If you find yourself facing a foreclosure, it might seem like there’s nothing you can do to fight the process. But depending on your financial situation and the state you’re in, there may be several options to get back on track with your mortgage payments, reduce the impact on your credit report, or stop your lender from foreclosing on your home. This article examines the difference between judicial and nonjudicial foreclosures, the different stages of a foreclosure, and strategies you can use to stop a foreclosure.
Written by Attorney Curtis Lee.
Updated October 8, 2021
If you find yourself facing a foreclosure, it might seem like there’s nothing you can do to fight the process. But depending on your financial situation and the state you’re in, there may be several options to get back on track with your mortgage payments or contest the foreclosure. Determining the best defense and when to use it depends on what stage of the foreclosure process you’re in and whether you’re facing a judicial or nonjudicial foreclosure.
Judicial vs. Nonjudicial Foreclosure
All states allow lenders to use judicial foreclosures. But not all states allow for nonjudicial foreclosures. The primary difference between the two is that the lender must file a formal lawsuit in a judicial foreclosure. In contrast, nonjudicial foreclosures don’t require a formal lawsuit. As a result, judicial foreclosures take a lot longer to complete. This gives the borrower more time to figure out how to fight the foreclosure or make arrangements for what to do after the foreclosure.
Judicial foreclosures can take anywhere from a few months to a few years. But nonjudicial foreclosures usually just take a few months. There may also be other differences depending on the state where the foreclosure takes place.
Stages of Foreclosure
Most foreclosures, whether judicial or nonjudicial, will have five major stages. All foreclosures begin when you miss several payments. Once you miss a few mortgage payments, the foreclosure process can move quickly, especially if you’re facing a nonjudicial foreclosure. When it’s been more than 30 days since your first missed mortgage payment, your mortgage is delinquent. If this happens, federal mortgage serving rules require your mortgage company to call you by day 36 of your delinquency to inform you of your loss mitigation options. They must also mail you notice of your loss mitigation options by day 45.
If you’re still behind on your mortgage payments, you can expect to receive some threatening letters explaining what will happen if you don’t catch up on your mortgage or work something out with your lender. By the time the due date of your third missed payment arrives, you’ll get either a demand letter or a notice of acceleration. These will tell you that if you can’t resolve the situation by a specific date, you’ll face a foreclosure.
Once it’s been 120 days since you defaulted on your mortgage, the second stage of foreclosure can begin. This is when the foreclosure proceedings officially start. If you’re subject to a judicial foreclosure, your mortgage lender will start the foreclosure lawsuit. Assuming your lender wins the foreclosure lawsuit, they’ll get a court judgment and start preparing to sell the property.
In stage three, you’ll receive a notice of sale telling you the date and time of the foreclosure sale. Depending on state law, this notice may be published in a local newspaper or be mailed to you. You’ll receive this notice prior to the sale, but depending on state law, you may only be notified 14 days in advance. The fourth stage is the foreclosure auction. These are public events where the lender puts the property up for sale to the highest bidder or lists the property for sale as a bank-owned property.
After the foreclosure sale is complete, you’ll have a little bit more time before you have to leave your home. The precise amount of time will depend on what state you’re in, but if you don’t leave in time, it could lead to an eviction. You may also have the right of redemption. This gives you a chance to buy back your home after the foreclosure sale. To do this, you must pay off the entire amount you’re behind on your mortgage, plus fees, interest, and penalties.
The Best Strategies To Stop Foreclosure
Your best strategy to stop a foreclosure will depend on whether foreclosure proceedings have begun. When possible, preventing foreclosure in the first place is the best option. If you’ve only missed one mortgage payment or anticipate having trouble making them in the future, you can:
Sell your home: You can do this if you’ve built up enough equity in your home to fully pay off your mortgage loan after the sale is complete.
Find a new or additional source of income: If you can find a new or second job to bring in more money, it may be enough to help you resume your monthly loan payments.
