How to Stop Foreclosure at the Last Minute
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Having to go through a foreclosure is an unfortunate situation for anyone to have to face. But life happens and a divorce, job loss, medical condition, or another circumstance can take a considerable toll on one's finances and suddenly make it impossible to keep up with their mortgage payments. Typically, mortgage lenders will initiate foreclosure after four missed payments or 120 days of delinquency.
If you’re a homeowner whose house is currently in foreclosure, you not only risk losing your home, but a foreclosure will also severely impact your credit and make it difficult to buy another home in the coming years. So while it’s best to avoid a foreclosure from the starting, read on to learn how you may be able to stop after the process has already begun.
Can a Foreclosure Be Stopped?
Yes, a foreclosure can be stopped and the best way to do that is to pay your lender all the money owed to become current on your mortgage. If that’s not possible, you have other options, but most are delay tactics that eventually will bring you back to having to make your mortgage current. However, if you want to put a stop, even if it’s only temporary, to your home being auctioned off at foreclosure sale, read on to learn the actions you may be able to take.
A loan modification is when a lender agrees to make changes to the existing terms of a mortgage due to the borrower’s inability to repay the loan under its current terms. The primary goal of a loan modification is to reduce the monthly payment. This can be done by lowering the principal loan amount, reducing the interest rate, converting from a fixed-rate to an adjustable-rate mortgage, or extending the life of the loan.
If you have equity in your home, a loan modification can be a great option. Essentially, you are refinancing your current mortgage into a new loan and can roll your past-due payments and fees into your new, modified mortgage. A loan modification will stop your foreclosure, but you must stay current on your new loan or find yourself in foreclosure again. You can only do a loan modification every two years, so it won't be an option to save your home again if you begin missing payments in the months following the modification.
To apply for a loan modification, contact your lender and explain why you cannot make your payments. You’ll need to complete the required paperwork and provide detailed financial information. You can learn more about loan modification programs here.
File for Bankruptcy
Filing for bankruptcy can eliminate your legal obligation to pay most or all of your debts, but it can’t eliminate your mortgage. However, it can stop or delay foreclosure to give you more time to catch up on your missed payments. In most cases, you will not lose your home during bankruptcy, as long as the equity you have in your home is fully exempt. Texas bankruptcy exemptions can be viewed here.
In Texas, whether you file for bankruptcy under Chapter 7 or Chapter 13, a court order called the automatic stay goes into effect. This stops your creditors, including your mortgage lender, from attempting to collect their debts. But your mortgage lender can file a motion to lift the stay, which would allow them to proceed in trying to collect their debt, and the court would be likely to grant this motion if it seems you would be unable to make your mortgage payments based on your financial situation.
If you can afford your mortgage payments after restructuring your debt, filing for bankruptcy may be a viable option to keep your home. If you can't afford your home payments, your home could end up back on the foreclosure auction block. You can learn about filing for bankruptcy while facing foreclosure here.
Offer a Deed in Lieu of Foreclosure
Rather than going through the foreclosure process, you may offer your lender a deed-in-lieu of foreclosure, which is a properly prepared and notarized deed to your home. You transfer home ownership to your lender, who then forgives your mortgage debt and cancels the foreclosure action. Upon your lender’s approval of the deed-in-lieu, you would need to relinquish ownership of your property and relocate.
A deed-in-lieu can negatively affect your credit just as a foreclosure would. But unlike a foreclosure, which is public, a deed-in-lieu is private, less expensive, and the process is quicker. If losing your home is unavoidable, this may be the better option when facing the inevitable. You can read more about foreclosure vs. deed-in-lieu in our article here.
Consult an Attorney
It could help to meet with a lawyer for legal advice and to advise you on your options and the best course of action. Homeowners have legal rights when facing foreclosure, protected under the Truth in Lending Act (TILA). This Act protects borrowers from unscrupulous lenders and can help them keep their homes, even during foreclosure.
For instance, if your lender failed to fully disclose the terms, costs, and all fees associated with your mortgage, and that negligence resulted in you being unable to make your payments, you may be able to sue. You may also have a case if you are the victim of a “wrongful foreclosure,” which is when the borrower was not at fault but still received default notices and the lender began the foreclosure process. If there are defects in your foreclosure notices or fraud, those are also grounds for wrongful foreclosure. Only an experienced foreclosure lawyer can assess your situation and determine if you have a case against your lender.
Sell Your House Before the Foreclosure Deadline
You can also stop a foreclosure last minute by selling your home to an experienced house buyer. These are investors who regularly purchase homes currently in foreclosure. Selling to a professional house buyer prevents your home from publicly being auctioned off at the foreclosure sale and saves your credit from being severely damaged.
If you are looking to stop a foreclosure as soon as possible, AMI House Buyers can purchase your home in all cash, close in less than seven business days, and cover all your closing costs. Fill out this form to receive a no-obligation cash offer, regardless of what condition the home is in or what situation you are currently facing.