Four Ways to Stop Foreclosure

Several Options to Help You Avoid Losing Your Home to the Bank

Stopping Foreclosure

Did you just receive a Notice of Default (NOD) or a Lis Pendens (LIS) from your lender alerting you to a pending foreclosure? Regardless of the circumstances that led to your default, you should know that foreclosure is NOT your only option! Other options for you to consider include:

• Full Reinstatement• Creditor Negotiations & Loan Modification• Bankruptcy• Short Sale

Remember, allowing the bank to foreclose means losing your home and damaging your credit. This is the worst possible outcome and should only be considered as a last resort.

Foreclosure Process

Before we go deeper into how to stop foreclosure, lets start by explaining how the Foreclosure Process works. This process is different depending on your state and local laws, but generally depends on two different types of foreclosure:

• Judicial Foreclosure - The lender issues a Lis Pendens (LIS) when the homeowner defaults on their mortgage and sues the homeowner in order to get a judge to sign off on a Notice of Foreclosure Sale (NFS), which allows them to sell the home at auction.

• Non-Judicial Foreclosure - The lender and/or trustee issues the homeowner a Notice of Default (NOD) when they default on their deed of trust. If the arrears are not addressed, the lender issues a Notice of Trustee Sale (NTS) and sets an auction date.

PLEASE NOTE: It may still be possible to prevent a foreclosure sale even after a Notice of Sale has been issued. However, your best chances of stopping the impending foreclosure of your home is before a Notice of Sale is issued, during a time known as the pre-foreclosure period. Check your local laws to find out which type of foreclosure applies to you.

Full Reinstatement

This is the easiest and most painless way to stop foreclosure because:

• If you can repay your arrears in full, your house will not go into foreclosure.

• There is absolutely no risk of losing your home or damaging your credit at this stage.

Full Reinstatement

PLEASE NOTE: Chances are that if you fell behind on your loan payments then the money simply isn't there to pay off the debt. Consequently, this isn't a suitable option for everyone.

Creditor Negotiations & Loan Modification

If you are unable to repay your arrears in full, the next option is to meet with your lender and discuss an alternative to paying off your loan at the current rate. Trying to negotiate with the lender is the second best option to paying off your arrears in full. An understanding lender can stop foreclosure and prevent you from losing your home and ruining your credit.

The most common of these options is a Loan Modification.

Loan Modification:

• Allows you as the homeowner to negotiate a lower monthly payment and interest rate with your lender.

• If you need assistance negotiating with your lender, consult a representative from the U.S. Department of Housing and Urban Development (HUD). You may qualify for the federal Home Affordable Modification Program (HAMP).

Creditor Negotiations & Loan Modification

Other potential creditor agreements include:

• A third party settling your home loan for less

o You can negotiate to have a third party settle your home loan for less than the original amount.

o Success with this method may depend on how much your home is currently worth versus how much it was worth at the time you took out the loan.

• Paying as much upfront as possible

o Ask your lender to agree to let you pay them as much of your arrears upfront as possible. 

o Arrange a new monthly installment plan for paying off the rest.

Creditor Negotiations & Loan Modification

• Forbearance

o The lender may agree to stop foreclosure so long as you make good on a promise to reach a certain requirement.

o This might include setting a due date for a specific payment, making repairs or possibly even selling the property.

Creditor Negotiations & Loan Modification

Bankruptcy

If you've reached a point where you are unable to repay your arrears and loan modification or other forms or creditor negotiations are not an option, you still have some choices. Unfortunately, few options at this point will not result in the loss of your home or damage to your credit score. If you care more about keeping your home than damaging your credit, you may want to consider bankruptcy. 

There are two types of common bankruptcy procedures for individuals:

Chapter 7

o Allows the government to liquidate, or redistribute, your assets.

o Property is usually exempt from liquidation when an individual files for Chapter 7, but check with a bankruptcy counselor recommended by the U.S. Trustee Program to be sure.

Bankruptcy

Chapter 13

o Allows the homeowner to receive financial reorganization under the guidance of a federal bankruptcy court.

o The homeowner gets to keep most of their assets and is able to relieve additional debt not allowed under Chapter 7.

PLEASE NOTE: Filing for bankruptcy usually postpones a foreclosure but does not stop it entirely, and a bankruptcy will damage your credit for 10 years versus five years for a foreclosure. This should only be an option if you are determined to keep their home at any cost.

Bankruptcy

Short Sale

A short sale should be considered as a last resort to stopping foreclosure. The process will involve losing your home and damaging your credit, though it does not remain on your credit history as long as a foreclosure does. A short sale is:

• When the homeowner arranges an agreement with their lender to sell their home themselves for less than it is worth to pay off the remaining debt.

• Also referred to as a pre-foreclosure.

Short Sale

PLEASE NOTE: If you sell the home for less than the remaining amount of your arrears, you may still be responsible for paying the rest.

Let's Review

• Depending on your state and local laws, your foreclosure proceedings may be Judicial (requiring court approval) or Non-Judicial (no approval required).

• The best time to stop a foreclosure is during the pre-foreclosure period after an LIS or NOD has been issued, but before you receive a Notice of Sale.

• The best way to stop foreclosure is to Fully Reinstate your lender and pay off your remaining arrears entirely.

Let's Review

• Loan modification or other creditor negotiations may prevent you from losing your house and/or damaging your credit.

• Chapter 7 or Chapter 13 Bankruptcy allows you to keep your home, but damages your credit for longer than a foreclosure and may only postpone rather than stop a foreclosure.

• A Short Sale is a last resort to stopping foreclosure where you will lose your home and damage your credit, but for not as long as a foreclosure would.

There are a couple of different resources you can turn to:

• The U.S. Department of Housing and Urban Development (HUD)

o HUD has counselors on hand to help homeowners seeking loan modification.

o The federal Housing Home Affordable Program (HAMP) may be able to assist you further in achieving loan modification if you qualify.

Need More Advice on How to Stop Foreclosure?

Need More Advice on How to Stop Foreclosure?

• The U.S. Trustee Program

o If you are considering filing for Chapter 7 or Chapter 13 bankruptcy, you may want to consult a bankruptcy counselor first. The U.S. Trustee Program will lead you to a trustworthy counselor in your area.

o The Bankruptcy Abuse Prevention and Consumer Prevention Act (BAPCPA) makes it easier for individuals who are considering filing for bankruptcy to seek counseling.

• ForeclosureDeals.com

o Our article on how to Stop Foreclosure can tell you more about the options we've presented.

o Still unclear on how the foreclosure process works? We have an article on understanding the Foreclosure Process.

o Need to know if foreclosures in your state are Judicial or Non-Judicial? Find out with our Foreclosure Laws list.

o If you choose to sell your home during the pre-foreclosure period, our section on Foreclosure Short Sales and Pre Foreclosures can assist you.

o The Glossary section will familiarize you with any terms related to foreclosure to which you are unfamiliar and require further explanation.

o Want to know what may happen if your home does go into foreclosure? Our FAQ provides you with some insight.

Need More Advice on How to Stop Foreclosure?

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