How to Respond To or Avoid Foreclosure

When financial hardship hits, it can be difficult to pay the bills. Falling behind on any number of debts is stressful, but a foreclosure is perhaps the most daunting. A foreclosure happens when a homeowner can’t make their required mortgage payments, in which case the lender has the option to seize the property. When this occurs, the homeowner is usually forced to move out and the home is sold.

There were a reported 493,066 foreclosure filings in 2019, according to statistics. The good news is that this number was actually down 21 percent from the year before. While the jury is still out on just how much the coronavirus pandemic will impact the total number of foreclosures in the future, there are a few things that anyone who has received a foreclosure notice—or who feels in danger of receiving one—should know. If you’re wondering how to stop a foreclosure, the following can help.

Ways to Avoid or Slow the Foreclosure Process

Step 1: Look Into Coronavirus Foreclosure Relief

Because of the financial hardships caused for so many during the pandemic, a number of mortgage lenders are working with their customers to help alleviate the problem of meeting mortgage requirements every month. The Coronavirus Aid, Relief, and Economic Security (or CARES) Act specifically prohibits certain lenders and servicers from issuing foreclosures against customers through at least December 31, 2020. This relief applies to all federally or Government Sponsored Enterprise backed or funded mortgages, which includes mortgages under the umbrella of FHA, VA, USDA, Fannie Mae and Freddie Mac. (Learn more about the specifics, and how to apply for relief under the CARES Act, here.) If you’re unclear whether your mortgage falls under the categories listed above, try calling your mortgage company directly, or click here.

Step 2: Call Your Lender

Foreclosures can occur outside of worldwide pandemics, and when that happens, you still have some options to help mitigate the issue. For starters, contact your lender as soon as you foresee a problem with meeting your mortgage requirements. Most lenders can work with you to create a specific plan of action that can help you avoid foreclosure in the first place.

Step 3: Research Additional Assistance

Besides working directly with your lender, the Making Home Affordable (MHA) program is a government-sponsored program that assists homeowners with HUD-approved housing counselors and information on avoiding foreclosure scams, as well as other helpful resources. States often offer their own individual foreclosure avoidance programs, as well. Find yours here.

What To Do After Receiving a Foreclosure Notice

Step 1: Understand Your Rights

A foreclosure can be tricky to navigate, so it’s important to understand your rights. For example, the exact process for a foreclosure differs by state, but under federal law, lenders usually aren’t allowed to start the actual process until the loan is more than 120 days past due. Your servicer is also required to give you multiple warnings before filing for a foreclosure (usually by trying to contact you directly within the first 36 calendar days of becoming delinquent), as well as provide you written notice of options available to potentially help avoid foreclosure. For a list of foreclosure law by state, click here.

Step 2: Call Your Lender

Whether you’ve already received a foreclosure notification or not, one of your first steps should always be to call your lender. Most would rather work together with customers to create a path forward that avoids foreclosure, whenever possible. Some of the options your lender might offer up include¹:

1. Develop a repayment plan: This plan would include staying current with your ongoing payments, while also making up for missed payments over a certain period of time. For this to work, you’d need to have a steady income that could cover the costs.
2. Go with reinstatement: With reinstatement, a borrower is allowed to pay off their missed mortgage payments in one lump sum.
3. Redeem your home after the fact: Legally, homeowners have the option to redeem their home by paying off the entirety of the loan before it goes to sale in a foreclosure. In some states, this can even occur after the home is bought at a foreclosure sale.
4. Get a forbearance: Under this option, the borrower’s lender would agree to a reduction or suspension of mortgage payments for a set amount of time, after which the borrower would need to start making back full payments, as well as repay the missed payments in either a lump sum, in a repayment plan or by way of a modification to the overall loan balance.

Step 3: Try to Sell Your Home

If you’ve received a foreclosure notification and working with your lender wasn’t an option, there’s always an option to try to sell your home before the foreclosure goes through. If an auction has yet to be scheduled on your house and you get a legitimate offer, then your lender must consider it. This would be called a short sale, and you’ll want to verify with your lender the specifics of how this option works with regard to your particular mortgage. This might allow you to pay back your loan and still make some money in the process.

Step 4: Consider Bankruptcy

When all else fails, filing for bankruptcy prohibits a bank from foreclosing on your home. Keep in mind that filing for bankruptcy can have serious consequences on your financial situation for years to come. Deciding to go this route should be taken very seriously, and it’s best to consult with some financial experts—like a certified financial planner and tax accountant—before doing so.

A foreclosure notification is scary, but luckily there a number of options for homeowners before packing up and leaving their homes. It’s always best to start with your lender when you’re worried about missing mortgage payments, or if you’ve already received a foreclosure notification. If you’re worried about falling behind on your bills in general, consider reaching out to a certified financial planner to help get your finances in order and to avoid going further into debt.