Learn about last-minute strategies to stop your foreclosure (or at least buy you more time in the home).
If you've fallen behind on your mortgage payments and find yourself facing imminent foreclosure, it could still be possible to save your home. And if saving your home is no longer an option, you might at least be able to delay the foreclosure process and gain more time to live in the property without making any payments.
File for Bankruptcy Protection to Avoid Foreclosure
If a foreclosure sale is scheduled to take place in a matter of days, you can stop the foreclosure in its tracks by filing for bankruptcy. Upon filing, something called an "automatic stay" goes into place.
The stay immediately puts the foreclosure on hold during the bankruptcy process. The lender may try to get around the automatic stay by filing a motion to lift the stay and asking permission from the court to continue with the foreclosure proceeding. But even if the lender's motion is granted, the foreclosure will still probably be delayed for at least one or two months, during which time you can continue trying to work out a foreclosure alternative.
Should I File for Chapter 13 or Chapter 7 Bankruptcy?
If you want to save your home, you might be able to do so by filing Chapter 13 bankruptcy. If you can't make your mortgage payments and keeping your home isn't an option, Chapter 7 bankruptcy might still be able to help you make the most of the foreclosure.
Chapter 13 Bankruptcy
If you're facing foreclosure, a Chapter 13 bankruptcy allows you to make up the mortgage arrears through your plan (something you can't do in a Chapter 7 bankruptcy). Chapter 13 can also potentially help you save your home because it will reduce the amount of debt you will have to repay, thus freeing up your money to put toward paying your mortgage.
With a Chapter 13 bankruptcy, you must propose a repayment plan. If the court approves your plan, and you can stick to the plan for the required three to five years, then your remaining unsecured debt will be discharged, and you'll be able to keep your home.
Chapter 7 Bankruptcy
If you're in arrears and facing foreclosure, a Chapter 7 bankruptcy doesn't allow you to catch up. So, unless you can negotiate something with your lender independently from the bankruptcy, you'll most likely lose your home.
But filing for Chapter 7 bankruptcy can still provide benefits. Perhaps the biggest benefit is the delay in foreclosure proceedings. A delay will allow you more time in your home and give you the opportunity to save money because you won't be making any mortgage payments during the delay. You'll also have time to try to work out a foreclosure alternative with your lender.
Chapter 7 bankruptcy will also eliminate your personal liability for your mortgage debt; you'll probably still lose your home, but you won't be liable for any deficiency remaining after the foreclosure.
Risks of Filing for Bankruptcy
Filing for bankruptcy is a serious step and should be carefully considered. Most significantly, a bankruptcy filing can result in the loss of other valuable property and damage your credit scores.
Keep in mind, though, that foreclosure will also damage your credit score, and the benefits of filing bankruptcy (the discharge of your mortgage and unsecured debts) might outweigh any hit you might experience to your credit.
Sue Your Lender
If you're facing a judicial foreclosure, by the time of your scheduled foreclosure sale, you technically already had your chance to fight the foreclosure in court. But if you're facing a nonjudicial foreclosure (a foreclosure that doesn't go through the court), you might be able to slow or stop your foreclosure at the last minute by filing a lawsuit.
However, you can't stop the process just because you want more time to live in the home. You must have some legal reason or valid defense that's based in good faith for fighting the foreclosure.
To succeed in your suit against your lender, you'll need to prove to the satisfaction of the court that the foreclosure shouldn't take place because, for example:
- the party foreclosing isn't the party that owns the mortgage note
- the lender (or servicer) didn't take all of the legally required steps in the foreclosure process, or
- the lender (or servicer) made some other serious error.
The downside to suing your lender is that a lawsuit can be costly. If a court doesn't believe your allegations against the lender, your lawsuit will delay rather than prevent your foreclosure. But even delaying your foreclosure might incentivize your lender to settle with you.
Apply for Loss Mitigation
While you can't wait until the last minute before a foreclosure sale for this option to help, you might be about to stop or delay a foreclosure by applying for loss mitigation.
Under federal law, if you send the servicer (the company that handles the loan account on behalf of the lender) a complete loss mitigation application more than 37 days before a foreclosure sale, the servicer can't ask a court for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:
- it tells you that you don't qualify for a loss mitigation option (and your appeal, if you get the right to appeal, has been exhausted)
- you turn down all loss mitigation offers, or
- you don't stick to the loss mitigation agreement, like if you fail to make payments on a trial modification.
Applying for loss mitigation probably won't get you a lot of extra time though, unless you can work out a loan modification.
In most instances, the servicer has to decide on your application within 30 days and can proceed with the foreclosure after any of the three above conditions is satisfied. Also, the servicer doesn't have to review multiple loss mitigation applications from you. But if you get current on the loan after submitting an application and later submit another application, the servicer has to review it.
A few states also have laws that prevent a foreclosure from going ahead if the borrower submits a loss mitigation application, some of which are more generous than federal law.
Getting Help
If you think the servicer made a mistake in the foreclosure process or violated the law and want to raise this issue in court, you'll most likely need a lawyer's help. In a judicial foreclosure, you may file an "answer" (a response to the suit) by a certain deadline, which is usually well before the sale date. But if the foreclosure is nonjudicial, you'll have to file your own lawsuit to get a court to review the matter. You'll need advice from an attorney if you want to file a lawsuit against your lender.
If you want to find out more about how bankruptcy might be able to help you, talk to a bankruptcy attorney.
To learn more about how to apply for loss mitigation, talk to a HUD-approved housing counselor.
