When is it Too Late to Stop Foreclosure?

Financial catastrophes often leave people feeling distraught, agitated, angry, and depressed. Foreclosure is one of the worst because it means the potential loss of your home. A lot of homeowners, when they face this situation, are in shock, denial, or just plain afraid, and they often hide from the issue, when what is needed is immediate action.

If you’re currently facing foreclosure, get with your mortgage lender immediately to discuss options. Foreclosure happens when you fall behind in monthly payments and default on the loan. The lender or bank then has the right to foreclose or seize the property to sell it to recover their money.

Most lenders understand financial hardship, and if you talk with them, arrangements can be made to delay proceedings. However, if you ignore the situation and don’t speak with your lender, and you wait till the last minute to stop a foreclosure, you limit your options and the only ones left are more severe.

But at what point is it too late to stop foreclosure? When is it too late for you to do anything to save your house, and you should sell instead of keep trying?

How the Foreclosure Process Works

The home foreclosure process varies by state and lender. Every state allows judicial foreclosure, so proceedings take place in the court system, but take several months, sometimes even years, to complete.

Nonjudicial foreclosure (or Power of Sale) is available in some states and does not go through the court. Rather the lender handles the proceedings over a course of 60 to 90 days.

Step-by-Step Foreclosure Process

Step 1: You miss payments. After 3 months of missed payments, the lender issues you a Demand Letter or Notice to Accelerate, giving you 30 days to bring your loan current. That period of 30 days is known as pre-foreclosure, and if you fail to pay, the lender begins official proceedings.

Step 2: Foreclosure proceedings begin. The lender’s attorney files Notice of Default with the foreclosure court, and you have 20 to 30 days to respond.

Step 3: Notice of Sale is issued, and the foreclosure sale is scheduled.

Step 4: Foreclosure auction. The property is sold to the highest bidder, and you are served with an eviction notice. You may also be charged with a deficiency judgment to reimburse the outstanding balance that remains post sale.

Redemption Period

Some states give you a chance to reclaim your house after the public auction. This redemption period is temporary and depends on your state and whether foreclosure is judicial or nonjudicial. If you hope to redeem your property, you’ll have to pay the mortgage, all late fees and foreclosure costs.

Honestly though, the date of auction, and the moment the house is sold with the court’s approval is when it’s too late to stop foreclosure because it’s a done deal. You should research the legal process and speak with a foreclosure attorney to better understand your options before the date of sale.

How to Stop Foreclosure Proceedings

Anyone who knows they’re going to miss a payment should speak to their lender right away to discuss options. BUT in the event a homeowner does not take immediate action, and they wait till proceedings start, there are still ways to bring things to a halt.

File Bankruptcy

Declaring bankruptcy is a legal process by which you seek relief for your accumulated debts. There are two types of bankruptcy that a homeowner can file in this situation:

• Chapter 7 Bankruptcy – sells assets to pay off debts
• Chapter 13 Bankruptcy – restructures debt into a repayment plan

Both chapters issue an “automatic stay”, prohibiting creditors from pursuing collection efforts till the stay is lifted.

Chapter 7 lasts only a few months, while Chapter 13 can last 3 to 5 years. Between the two, Chapter 13 is the better option, if you want to save your home and need more time paying down your financial situation.

Bankruptcy is a difficult, costly process and has its consequences, including:

• Severe damage to your credit score
• A derogatory mark on your credit report for 7 years
• Does not discharge all forms of debt
• Securing new loans or refinancing will be nearly impossible for 7 years
• Obtaining new credit cards will be difficult after the fact
• High deposits and high rates on new utilities, including phone plans
• Loss of job opportunities that require credit verification
• You’re responsible for the filing fee ($300+)

Its advantages, however, include:

• Delaying foreclosure temporarily, up to the date of sale
• Strips second and third mortgages
• Discharges non-priority, unsecured debts
• Stops eviction

Bankruptcy laws vary by state, so you may want to speak with a bankruptcy attorney to better understand your options before filing.

Loan Modification

A loan modification is a change to the existing terms of your mortgage. The change can be an interest rate reduction, time extended for repayment, a different loan type, or a combination of all three. Your hopeful outcome is a lower monthly payment.

This option does not always work and has disadvantages:

• Lower monthly payment, BUT you’ll owe more money overall if term is extended
• New amount due may be more than the property is worth
• Processing and legal fees, late fees and back taxes are added on
• Any principal portion the lender writes off is taxable income
• Your credit score takes a hit if the lender reports the modification as a “debt settlement”

File a Lawsuit

If it’s nonjudicial, you can file a lawsuit against the lender. Also called mortgage litigation, you can claim one of the following scenarios:

• Mortgage terms are unfair
• Trustee failed to follow state procedure
• Lender made an error
• Bank cannot provide documentation proving they own the mortgage

Understand, you will lose money in legal fees, and you’ll need the right attorney to help prove your version of events to the court. Most cases never even make it to trial.

Deed in Lieu of Foreclosure

If you want to walk away from the problem entirely, you can always transfer the deed to the property to the lender. To put it simply, you’ll forfeit your claim to the house and surrender your equity in it in exchange for mortgage relief.

The only time to consider a deed in lieu is at the very last minute, after you’ve exhausted all possible alternatives. It’ll still leave a negative mark in your credit report, and you may have to pay taxes on the forgiven debt.

Sell the House

Selling may seem extreme but often it’s the best way to avoid your situation. How you sell depends on how much time is left before the auction date. Chances are, you’ll want to sell to a cash buyer who can purchase quickly, with no lender approval delays. By selling to a cash buyer, who oftentimes is a real estate investor, you can pay back the mortgage company, avoid having foreclosure in your credit report, and be free and clear of the issue. 

Sometimes the only way to do this is through a short sale, which is more common during a Buyer’s Market and underwater situations, when your mortgage is actually more than your house’s current market value.

A short sale is when a borrower sells their mortgaged property for less than what they owe the lender. The lender must agree to and approve the sale. Any proceeds left over you can either pocket or use to settle other debts.

So there’s no misunderstanding, short selling still hurts your credit but is easier to recover from than the alternative. A short sale stays on your record for a period of 2 years, while foreclosure stays with you for up to 7 years and causes a significant decrease in points. Plus you may have to pay taxes for the forgiven amount.

How to Sell a House in 7 Days

A home foreclosed by a lending institution is too late to save once it sells at auction. Lenders often prefer not to proceed with a foreclosed property because it costs them money. So a pitch to sell might bring things to a temporary halt.

At SolidOffers, we know trusted investors who can pay cash for a property “as-is” – no repairs or renovations necessary. They have experience in speaking with lenders and sometimes have their attorney negotiate the situation. Oftentimes, investors will also cover closing costs and additional lender fees, clearing you of any foreclosure or house loan related debt. Better still, because they can prove to have the available funds in hand, mortgage servicers are willing to give more time, and many investors can close in 7 days.

What has been stated in this article does not constitute legal advice. Real estate law and foreclosure law differs between states, and we recommend you get advice from a foreclosure attorney or bankruptcy lawyer or other professional to determine your best option to avoid foreclosure.