Recently on our bankruptcy forum a user asked, “My wife and I have only lived in our house for four years. I lost my job three months ago and have not been able to find new employment. I don’t want to lose my house, but the bank is threatening foreclosure. Do you have any practical steps I can take to stop or delay the foreclosure?”
What is foreclosure?
A home foreclosure allows the mortgage holder or the party which holds the lien to your property to regain ownership of the house by selling the property and repaying the mortgage debt. Foreclosure can generally be initiated after the debtor defaults on the mortgage payment, although state laws determine the exact process which the lien holder must follow.
Steps to stop a home foreclosure sale
- Remain calm and talk to your mortgage holder.
The first step to stop a home foreclosure sale is to remain calm and call your lender. It’s important to find out the details of your account and determine the severity of the issue.
If the lender offers little help you may still be able to make your mortgage payments by evaluating other resources to generate cash including selling assets, slashing your household budget, selling your cars, or taking out a loan against your retirement funds.
- Discuss alternatives to the home foreclosure sale with your lender.
Next, determine if your lender if willing to renegotiate the terms of your loan. Renegotiations can include reducing the interest rate on your loan or extending the repayment period. Other options can include instituting a repayment plan, negotiating a reinstatement of your loan by paying all the late fees and mortgage in arrears, or negotiating a forbearance which allows you to temporarily change your mortgage terms or skip a payment.
Certain types of loans backed by the VA may allow refunding while FHA loans may allow you to receive HUD-approved housing counseling.
- Consider more aggressive actions to stop the home foreclosure sale.
If renegotiations for the loan fail it may be possible to take more aggressive actions to stop the home foreclosure sale. Some of these actions include:
- Selling the home
If you are not to too far behind on the mortgage payments and the housing market is strong, one of the best options to avoid foreclosure is to sell the house as quickly as possible. Selling the property not only allows you to avoid foreclosure, but it will also allow you to get a better price for the property and preserve your good credit.
- Deed in Lieu of Foreclosure
Another option if your house cannot be sold is to talk to your bank about a Deed in Lieu of foreclosure which might allow you to transfer legal ownership back to the lender without foreclosure.
- Short sale of the home
Finally, you can also discuss the option of a short sale with your bank. Although there are some risks with a short sale, it can allow you to sell the property to another homebuyer and avoid a home foreclosure sale.
- Consider filing bankruptcy.
Filing bankruptcy is one of the most aggressive actions you can take to avoid a home foreclosure, but filing Chapter 13 bankruptcy may allow you to repay mortgage arrears over a 3 or 5-year period and save your home.