How to stop foreclosure

How the foreclosure process works

Foreclosure isn’t instant. It moves through stages, and the options available to you depend on which stage you’re in and where you live.

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  Missed payments. Your servicer will contact you, and late fees start to add up. Under federal rules, a servicer generally can’t send the first foreclosure notice or file for foreclosure until you’re more than 120 days behind.
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  Pre-foreclosure notice. In many states the lender records a notice of default or sends a notice of intent to foreclose. This starts a window, which varies by state, to catch up on the loan or resolve the situation.
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  Court filing or notice of sale. In judicial states, the lender files a lawsuit and needs a court judgment. In non-judicial states, the lender follows a notice process set by state law instead, which usually includes mailed and published notice of the sale.
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  Foreclosure auction. The home is sold to the highest bidder, which is often the lender. Some states call this a sheriff’s sale.
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  After the auction. Some states give owners a limited right to redeem the home afterward, and in many others that right ends at the auction. Either way, the new owner can begin the process of taking possession.

How to stop foreclosure, step by step

Work through these steps as early as you can. Each one keeps more of your options open, and acting before an auction date is set gives you the most room to choose.

1. 1
   Find out where you are in the process. Read every notice from your servicer, your lender, and any court. Note the stage, each deadline, and the auction date if one is set. Your state’s rules determine what happens next.
2. 2
   Call your servicer and ask about loss mitigation. Servicers offer programs such as forbearance, loan modification, and repayment plans. Ask for the application and send a complete one as early as you can. If your servicer receives a complete application more than 37 days before a scheduled foreclosure sale, federal rules generally require it to review the application before the sale goes ahead.
3. 3
   Get free help from a HUD-approved housing counselor. Counselors explain your options, help you prepare an application, and can help you talk to your servicer. You can find a HUD-approved housing counselor for guidance or call (800) 569-4287.
4. 4
   Decide whether you want to keep the home. Keeping it points toward forbearance, a modification, a repayment plan, reinstatement, or a refinance. Leaving it points toward selling, a short sale, or a deed in lieu.
5. 5
   Match an option to your situation. Your equity, your income, and how long your hardship will last determine which options fit. The sections below explain each one.
6. 6
   Watch your deadlines. Reinstatement, redemption, and application deadlines depend on your state and your loan. Ask your servicer for exact dates in writing, and don’t let a pending application lull you into missing the auction date.
7. 7
   Be careful who you trust. You should not have to pay anyone to help you avoid foreclosure, and scammers target homeowners in this position. The scam section below lists the warning signs.
8. 8
   Get legal advice when the stakes call for it. If you’ve been served with a court complaint, are considering bankruptcy, or have been approached by someone offering to save your home, talk to an attorney.

Foreclosure help: your options to stop or delay foreclosure

Most homeowners facing foreclosure have more than one way out. Some options let you keep the home, such as catching up on payments or changing your loan. Others help you move on, such as selling or a short sale. The right one depends on your equity, your income, and how much time you have before the auction, and each is explained below.

Contact your servicer about loss mitigation

Most servicers have loss mitigation programs and would rather work out a plan than foreclose. Ask what’s available, send a complete application, and keep copies of everything you send. The earlier you apply, the more options typically remain.

Forbearance

Forbearance pauses or lowers your mortgage payments for a set period. It fits short-term setbacks such as job loss, illness, or a disaster. The payments aren’t forgiven, so you’ll need a plan to repay them later, either in a lump sum, over time, or when you sell or refinance.

Loan modification

A loan modification changes your mortgage terms to make payments more affordable, for example by lowering the interest rate, extending the term, or adding missed payments to the balance. You apply through your servicer with proof of income and hardship. It fits a longer-term hardship when you can afford the adjusted payment.

Repayment plan

A repayment plan spreads your missed payments over several months, added to your regular monthly payment. It fits a temporary setback when your income has recovered.

Reinstatement

If you can pay the full past-due amount plus fees, you can reinstate the loan and stop the foreclosure. This usually takes a lump sum. Ask your servicer for a reinstatement quote, and ask for the deadline, since your state’s rules and your loan terms set how long the right lasts.

Refinance

Refinancing replaces your mortgage with a new loan, ideally with a lower payment, and may let you roll overdue amounts into the new balance. It works best when you have equity, steady income, and credit that hasn’t taken major damage, and it gets harder the further behind you are.

Sell your home

If your home is worth more than you owe, selling it can pay off the mortgage and leave you with the remaining equity. The Consumer Financial Protection Bureau (CFPB), the federal agency that enforces consumer protections in mortgage servicing, says selling is typically better for your money and your credit than letting a home go into foreclosure, a short sale, or a deed in lieu. You also don’t need your servicer’s approval to sell, though notifying them helps. If you have a pending sales contract or can show you’re putting the home on the market, a servicer may postpone foreclosure proceedings.

You can list the home with an agent or sell it to a cash home buyer. A cash sale for a house in foreclosure can close in a matter of weeks because there’s no traditional buyer’s mortgage approval to wait on, which matters when an auction date is close. The buyer also takes the house as it is and pays typical closing costs, though the offer is usually lower than what a listing might bring. How fast a sale closes still depends on the buyer, the title work, and your payoff, and the price has to cover your payoff and any other liens before the auction.

Short sale

If you owe more than the home is worth, a short sale lets you sell for less than the loan balance with your servicer’s approval. You’re responsible for finding a buyer, and the servicer decides whether to accept the offer and whether to forgive the difference. Ask whether the lender will waive any remaining balance in writing, and check your state’s rules and the possible tax effects. Short sales take time and paperwork, so start early.

Deed in lieu of foreclosure

With a deed in lieu, you transfer ownership of the home to your servicer and move out. It needs your servicer’s approval, may release you from any remaining balance, and can be less damaging to your credit than a foreclosure. You give up the home and any equity, and it may not be available if you have a second mortgage or other liens.

Bankruptcy

Filing for bankruptcy triggers an automatic stay that temporarily halts most foreclosure actions. Chapter 13 may let you catch up on missed mortgage payments over several years. Bankruptcy has long-term effects on your credit and finances, so talk to a bankruptcy attorney before you file.

Free housing counseling

HUD-approved housing counselors give free guidance on your options and can help you communicate with your servicer. You can search HUD’s list of approved counselors or call (800) 569-4287. This is worth doing before you make any major decision.

What foreclosure does to your credit

A completed foreclosure is likely to be reported for seven years, which can make it harder to qualify for credit later. Short sales and deeds in lieu also affect your credit, and a foreclosure can have a greater effect on your ability to qualify for credit than either of them. The CFPB says selling your home is typically better for your credit than letting it go into foreclosure, a short sale, or a deed in lieu, when the home is worth more than you owe. Late payments already on your record still count.

How to avoid foreclosure scams

Scammers often target homeowners facing foreclosure with false promises of help. According to the CFPB and the Federal Trade Commission (FTC), these are warning signs:

• You’re asked to pay up front for help.
• The company guarantees it will get your mortgage terms changed.
• The company guarantees you won’t lose your home.
• You’re asked to sign over title to your home or to sign documents you don’t understand.
• You’re told to stop paying your mortgage.

The help you need is available at no cost from your servicer or a HUD-approved housing counselor. You can check HUD’s counselor directory to confirm an agency is HUD-approved.