Foreclosure is one of the most stressful events for any homeowner. It’s usually the result of falling behind on payments due to any number of reasons, including loss of income or medical bills.
Losing your home to foreclosure can have a lot of negative consequences aside from just losing the house. That’s why it’s so important to get educated about ways to get your house out of foreclosure.
So, let’s start with this…
When is too late to stop foreclosure?
While the details about what you can do after a foreclosure auction might differ based on the city or state, there’s one consistent rule:
You have up until the day of auction to stop the foreclosure.
In most cases, once the home has been auctioned, it’s too late (unless there’s a right of redemption). As long as it isn’t auction day, there are ways to stop it from going into foreclosure.
If you find that your house is being auctioned, here’s what you can do...
Ways to stop foreclosure
There are several ways to stop or postpone your home’s foreclosure. Some of these are going to be more advanced or take some work, so the sooner you get started, the better.
When you get within a week of the auction, you run the risk of not being able to do a lot of these in time. I'll go over what options will be available to you in a scenario like that as well.
1. Negotiate with your lender
The very first thing you should do is start talking with your mortgage lender. This will be the easiest of all solutions with a path of least resistance.
While this might sound obvious, most people assume that because they are in foreclosure, their lender wants nothing to do with them.
But think about this..
Lenders lose a lot of money when they have to foreclose on a home. That means that they are more inclined to work with you.
However, if they have worked with you in the past, then your chance of getting help from start to slim down, unless you have unusual circumstances. That is totally subject to their judgement.
One option with your lender may be to create a supplemental payment plan so that you can pay down your past dues over installments without having to go through a formal process.
2. You may be able to get some payments forgiven
Because it’s in their best interest to keep the loan in place, the lender might actually forgive a payment or two.
This could depend on a couple things, such as...
Was the situation unusual and/or an anomaly, such as a natural disaster?
Can you prove that you still have sufficient income to cover the cost?
It’s a lot less costly for a lender to go down the route of foreclosing, so depending on the bank, they may let you slide with a missed payment or two.
3. Get your missed payments added to your loan
Most lenders have this option in place.
It’s called a loan modification.
If your home has some equity in it, then there may be an option to take your missed payments and add them to the end of your loan, so that it’s added to your total balance.
Usually, a few things will happen:
- You will have to apply for the loan modification and prove that you can continue making payments
- You’ll be on a probationary period, usually around 3 months, and have to make consistent payments
- After that trial period, your loan will be completely re-written, which means that your balance will change to include the missed payments and your interest rate will likely change as well
- There will be fees associated with the loan modification that are tacked on to your balance as well
While this might sound scary, loan modifications are pretty common and are streamlined.
It’s one of the easiest options if you are already going into the foreclosure process and can’t pay the past due amounts.
One word of caution:
Some banks have things like balloon payments. While it’s not very common right now, it was during the last recession, so it’s a good rule of thumb to look for it.
In some loan modifications, there can be fine print that states you must make a certain number of payments, and then the rest of your balance, or a partial amount, is due.
This is called a balloon payment.
Be sure to specifically mention this to your lender if you are going through a loan modification so you can find out if there is any language in your new loan contract that mentions balloon payments.
4. Sell your home to get out of the situation
This might not be your go-to option because you do want to keep your home, but in some cases it makes the most sense.
But even though some homeowners do decide to sell their home, they sometimes allow themselves to get trapped.
Let me explain:
The benefit to selling your home is that you can get out of the mortgage entirely.
Although there are some caveats, which I’ll go over a bit later, usually it can sell for enough to pay for the loan and pocket some cash.
Here’s the problem with selling your home when in foreclosure…
It might not be quick enough.
Selling your home at market value requires that you
- Attract buyers by having the property in good condition, which requires money for repairs and upgrades
- Get the price low enough so that buyers will jump on them quickly
- Get under contract with a real estate agent or realtor
There’s a pretty high chance that if you’re facing foreclosure, you probably don’t have the spare cash to dump money into repairs, touch ups, or upgrades on the home.
So, that’s already one strike.
Next, you need the price to be low enough, and that might be doable (unless you have a second mortgage or a HELOC on the home, making your equity too little to drop by much).
But depending on your market, time of year, and other factors, the home still may not sell in time.
And when you contract with a real estate agent, then you effectively remove some other alternatives when it comes to selling your home.
We’ve seen homeowners fall into this trap where they are reassured that the home can sell quickly if priced right, yet it’s days before auction and the home either hasn’t had any serious buyers or there are too many trying to get financing and they are taking their time.
It’s a risk - almost a gamble really - to try to sell your home on the market when you have an auction date set.
Unfortunately, selling your house by owner is almost as tough.
Without having the marketing dollars at your disposal, it can be hard to get your property in front of the right eyes.
The quickest way to sell your house is to an investor, like us.
