How to stop foreclosure

What to do if your lender is about take your home

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middle-aged woman holding a foreclosure notice at the front door of a home

Foreclosure happens when homeowners are no longer able to make their mortgage payments and the lender takes back ownership of the property. And while it’s a daunting, overwhelming prospect for homeowners, it may not be a hopeless one.

If you’ve fallen on hard times due to job loss or other unforeseen circumstances and are concerned you’re headed toward foreclosure, being proactive is one of the most essential steps you can take.

Key insights

  • There are numerous options available to a homeowner before reaching the foreclosure stage.
  • Options might include loan modification, mortgage forbearance or government assistance programs.
  • A homeowner has the best chance of stopping foreclosure when they work with their lender right away.

The foreclosure process

The exact foreclosure process varies from state to state, but there are a few generalities you can expect. Typically, the lender starts sending foreclosure notices three to six months after the first missed payment.

Here’s how it breaks down:

  1. Around day 10 or 15 after a missed payment, the lender starts charging late fees.
  2. Thirty days after the first missed payment, the mortgage lender considers the loan in default. The foreclosure process can technically start at this point, but this is generally considered the preforeclosure phase. There are still options available to you during preforeclosure, such as loan modification.
  3. If the foreclosure process continues, the lender notifies the homeowner and issues public notices with key dates.
  4. If there is no resolution, the lender sells the property through an auction to try to recoup as many funds as possible. Meanwhile, the homeowner has a short amount of time to leave the property and find a new place to live.

Even if the foreclosure process has started, you can stop it from progressing further if you take swift action.

“There are often many options a homeowner does not know about when they are facing foreclosure and in most instances foreclosure can be avoided if the consumer is proactive and reaches out to their mortgage service to explain their hardship,” advised Thomas Showalter, founder and CEO of Candor Technology.

Preventing foreclosure

If you’ve missed some payments or are in the preforeclosure phase, the best course of action is to quickly work with your lender to determine the best option to stop the foreclosure from happening.

While each of these options may present some challenges, they could offer the chance to stay in your home and get back on track with mortgage payments.

Mortgage forbearance
A mortgage forbearance pauses monthly payments for a short period of time. While you still owe the missed payments, it’s a feasible short-term solution if you’re experiencing a temporary hardship. The advantage of this option is you can stay in your home and avoid the foreclosure process.

“If the hardship is temporary — say, if the homeowner is between jobs — the service may defer payments on the mortgage for a few months and those payments are added to the end of the loan,” Showalter explained.

The downside to mortgage forbearance is you have to provide a significant amount of paperwork to qualify, including details on your monthly expenses and hardship. You’re also responsible for the interest that accrues during the pause period. Forbearance is also reported to the credit bureaus and has a negative impact on your credit score .

Loan modification
A loan modification changes the terms of your original loan agreement. There are several ways a lender might modify your loan, including:
  • Changing an adjustable-rate mortgage to a fixed-rate so your payments are more predictable
  • Extending the loan term by a few years, which can lower your monthly payment
  • Offering a principal forbearance, which defers your payment principal, which you pay back at a later time

“In more permanent instances of hardship, a modification may be necessary,” said Showalter. “The advantage is you get a more affordable payment, but you will need to pay the loan off over a longer period, sometimes years, so that should be taken into consideration as well.”

While it can make your payments more affordable and keep you in your home, loan modification does require substantial documentation. It can also have a negative impact on your credit score (though not as much as a foreclosure), and more so if it’s part of a debt settlement plan .

Government assistance programs
Another option is to see if you qualify for any government assistance programs aimed specifically at stopping foreclosure.

One example is the Hardest Hit Fund, or HHF. This program assists unemployed homeowners in certain states struggling to pay their mortgages. The program is winding down, but some states may still have eligibility.

The Homeowner Assistance Fund is a recently established grant relief program for homeowners facing foreclosure. It’s available across the country, and the eligibility requirements vary from state to state. However, some states have a waitlist or have suspended the program due to lack of funds. Others are open.

These programs require a tremendous amount of paperwork and have long waiting periods (and sometimes waitlists), but can offer help for temporary hardships.

Deed-in-lieu of foreclosure
This is an option that involves voluntarily giving ownership of your property back to the lender (by handing over the property deed) in exchange for avoiding the foreclosure process. This is a legal process and in doing so, it releases the homeowner from their mortgage.

While it can help you avoid the litigation that comes with foreclosure, you likely lose any equity in your home, possibly making it harder to purchase another home. Like other options, it impacts your credit negatively, too.

