This article will help you understand the possible outcomes of your foreclosure case and help you to outline a plan unique to your circumstances, needs, and goals.
Written by Attorney John Coble.
Updated October 8, 2021
If you are facing foreclosure, you might feel that you have very few options available to you. But even if you are behind on your mortgage payments or struggling through the court foreclosure process, you have choices to make that can impact the outcome of your situation. When you step back, assess the situation, and identify your goals, you can begin working towards the most favorable outcome possible. This article will help you understand the possible outcomes of your foreclosure case and help you to outline a plan unique to your circumstances, needs, and goals.
The Foreclosure Process: What To Expect
If you have missed several mortgage payments in a row, the bank will likely send you a notice of default. Depending on the lender and state law, it will likely also send you a notice of acceleration, which means that your lender is demanding that the entire balance of your mortgage due within 30 days. Under the terms of most mortgages, the lender is entitled to make this demand due to your missed payments. This period is called pre-foreclosure. The notice and timing requirements are governed by state law and the terms of the mortgage loan documents you signed.
If you are not able to pay the balance in full and don't negotiate an alternate resolution with the lender, the bank can move forward with a foreclosure action. Some states permit nonjudicial foreclosures, which occur outside of the courts. But generally, unless limited by state law, the process you face will be a judicial foreclosure and will begin with a summons and complaint. After filing these documents with the court, the bank will serve you these documents—often via certified mail or posting them at the property. These documents will state the amount that you owe.
If you do not timely present a defense, or respond in any way, the bank will likely seek a “motion for summary judgment” and ask the court to rule in its favor. Depending on the court, this process might take several months, but once the lender receives a judgment, the bank can take possession of the real estate, and sell it at auction. It is important that you do not ignore the court documents and respond timely to any notices. Otherwise, you may surrender your right to mount a defense to the foreclosure action. Then your options will become significantly more limited.
Once a property is sold at auction, the proceeds are used to cover the auction costs, foreclosure expenses, attorney's fees, and any unpaid mortgage balance, including late fees, interest, and penalties. If you owe more money than the sale proceeds, the bank may seek a deficiency judgment and try to sue you for the remaining balance owed.
Foreclosure Defenses: What Are They?
Once the bank initiates a foreclosure action, you can try to fight it on your own or contact a local attorney to represent you. Even if you are hiring an attorney, you need to read all the papers that the bank has sent. Look to make sure that the details are correct and that you understand the involved parties:
Is the company suing you, the loan servicer, or their agent?
Are you the person who signed the mortgage and note?
Are the balances owed correct?
Are there any other errors on the court documents?
If the wrong company is suing you or you don’t owe the debt being described, you can challenge the lender’s case. Examine all of the court documents to make sure that there are no mistakes, as mistakes may empower you to present an effective defense against the lender’s legal action.
You can also raise defenses about the bank’s conduct during the court case. Maybe it did not meet the burden required by state foreclosure laws or the terms of your mortgage.
Did the bank file the summons correctly or include all the required paperwork?
Did the bank properly serve the complaint and summons? Maybe it did not serve these documents in accordance with local or state foreclosure requirements.
Did the bank send you all the required paperwork prior to the foreclosure? This might include a notice of default or notice of acceleration.
Even if you aren’t able to prevent the foreclosure, opportunities for delay caused by raising these questions may help to facilitate your end goal of saving your home. Many people delay foreclosures in court while working with their lenders to find an alternate resolution. You may negotiate a way to save your house or relinquish it in a way that doesn’t involve foreclosure.
Filing bankruptcy can also help postpone a foreclosure case, although it will not permanently stop the foreclosure in and of itself. Notably, filing for bankruptcy can ensure that you avoid any deficiency judgment if the foreclosure sale does not satisfy the unpaid loan balance. However, bankruptcy might help you stabilize your financial situation and resolve other debts so that you can prioritize keeping your home. If you are contemplating bankruptcy, Upsolve can help to connect you with a local bankruptcy attorney (who will likely offer you a free consultation) so that you can better determine whether bankruptcy might be a good fit for your situation.
What Are Your Goals for the Property?
Examining your goals will help to determine what is the best course of action for your unique situation. Are you trying to stay in your home? Or does it make more sense to find somewhere else to live? If you are only temporarily having difficulty making ends meet, you may be able to find a temporary solution to your mortgage payment challenges. But, if you regularly struggle to make your mortgage payments, finding more affordable housing may be your best option.
Unless there is erroneous information in the lawsuit indicating that you don't owe the debt described, your payments were not processed by some fault of the lender, or the mortgage company has breached the terms of your mortgage, the bank will likely win its foreclosure action eventually if you don’t seek a solution beyond a defense to the case itself. If you don't have one of these types of defenses available to you, you’ll need to seek a solution outside of the court system.