We work with homeowners that are under financial strain all the time.
Because we work with private money and have a network of investors, we don’t have to wait for a bank’s approval to finance a purchase.
It also means that if we aren’t able to buy the home for some reason, we likely have someone in our network that can.
When we purchase a home, we can evaluate the home’s condition and price point much more quickly than a normal buyer, and we can close on a house within days rather than weeks or months.
Having worked with hundreds of homes that have dealt with foreclosure, we know what options are available to us that most buyers and real estate agents aren’t aware of.
This includes working with a lender to negotiate down a mortgage, or purchase via a short sale, or knowing the right ways to delay a foreclosure so we can buy enough time to complete the transaction.
We’ve been able to save families from foreclosure as close as 3 days from the auction date.
If selling your home is an option you’d consider, get in touch with us to get started as quickly as possible and get out of the stressful situation.
5. Filing for bankruptcy
Filing for bankruptcy is one of the most commonly used methods to get out of foreclosure, and it’s usually what most homeowners think is the last option.
There’s just one major misconception with bankruptcy:
It doesn’t prevent foreclosure. It just postpones it.
Filing for bankruptcy will cause the foreclosure to pause because now there’s going to be a proceeding to review the case.
Once that review is complete, the foreclosure may proceed and you will still have to cover your dues and fees to reinstate the mortgage if you want to keep the home.
Bankruptcy is sometimes used strategically to prevent the auction from occurring, but it doesn’t usually save most homeowners from losing the house.
If filing for bankruptcy will allow you to start getting your head above water and make payments, then it might be a good option for you.
Just remember that filing will have its own fees that are owed to the attorney who handles the case for you.
There are two forms of bankruptcy:
- Chapter 13 - an option if you have disposable income (visit nolo here)
This form of bankruptcy will be seen as the “repayment” option. It usually lasts 3-5 years, and can cost $3,000 - $5,000 to pay an attorney that will handle this case for you. The challenge here is that there’s little chance of this option working out in most cases. The fail rate is around 75%
- Chapter 7 - if you can no longer make payments (visit this page for more information)
This form of bankruptcy is meant for debtors who need to make a fresh start. Many consumer debts are wiped out, which helps free up funds that can then go towards your mortgage. Not everyone qualifies for Chapter 7, however, as there is a median income threshold and there must be disposable income present. Filing Chapter 7 may only cost $1,000 - $2,000, and the success rate is much higher.
Bankruptcy can buy you 2-8 weeks, depending on the case and what state you are in, which might be just enough to get back on your feet and make a deal with the lender.
It will, however, stay on your credit record for up to 10 years, and will drop your credit score anywhere from 130 to 240 points.
It’s important to know that filing for bankruptcy after your foreclosure sale will not reverse the sale.
6. Selling your home via a short sale when you must
Short sales can be a great option but are tough to accomplish.
A short sale is when a home is sold for less than the owed mortgage balance. This might be a good option when the balance is simply too high -- it’s either higher than the market value or higher than any buyer is willing to pay.
What usually happens is the homeowner talks to the bank and negotiates to sell the home if the bank is willing to accept an offer that is less than the balance.
Why would a bank agree to this?
Because if the property goes to a foreclosure auction, the bank will likely lose a LOT more money in fees and its sale price than they would by simply cutting a deal.
Although this makes sense in many cases, not all banks like to work with short sales, and sometimes they will run their own calculations and find that keeping the loan in place has a higher chance to give them a greater return than a short sale.
So, while this is not the same as just selling your home normally or to an investor, it’s an option.
When working with a more advanced investor, this might be one option they explore. We usually look at short sale opportunities if the balance is too high.
Letting your home go into foreclosure
While this isn’t one way to get OUT of foreclosure, it’s worth mentioning.
Many homeowners often let their home go into foreclosure because they have either already given up or simply don’t know of any other options.
You don’t want to be the person that turns the other way when going through something like this when there could be possibilities for you.
There are serious consequences of foreclosure that many homeowners don’t realize until after the fact, including still being responsible to pay down parts of the mortgage.
Don’t start trying to do something when it’s too late to stop foreclosure.
Can I save my house after foreclosure
The answer is: it depends.
In most states there is a right of redemption, which means that there’s a period where you can redeem your property.
This usually involves reimbursing the person that has purchased the home at auction for the full purchase price plus other costs.
The laws and conditions about this will differ based on states, so you will need to specifically look at what is allowed in your state and what those conditions are.
This is probably the closest you can get to reversing your foreclosure sale.
If foreclosure is looming over you, there are things you can do!
There is a lot of foreclosure information available to you, from the web and your lender.
Don’t wait until the last minute.
Don’t wait until they take the home away from you.
Pick up the phone and either call your lender or call us.
You’re going to get through it one way or another.
Let’s make it the easy way.