Short sale
If your lender doesn’t agree to any payment modifications or if you don’t qualify for the assistance programs, a short sale is the next option to avoid foreclosure. This is where you sell your home for less than what you owe and the lender agrees to forgive the remaining balance.

You won’t owe anything after the sale (if approved by the lender), and there is less of an impact to your credit score compared with a foreclosure, and no public record. However, the approval timeline is often lengthy and tax implications are possible.

Legal action
Legal action is possible for stopping a foreclosure in court, and one route is a “power of sale” foreclosure. You can stop the foreclosure by suing the lender, but this requires a legal basis. If you can prove your lender doesn’t own the promissory note, violated a state law, doesn’t follow all the legal foreclosure steps or committed some other illegal action, this may be an option.

This option involves a high amount of risk because not only might it not stop the foreclosure process, but you can rack up additional costs with attorney and court fees.

Bankruptcy is one of the last resorts to avoid foreclosure, but it is an option. Chapter 13 bankruptcy is the one that allows you to keep your property and it stops the foreclosure process immediately.

Bankruptcy is a complicated solution with a devastating impact on your credit. It’s also an expensive option since you’re responsible for legal fees. However, it can give you the fresh start you need and keep you in your home in the long run.

» MORE: Should I file for bankruptcy?

Where to get help if you’re facing foreclosure

Foreclosure may feel like the only option, but there are resources available.

First, there are ways to negotiate with your lender. As mentioned, the most essential part is to contact them early when you’re first experiencing trouble with payments.

Note that lenders have a legal obligation to help with loss mitigation. This means they must provide notices and give ample time for response. It also requires your servicer to work with you to review your options. To do this, you have to fill out a loss mitigation application with the lender, which they have 30 days to respond to.

There are numerous counseling services available, too. The Department of Housing and Urban Development (HUD) is a government agency assisting homeowners through counseling free of charge. The goal is foreclosure prevention by going through the options available to you and making an informed decision.

» MORE: Credit counseling vs. debt settlement

Watch out for foreclosure scams

Unfortunately, there are numerous scams targeting those who are in a vulnerable or panicked financial situation. These scams may pose as lenders offering relief, or even use wording or logos that look similar to government agencies — but they are in fact scammers.

Look for warning signs that you’re dealing with a scam, including when a company or individual:

  • Charges upfront fees
  • Tells you to stop making mortgage payments
  • Asks you to make payments to someone else other than your loan service provider
  • Tries to rush your paperwork
  • Pressures you into making a quick decision
  • Claims to conduct an audit on your finances
  • Asks you to sign over the title

If you are unsure if you are receiving information from a scammer, you can always call your lender and ask them to verify the mailing or solicitation. You can also call a HUD-approved housing counselor and they can offer assistance.

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    When is it too late to stop a foreclosure?

    Until the lender places the property on auction, there are options available to you. The best course of action is to work with the lender immediately once you find it too hard to stay on top of your monthly mortgage payments. There are more options available to you the sooner you contact the lender.

    What happens to my personal belongings during foreclosure?

    As long as you still own your home, then your personal belongings can remain. Once the foreclosure process moves forward and you no longer own the property, you’re expected to remove all your personal belongings.

    Do I need a lawyer if I’m facing foreclosure?

    You are not required to hire legal counsel, but an experienced and trusted attorney can help you with multiple aspects, including filling out required paperwork and negotiating on your behalf. There are different foreclosure processes, depending on the type of mortgage you have, and a lawyer can help navigate the ins and outs.

    How does foreclosure affect my credit score?

    A foreclosure stays on your credit report for seven years, typically appearing within a couple of months after the lender starts the foreclosure process. Keep in mind your score also suffers when lenders report late mortgage payments, which occurs before the foreclosure process starts.

    Bottom line

    Facing foreclosure is a difficult prospect, but it’s not always the final answer. If you know you are facing a temporary financial hardship or need help adjusting the cost of your mortgage payments, a lender may have options for you.

    The key is to contact the lender as quickly as possible after you’ve missed a payment or are late with a payment for two or three months in a row. It’s in both your best interest and the lender’s to find a solution that works for both of you as quickly as possible.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. U.S. Department of Housing and Urban Development, “ Foreclosure Process .” Accessed June 16, 2023.
    2. U.S. Department of Treasury, “ Hardest Hit Fund .” Accessed June 16, 2023.
    3. U.S. Department of Treasury, “ Homeowner Assistance Fund .” Accessed June 16, 2023.
    4. Consumer Finance Protection Bureau, “ § 1024.41 Loss mitigation procedures .” Accessed June 16, 2023.
    5. Consumer Finance Protection Bureau, “ What is a HUD-approved housing counseling agency, and how can they help me? ” Accessed June 16, 2023.
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