Contact a financial counselor: Meeting with a credit counseling agency will give you a better understanding of your situation and financial options to avoid foreclosure. Credit counselors can also help you budget. You can also talk with a housing counselor that’s been approved by the U.S. Department of Housing and Urban Development (HUD).
Try loss mitigation: Foreclosures cost lenders time and money. They often want to avoid the process as much as you do, so they offer several loss mitigation options, such as forbearance, refinance, or mortgage loan modification.
A loan modification might be one of your best options. It allows you to create a repayment plan to catch up on your missed mortgage payments. You may make these catch-up payments over the life of the loan or a shorter period. You may also have a chance to:
Lower your interest rate and monthly payment;
Extend the term of your loan; and/or
Get your lender to forgive part of your mortgage principal or penalties and fees.
If the foreclosure proceedings have recently begun, you’ll need to look at other options.
File for Bankruptcy
Depending on your eligibility, if you file bankruptcy, you can choose between Chapter 7 or Chapter 13 bankruptcy. Chapter 13 is your best option if you want to keep your home. This is because Chapter 13 offers borrowers a chance to repay many of their debts with a 3-5 year repayment plan. During this time, you’ll have the opportunity to pay your mortgage arrears.
Chapter 7 bankruptcy’s primary benefit is that you can discharge most of your unsecured debts. While a mortgage isn’t an unsecured debt, Chapter 7 can still be a good option if you have an underwater mortgage. With Chapter 7, your mortgage lender can’t go after you for a deficiency judgment.
To better understand your options, it’s best to consult with a bankruptcy attorney. They can help you better understand your legal and financial options. A lawyer can also tell you if you can handle the bankruptcy on your own.
Sue the Lender if You Have a Valid Claim
With the help of a lawyer, you can bring a lawsuit against your bank or mortgage company if you believe they’ve violated federal law. This might be the case if:
Your lender didn’t follow the HUD foreclosure timeline as required by federal law or your lender violated state law outlining homeowner foreclosure rights.
Your lender engaged in dual tracking.
The plaintiff in your foreclosure lawsuit can’t prove it owns the promissory note.
Your lender robo-signed foreclosure documents. This is where a lender’s employee signs documents without first reviewing them. In a nonjudicial foreclosure involving robo-signed documents, you could argue that false documents were used during the foreclosure process.
You may also have a case if your loan servicer continues to foreclose on your home but doesn’t follow the correct loss mitigation procedures. For instance, if your loss mitigation application is more than 37 days before the foreclosure sale, then your lender can’t hold the foreclosure sale until at least one of the following occur:
You’re told you’ve exhausted your appeal options or that you aren’t eligible for the lender’s loss mitigation options.
You reject a loss mitigation offer.
You agree to a loss mitigation offer but fail to follow its requirements.
Send a Qualified Written Request (QWR)
A QWR is a letter you send your mortgage servicer asking for information about your mortgage loan. It can also be used to inform your lender that you think there’s an error with your mortgage loan and why. If you decide to sue your lender, the QWR can give you valuable information for your lawsuit. Also if your lender fails to properly respond to your QWR, this can be the basis for a lawsuit.
Consider a Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is an agreement between you and your lender. You give the lender the legal title to your home, and in return, your lender releases you from your mortgage debt. Depending on the agreement and state you’re in, your lender may also release you from any potential deficiency balance. A deed in lieu can help you avoid the negative credit score consequences of a foreclosure or having to pay a deficiency balance. Lenders can also benefit by not having to spend the time and money to foreclose.
Foreclosures can be judicial or nonjudicial. The primary difference is that a judicial foreclosure requires the lender to go through the court to foreclose on your home. Regardless of the type of foreclosure your lender pursues, the process will follow the same general steps. Even if you’ve missed multiple monthly mortgage payments or foreclosure proceedings have already begun, you still have several options that could reduce the impact on your credit report and stop your lender from foreclosing on your home. This can be a stressful time, but remember that you have options, and don’t give up!