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Don't Start Packing: How to Stop a Foreclosure at the Last Minute

May 07, 2019

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The F word sparks fear into the heart of any homeowner: foreclosure.

No matter how financially stable you were when you bought your home, life happens. Between job loss, disabilities, medical bills, and more, there are plenty of reasons why you may be unable to pay your mortgage.

Unfortunately, lenders don’t consider “life” to be an adequate excuse. If you’ve found yourself staring a Notice of Default in the face, you may have options for how to stop foreclosure.

How to Stop Foreclosure

You may think foreclosure is the end of the road, but it doesn’t have to be. If you want to stop foreclosure postcards in their tracks, consider these options.

1. Make a Deal

Believe it or not, lenders aren’t chomping at the bit to go through the foreclosure process. Between the legal costs and the risk of bad press from you, lenders are more willing to work with you than you think.

If you’ve received a Notice of Default, reach out to your lender. Apply for a loan modification or discuss a plan to get your payments back on track.

Depending on the circumstances, your lender may end up in a better financial place with a modification than a foreclosure. At the least, it will buy you time.

In most cases, lenders aren’t allowed to continue foreclosure proceedings while a modification is in the works. Even if they deny your application, you’ve put a pause on the process.

2. File Bankruptcy

Bankruptcy has received a bad reputation, but it can be a financial lifesaver.

When you file bankruptcy, none of your creditors are allowed to continue trying to collect money from you. That includes foreclosing on your home.

There are a few downsides you should know about. First and foremost, a bankruptcy will tank your credit. If your mortgage is your only credit account that’s in trouble, bankruptcy may not be worth it.

While bankruptcy automatically puts your foreclosure on hold, don’t expect it to stay that way. Your lender could file a motion with the court to allow the foreclosure to continue.

Even if that doesn’t happen, your foreclosure won’t go away. Depending on the type of bankruptcy you file, you’ll end up in bankruptcy court negotiating with your mortgage lender for lower payments.

If you go this route, be sure that you file the right type of bankruptcy. For instance, Chapter 13 restructures your debt so you’re more likely to be able to stay in your home. Chapter 7 is more of a stopgap to give you time to find a new living arrangement.

3. Sell Your Home in a Short Sale

The foreclosure process isn’t a quick one. There can be weeks or months between getting your Notice of Default and the lender scheduling your home for auction.

During that time gap, you can sell your home in a short sale. In a short sale, you’re the one selling your home but the lender has to approve the sale.

Your lender is required to consider any offer that comes in during this period. They aren’t required to accept, so there are no guarantees.

However, a short sale can let you keep that foreclosure off your record.

Be aware that some home buyers shy away from short sale homes because they worry about the more complex process. If you aren’t finding a private buyer, try contacting companies who buy homes.

4. Get a New Borrower

If you don’t want a foreclosure on your record but you don’t want to save your home, consider an assumption.

In an assumption, you transfer your mortgage to someone else who assumes the debt. That person will be the home’s new owner.

Most mortgages today have a clause that prevents this. Your lender may be willing to allow it in specific circumstances, though. It’s worth a shot.

Keep in mind that the lender will go through the same financial assessment process for the new borrower that they did with you. They’ll check their credit, debt to income ratio, and more before they decide whether to approve them.

5. Sign Over the Deed in Lieu of Foreclosure

What if you’ve acknowledged that you’re losing your home but you don’t want the long foreclosure process? In that case, you can sign over your deed to your lender. This is called a deed in lieu of foreclosure, or a deed in lieu for short.

In essence, a deed in lieu has the same consequences as a foreclosure. You’ll lose your home and your credit will take a hit. You won’t have the unfortunate publicity of a foreclosure option, though.

Be warned that your lender needs to decide if they’ll allow this, and they rarely do. They would need to pay off any additional mortgages and home equity lines of credit you have. They also know that it isn’t as legally airtight as a foreclosure.

6. File a Lawsuit

When a lender forecloses on a home, there’s a specific process and set of criteria they have to follow. If they haven’t done their duty, you may have grounds for a lawsuit.

While the lawsuit is in progress, your foreclosure won’t continue.

Be warned to use this wisely, though. Lawsuits are expensive and if you lose, you’re on the hook for legal fees and your foreclosure goes forward. Only file a lawsuit if you know you have a good chance at winning.

Saving Your Home

No one buys a home expecting to have a foreclosure in their future. It’s a legal mess no one wants to face, but the reality is that it happens.

If you’re facing a foreclosure, you aren’t a sitting duck. The list above offers options for how to stop foreclosure and give yourself a fighting chance.

No matter how your situation resolves, your faith can help you stay strong. For inspiration and reflection, check out our Christian videos.