being considered for a loan modification. If a complete loss mitigation application is received more than 37 days before a foreclosure sale, the lender cannot move for a foreclosure judgment until:
- The lender informs the borrower that they are not eligible for any loss mitigation option and appeal options are exhausted
- The borrower (you) rejects all loss mitigation offers, OR
- The borrower (you) fails to comply with loss mitigation requirements
Keep in mind that your lender doesn’t need to review more than one loss mitigation application from you. However, they cannot proceed with foreclosure until one of the above happens.
3. Deeds in Lieu of Foreclosure
A deed in lieu of foreclosure is a document which transfers the title of a home from the homeowner who will be foreclosed on to the bank which holds the mortgage. Since the deed is no longer yours, this removes your obligation to repay the mortgage debt attached to your home.
If your goal is to keep your house, you should be able to spot the flaw in this plan. The deed is no longer yours, which means the house is no longer yours. You won’t be foreclosed and you won’t have mortgage debt any longer, but you’ll lose the house in the process.
Generally, a bank will only approve deeds in lieu if there are no other liens on the property. They may also require you to try to sell your home before considering you for a deed in lieu.
Either way, the first step in this process is to contact your lender and request a loss mitigation application.
4. Short Sale
A short sale is when you sell your home to a third-party for less than the total debt remaining on your mortgage. In order for this to work, the bank must first agree to accept the proceeds from a short sale.
To start the process, you’ll need to request a loss mitigation application from your lender. You’ll then need to provide a completed application, which usually includes:
- A financial statement detailing your monthly income and expenses
- A hardship affidavit
- Proof of income, if applicable
- Your most recent tax returns
- Your two most recent bank statements for all accounts
Usually, you will also need to include a formal purchase offer from the third party buyer.
The good news about a short sale is that you won’t have to wait to sell your home–you can be out of your home and your debt and get a fresh start.
Keep in mind that many homeowners who go through a short sale later face a deficiency judgment. Your deficiency is the difference between the amount of short sale and your total debt.
In a deficiency judgment, a bank or lender can seek a personal judgment against you after a short sale so that they can recover the deficiency amount.
5. File a Lawsuit
Finally, you can try filing a lawsuit. This only works if your lender is pursuing a nonjudicial foreclosure.
Basically, in this type of lawsuit, you legally request a stay in foreclosure proceedings until a judge can hear your argument as to why the foreclosure should not proceed. You ask a court for three things, in the following order:
- A temporary restraining order
- A preliminary injunction
- A permanent injunction
Your application for a restraining order must convince a judge that you will suffer irreparable injury if the foreclosure is allowed to proceed. Most judges accept this since a foreclosure causes you to lose your house.
In a preliminary injunction, a court will decide whether you’re likely to succeed if you went to trial and will determine whether the injury you would suffer in foreclosure outweighs the injury to the lender if they aren’t paid.
If a judge grants the preliminary injunction, they will either keep the restraining order in effect or order the lender to take remedial action. Getting a permanent injunction takes so long that a preliminary injunction is usually viewed as a victory.
The lender will either comply with the terms set in the injunction, attempt to reach a settlement with you or drop the foreclosure and start from scratch.
Figuring Out How to Stop Foreclosure at the Last Minute
We know that figuring out how to stop foreclosure at the last minute is terrifying and exhausting. More than that, it’s humiliating. You’ve worked hard and done your best and now you’re running out of ways to keep a roof over your head.
We can help. At nvestorxchg, our goal is to provide families with a seamless, stress-free solution to foreclosure so that you can get your feet on the ground and get your life on track.
Ready to take your life back? We’re ready to help. Connect with us today to find out how we can assist your family.