Foreclosure Prevention Overview
Talk to an Attorney About Preventing a Foreclosure
First and foremost, If you're facing an imminent foreclosure sale and considering any of the options discussed below, it is strongly recommended that you consult with a local foreclosure attorney or bankruptcy attorney immediately, the sooner the better.
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
If you want to keep your home, a Chapter 13 bankruptcy might help you accomplish this goal. This kind of bankruptcy allows you to make up the missed payments as part of a three- to five-year plan. A Chapter 7 bankruptcy doesn't provide this kind of help. But if you're trying to buy some time by stalling the foreclosure and eliminate other debts, a Chapter 7 bankruptcy might be right for your situation. Be aware that if you already filed for bankruptcy within the past year, the stay could be limited to 30 days or eliminated.
Below we explore further the differences, benefits, and quirks of Chapter 7 & 13 bankruptcies.
Apply for a Loan Modification
While you can't wait until the very last minute with this option, you might be able to delay a foreclosure by applying for a loan modification or another foreclosure avoidance option because the bank could be restricted from dual tracking. If your modification application is approved, the foreclosure will be permanently stopped if you keep up with the modified payments.
File a Lawsuit to Stop a Foreclosure
If your bank is using a nonjudicial process to foreclose, where the foreclosure is completed outside of the court system, then you might be able to delay or stop the foreclosure sale by filing a lawsuit against the bank.
What You Need to Prove
To prevail, you'll need to prove to the satisfaction of the court that the foreclosure should not take place because, for example, the foreclosing bank:
- can't prove it owns the promissory note
- didn't act in compliance with state mediation requirements (you might also be able to delay a foreclosure in foreclosure mediation)
- violated a state law, like a Homeowner Bill of Rights law
- didn't follow all of the required steps in the foreclosure process (as determined by state law), or
- made some other grievous error.
- the downside to suing your bank is that lawsuits can be expensive, and if you have no reasonable basis for your claims, you could get stuck paying the bank's court costs and attorneys' fees.
Stopping a Nonjudicial Foreclosure
You must include a motion for a temporary restraining order and preliminary injunction to enjoin (stop) a foreclosure sale while your claims are being litigated. (This tactic normally won't work if the foreclosure is judicial because by the time of a foreclosure sale, you've already had your opportunity in court.)
Ask the Servicer to Postpone the Sale
If a foreclosure sale is at hand, you might consider asking the servicer to postpone it. Usually, the servicer won't agree to reschedule a foreclosure sale, but it doesn't hurt to ask.
State Laws Prohibit Dual Tracking
In certain states like : California, Colorado, Nevada, and Minnesota, for example, they have each passed a " Homeowner Bill of Rights " that prohibits the dual tracking of foreclosures. Servicers generally must make a decision to grant or deny a (typically) first-lien loss mitigation application before starting or continuing the foreclosure process.
Federal Rules Restrict Dual Tracking
Under federal law, if a complete loss mitigation application is received more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:
- the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
- the borrower rejects all loss mitigation offers, or
- the borrower fails to comply with the terms of a loss mitigation option, such as a trial modification.
- be aware that the servicer generally doesn't have to review more than one loss mitigation application from you. But if you bring the loan current after submitting an application, the servicer must consider it.
File for Bankruptcy to Stop the Foreclosure
If a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" immediately goes into effect. The stay functions as an injunction prohibiting the bank from foreclosing on your home or otherwise trying to collect its debt. So, any foreclosure activity must be halted, at least temporarily.
Redeeming the Property
All states allow a homeowner to stop a foreclosure by paying off the mortgage loan, called "redeeming" the property. You have up until the sale to redeem the home. In practice, few borrowers redeem before a foreclosure sale because raising the amount necessary to redeem is usually difficult, especially if a financial hardship led to the foreclosure in the first place. Still, this is an option to consider.
