If you’re facing foreclosure, you might be able to stop the process by filing for bankruptcy, applying for a loan modification, or filing a lawsuit.
If you’re behind on your mortgage payments and a foreclosure sale is looming in the very near future, you might still be able to save your home. You can potentially file for bankruptcy or file a lawsuit against the foreclosing party (the “bank”) to possibly stop the foreclosure entirely, or at least delay it. If you have a bit more time on your hands, you can apply for a loan modification or another workout option. (To get tips on what to do, and what not to do, when facing a foreclosure, see Foreclosure Do’s and Don’ts.)
File for Bankruptcy to Stop the Foreclosure
If the foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
The automatic stay will stop the foreclosure in its tracks. Once you file for bankruptcy, something called an “automatic stay” immediately goes into effect. The stay functions as an injunction prohibiting the bank from foreclosing on your home or otherwise trying to collect its debt. So, any foreclosure activity must be halted during the bankruptcy process.
The bank may file a motion for relief from the stay. The bank will probably attempt to have the stay lifted by filing a motion seeking permission from the court to continue with the foreclosure. Even if the bankruptcy court grants this motion and allows the foreclosure to proceed, the foreclosure will be delayed at least a month or two. This should provide you with time to explore alternatives to foreclosure with your bank.
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
If you want to keep your home, a Chapter 13 bankruptcy might help you accomplish this goal. But if you’re simply trying to buy some time by stalling the foreclosure, a Chapter 7 bankruptcy might be right for you.
Benefits of a Chapter 13 bankruptcy. A Chapter 13 bankruptcy can help you keep your home by restructuring your debts. You will repay debts—some in part and some in full—over a period of three to five years as part of a repayment plan. You might be able to avoid foreclosure and remain in your home with this type of bankruptcy because you can repay any delinquent mortgage payments through the plan.
Also, you will likely pay a fraction (or sometimes, none) of your unsecured debts during the plan period and possibly eliminate certain other debts—like underwater second and third mortgages because they’re considered unsecured loans—entirely when you complete your plan, freeing up money for your first mortgage. Even if you can’t complete the plan, filing for Chapter 13 bankruptcy will give you at least several months before a foreclosure can be completed.
Benefits of a Chapter 7 bankruptcy. If you’re already in foreclosure, filing Chapter 7 bankruptcy isn’t usually a good way to save your home unless you can get a loan modification. But it will delay the foreclosure proceedings and provide you with time to live in the home without making payments. You can put this money towards saving up for a rental. You can also use this time to try to work with the bank to come up with a way to avoid foreclosure. And, even if you still go through a foreclosure, a Chapter 7 bankruptcy can eliminate your personal liability for the mortgage debt, which means you won’t be liable for any deficiency remaining after the foreclosure. (Find out if you potentially qualify for a Chapter 7 bankruptcy.)
Also, if you already filed for bankruptcy within the past year, the stay could be limited to 30 days or eliminated altogether. To learn more, see Losing the Automatic Stay for Repeat Bankruptcy Filings.
File a Lawsuit to Stop the Foreclosure
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To prevail, you’ll need to prove to the satisfaction of the court that the foreclosure should not take place because, for example, the foreclosing bank:
- can’t prove it owns the promissory note
- didn’t act in compliance with state mediation requirements
- violated a state law, like a Homeowner-Bill-of-Rights law
- didn’t follow all of the required steps in the foreclosure process (as determined by state law), or
- made some other grievous error.
The downside to suing your bank is that if you’re unable to prove your case, you’ll only delay the foreclosure process, perhaps briefly. Lawsuits can be expensive and, if you have no reasonable basis for your claims, you could get stuck paying the bank’s court costs and attorneys’ fees. (Learn more about Fighting Your Foreclosure in Court.)
Ask the Servicer to Postpone the Sale
Apply for a Loan Modification
Ultimately, if your modification application is approved, the foreclosure will be permanently stopped so long as you keep up with the modified payments.
Some State Laws Prohibit Dual Tracking
California, Colorado, Nevada, and Minnesota, for example, have each passed a Homeowner Bill of Rights that prohibits the dual tracking of foreclosures. Servicers generally must make a decision to grant or deny a (typically) first-lien loss mitigation application before starting or continuing the foreclosure process. You must submit your application by a certain deadline to get protection from foreclosure under these laws. Talk to a lawyer to find out specific deadlines.
Federal Rules Restrict Dual Tracking
- the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
- the borrower rejects all loss mitigation offers, or
- the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.
Talk to an Attorney
Save Your Home From Foreclosure NOW!!
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