You should consider working with your bank during this time to reach an alternate settlement. This is a very common approach, as banks look for opportunities to avoid lengthy and expensive foreclosure procedures. Remember, even if you are negotiating with a bank outside of the foreclosure process, you’ll need to be very careful to observe and respond to all court deadlines. Just because you are discussing options does not mean that the bank will not advance its foreclosure action against you. You don’t want to lose the foreclosure case while you’re trying to save the house because you missed a court-related deadline.
You’ll need to figure out what your goals are and work with the bank’s loss mitigation program to meet them. Under federal law, most lenders are required to have a loss mitigation department to work with borrowers who are facing foreclosure. Some banks also offer loan modification programs. You may be able to negotiate a modification of your loan terms or take advantage of a forbearance, which would temporarily suspend your payments. This would be especially helpful if you are only experiencing temporary difficulty in making your mortgage payments. If you qualify, you might also look to refinance your mortgage with a different lender and lower your interest rate or change your payments.
Distressed homeowners can also consult with a HUD-approved housing counselor for free or retain a foreclosure defense attorney to help evaluate their case and provide a defense strategy. The federal Consumer Financial Protection Bureau (CFPB) also offers resources on fighting foreclosure.
If Your Goal Is To Keep the Home...
First, make sure that it is realistic for you to keep making monthly payments on your home loan. If you have struggled to make payments in the past, it may not be affordable to keep your home. Many people have entered into mortgage agreements that are unreasonable - you wouldn’t be the first to decide to walk away from a home loan and it is important to understand that doing so is NOTHING to be ashamed of.
With that said, if you’re facing foreclosure as a result of temporary circumstances, you might work with the bank to modify your loan. Depending on the details involved, your lender may be willing to adjust your payments or provide an installment plan to get caught up on the delinquent payments. You might also refinance the home by taking out a new loan to pay off the old loan. Although, you should be careful that you aren’t entering into a new loan with less favorable terms or interest rates. You should also be wary of solicitations, as there are plenty of opportunists and scammers looking to capitalize on distressed homeowners.
One other option that may make sense for your situation involves filing for Chapter 13 bankruptcy. Under Chapter 13 bankruptcy, you can manage your debt over the course of a 3- or 5-year period, wherein you’ll make monthly payments that include your mortgage payments. This process will stop the foreclosure action while your bankruptcy case remains active, giving you the opportunity to make up missed payments and/or work out an alternative approach with your lender.
If You Can’t Afford To Keep the House...
If you look at your finances and decide that you can’t afford to keep your home, you’ll need to find a way to get out of your mortgage obligations. You can try to sell your home conventionally, but under the circumstances, you may not be able to sell it for the full value. (With that said, the market in many areas of the country is hot right now, so this is an option worth looking into.)
Another option may be to work with the bank on a short sale, wherein the sale price is less than what you owe. If you choose this option, be careful that the bank doesn’t come after you for any deficiency balance owed on the loan. You might also offer to give the bank the deed to the house in a “deed in lieu of foreclosure.” A deed in lieu of foreclosure allows you to sign over ownership of the property in exchange for the bank forgiving the outstanding loan amount. By working with them to avoid lengthy and expensive foreclosure proceedings, you might be able to negotiate a later move-out date or an agreement wherein the bank won’t try to come after you for any unpaid balance on your loan.
If you are considering relinquishing ownership of the property, it is important that you consult with a third party in order to get a true understanding of your home's value. Depending on how much time you have, you might consider working with a real estate agent to sell the home and paying the mortgage balance with the proceeds. If you simply walk away from the home, you may be losing the value of the equity you have built up over time. Although if formal foreclosure has already begun, you may not be able to sell it without the bank's consent.
Above all, you should seek a solution that doesn’t involve a foreclosure, whenever possible. A completed foreclosure against you will significantly affect your credit score. This will greatly impair your ability to borrow money or buy another house in the near future.
It is possible to fight foreclosure. But under most circumstances, homeowners will need to make a change to keep their home. Depending on their goals, this change might involve negotiating a loan modification, refinancing, or managing other debt. There are many resources for distressed homeowners, such as working with a HUD-approved housing counselor, negotiations with a bank's loss mitigation department, or even consulting an experienced foreclosure attorney.
Whatever your goals, the most important thing you can do is to act early. It is important to communicate with your bank early and often for the best hope of success. By paying attention to any important mail from your bank or the courts, you can ensure that you take advantage of all possible options available to you.