If you’re facing a looming foreclosure, you might be able to save your home by:
- applying for and getting a loan modification
- filing for bankruptcy
- getting current on the loan (also known as “reinstating” the mortgage), or
- paying off the entire debt.
Read on to learn about various ways that you can potentially stop a foreclosure.
Applying for—and Hopefully Getting—a Loan Modification
With a loan modification, like a Fannie Mae or Freddie Mac Flex Modification, a lender agrees to change your loan terms, which reduces your monthly payment to a more affordable amount. As part of a modification, the lender usually brings the loan current by adding overdue amounts to the balance of your loan.
Just applying for a loan modification will often stop the foreclosure process while the servicer (the company that handles the loan account) reviews your information. But you must submit your application by a certain deadline (see below). In most cases, if you wait until the last minute to apply, the foreclosure won't stop.
Federal law. Under federal law, if a borrower submits a complete application to a mortgage servicer more than 37 days before a foreclosure sale, the servicer can’t ask a court for a judgment or order of sale, or conduct a foreclosure sale, until:
- the servicer decides the borrower isn’t eligible for a loan modification or another loss mitigation (foreclosure avoidance) option, like a short sale or deed in lieu of foreclosure, and the servicer denies the borrower’s appeal, if applicable
- the borrower turns down all the servicer’s loss mitigation offers, or
- the borrower breaches the terms of a loss mitigation agreement.
A servicer does not have to evaluate a loss mitigation application submitted fewer than 37 days before a foreclosure sale. But, in some cases, the loan owner might require the servicer to review an application under these circumstances.
State law. Some states give borrowers more time to apply for a loan modification or other foreclosure alternative.
- In California, if a borrower submits a complete application for a loan modification, the servicer cannot hold a foreclosure sale while the application is pending. (Cal. Civ. Code § 2923.6.)
- In Nevada, if the borrower submits an application for a foreclosure prevention alternative, a loan servicer has to make a decision to grant or deny the application before conducting a foreclosure sale. (Nev. Rev. Stat. Ann. § 107.530.)
- In Minnesota, if the servicer receives a loss mitigation application after the foreclosure sale has been scheduled, but before midnight of the seventh business day prior to the foreclosure sale date, the servicer must stop the foreclosure sale and evaluate the application. (Minn. Stat. Ann. § 582.043).
A loan modification will permanently stop the foreclosure—so long as you don’t breach the agreement.
Filing for Bankruptcy
Filing for bankruptcy will stop a foreclosure immediately because of the “automatic stay” that goes into place. If the servicer holds a foreclosure sale in violation of the stay, the sale is invalid.
For example, suppose Mr. Brown’s home is scheduled to be sold at a foreclosure sale in a few days. Today, he files for bankruptcy. Even though the automatic stay is in place, the servicer holds the sale at the scheduled time. Because the sale violates the stay, the foreclosure sale is invalid.
In order to proceed with a foreclosure sale during a bankruptcy, a servicer must file a motion for relief from the stay. This type of motion asks the bankruptcy court for permission to continue with the foreclosure. If the court grants permission, the foreclosure may go forward.
Getting Caught Up or Paying Off the Debt in Full
A borrower can also stop a foreclosure by:
- paying the past-due amounts to get current on the loan, which is called “reinstating” the loan, or
- paying off the entire loan amount before the sale, which is called “redeeming” the home. (In some states, borrowers can also redeem the home after a foreclosure.)
Reinstating the loan. In most cases, state law or the mortgage terms allow a borrower to stop a foreclosure by paying the overdue amounts in a lump sum by a certain deadline. After reinstating a loan, the borrower goes back to making regular, timely payments on the loan.
Paying off the loan. All states allow borrowers to stop a foreclosure sale by paying off the full amount owed to the lender—including the full principal balance, interest, fees, and costs—before the sale. (Get further details about how to stop a foreclosure by reinstating or paying off the loan.)
Questions for Your Attorney
- Are there any other ways to stop a foreclosure in my situation?
- What kind of information do I need to give the servicer to get a loan modification?
- If I file bankruptcy and the foreclosure happens anyway, will I have to pay a deficiency judgment?