If you’ve found yourself in economic distress and the bank has decided to foreclose on your home, prompt action on your part may stop foreclosure, giving you more time to find a solution. Here are some ways of avoiding foreclosure.
Filing for Bankruptcy
If you only have a few days before the foreclosure sale, filing for bankruptcy will cause an immediate injunction known as an automatic stay. The bank or lender may file an appeal to lift the order and continue with the sale, but it will take some time for the court to render its decision. You can choose to file for Chapter 7 or Chapter 13 bankruptcy. Bankruptcy may be the only way how to get out of foreclosure once the proceedings have begun.
Benefits of Chapter 7 bankruptcy:
- Delay foreclosure proceedings
- Eliminates personal liability of mortgage debt
Benefits of Chapter 13 bankruptcy:
- Restructure debts to be paid for three to five years
- Good chance of avoiding foreclosure
- Second and third mortgage debt is eliminated
When you apply for a loan modification, the bank will need to stop foreclosure proceedings while a loss mitigation application is in process. If you are approved for a loan modification, as long as you keep up with the payments, you’ll be avoiding foreclosure.
Federal law states that if the application for a loan modification is received more than 37 days before a scheduled foreclosure sale, then no foreclosure can take place until a decision is rendered. A foreclosure can still happen if you reject the terms presented by the servicer or if you fail to meet your payments during the trial modification.
File a Lawsuit
If the loan servicer is conducting a nonjudicial process foreclosure, then you may be able to delay or stop foreclosure by filing a lawsuit challenging it.
You’ll need to prove that the foreclosure should not happen because the bank can’t prove it owns the promissory note or didn’t act under state mediation requirements. You can also attempt to verify that the loan servicer violated your state’s Homeowner Bill of Rights or didn’t follow all the required steps determined by your state’s law.
There’s also a chance that the bank made some other error and that it has no legal grounds to foreclose on your home. If you can not prove your case against the loan servicer, filing a lawsuit will only delay the foreclosure. You’ll also need to pay for court costs and attorney fees, so it can be an expensive gamble for avoiding foreclosure.
If you have a mortgage through Freddie Mac or Fannie Mae, you can refinance your loan through the Home Affordable Refinance Program (HARP). This program can help you lower the interest rate of your loan as well as the amount of your mortgage payment.
If you have a variable rate mortgage, HARP can help you change that to a fixed-rate mortgage. HARP could also help you switch to a short-term mortgage so that you can build equity faster than your current loan.
Agree to a Mortgage Repayment Plan
A mortgage repayment plan indicates you plan on paying delinquent mortgage payments over time. A repayment plan is an excellent option if you have a temporary financial hardship that caused you to miss payments. The lender will divide the outstanding balance over a certain number of months, adding it to the regular mortgage amount. Once these have been paid, your mortgage will be current, and the bank will not need to proceed towards foreclosure.
Request HUD Partial Payments of Claim
If you have an FHA loan, you can request a HUD Partial Payments of Claim. HUD can advance up to 12 months of mortgage payments through this program. If you owe more than 12 months, you will need to pay the remaining balance so that you will qualify for the partial mortgage claim.
Lenders can file a partial claim on a defaulting mortgage on your behalf for the amount needed to bring the payments up to date. To qualify, you need to be at least four months behind on your payments and show that you can continue making your mortgage payments after the balance is brought up to date.
The amount of the HUD claim is added to your mortgage and must be paid back when you sell your home or finish paying the loan. This option is a good one when you are experiencing temporary financial hardship and need some help getting back on your feet.
Apply for the COVID-19 National Emergency Stand-alone Partial Claim
If foreclosure on your home is due to the financial hardship caused by the COVID-19 pandemic, then you can apply for the COVID-19 National Emergency Stand-alone Partial Claim. FHA-loan holders can receive up to size months of mortgage forbearance and a partial claim payment similar to HUD Partial Payments of Claim. Applying for this type of foreclosure help may be more complicated than other kinds, so check with your lender for more details.
Getting behind on your mortgage payments doesn’t always mean you will lose your house. Contact your lender to discuss the above-mentioned options for avoiding foreclosure as soon as you realize you can’t make your monthly payment.