How to Fight Foreclosure
Category : Foreclosure
Foreclosure is a legal process that allows a mortgage lender or municipality where you pay property taxes to seize your property to pay off what you owe in payments or back taxes. However, just because the lender or county files a foreclosure complaint against you doesn’t mean they’ll automatically win. Knowing how to stop foreclosure proceedings may help you keep a roof over your head for a lot longer and even save your property outright.
Trying to Work with the Lender
- Reach out to the lender and explain your situation. If you think you’ll be at risk for missing a monthly payment or possibly several, putting you at risk of foreclosure, reach out to your lender immediately. Don’t sweep the problem under the rug. As weird as it may sound, it’s in the lender’s best interest not to foreclose on you, as it costs close to $30,000 by some estimates for the lender to foreclose. That’s time, hassle, and money down the drain for the lender; they want to avoid foreclosure if at all possible. Talking to your lender will start a dialogue in which both parties can talk about possible solutions before foreclosure becomes the only option.
- Let the lender know if your problems are temporary. If you’ve incurred unexpected medical bills or have been laid off, for example, the lender is more likely to give you a reprieve until you’ve got your head above water. They might ask you to make a payment in one lump sum, or even freeze your monthly payments if you’re lucky.
- Try to modify the loan in your dialogue with the lender. As far as the lender is concerned, 50% of something is better than 100% of nothing. That means they’ll often be willing to modify the terms of your loan to get you paying something, even if it’s not the original monthly amount.
- Try to extend the amortization period. Amortization period is a fancy word for the life of the loan. If you make the life of the loan longer, your monthly payment will go down.
- Change the interest rate. The interest rate of your loan is determined by your credit rating, as well as other factors. Suffice it to know that it can be lowered in order to make monthly payments more manageable.
- Switch from an adjustable rate to a fixed rate. Adjustable rate mortgages (ARMs) usually start off with a pretty low interest rate and then shoot up over the life of the loan. They look nice to start off with but they actually end up being pretty expensive. Switching from an ARM to a fixed rate — where the interest rate stays the same for each monthly payment — can save you a lot of money as well as make the monthly payment much more manageable.
3. Ask for forbearance. Asking for forbearance is a temporary way to stall the foreclosure proceeding, but it works in a lot of instances. Forbearance allows you to either pay partial payments or no mortgage payments for a specified time agreed upon by you and the lender. You must, however, eventually pay the full amount forbore. You may agree to one lump sum payment to catch up on your mortgage or make extra payments in addition to your monthly mortgage payments.
4. Consider hiring a housing counselor. A housing counselor will work on your behalf to get your finances back on track and find a compromise between you and the lender so that foreclosure can be avoided. A good quality counselor will usually be a good investment, especially if they help you hold onto your house.
- Be weary of those housing counselors who “guarantee” a stall or stop in the foreclosure process. These counselors often charge exorbitant sums (think thousands of dollars) and sometimes only stall the proceedings, leaving you no better off than you were to begin with. Visit the Department of Housing and Urban Development’s website to see a full list of approved housing counselors.
5. If you do decide to fight the foreclosure, file a written answer to the foreclosure complaint. Filing an answer and attending the hearing stops the lender or county from obtaining a default judgment against you. Research the defenses to foreclosure — these are the reasons why the mortgage lender or county shouldn’t win, and they are listed below.
- Select the defense to foreclosure that fits your circumstances.
- Write an answer, including your defense to the foreclosure.
- Submit the written answer to the county court where the lender or municipality filed the foreclosure complaint.
Fighting the Foreclosure
- Make the lender “produce the note.” When you sign a mortgage document, there’s a promissory note that lenders are supposed to keep that details all the specifics of the loan agreement. During the housing boom, unscrupulous lenders underwrote so many loan documents and filed them away or sold them off, content simply to know they had made money. Now, many of the documents cannot be found, partly because they were sent off when the mortgage was securitized. The short story is this: if the lender cannot find the note, foreclosure can effectively be postponed, if not stopped completely.
- Making the lender “produce the note” can be effective, especially if the lender used less-than-savory means of getting you to agree to the loan, but it’s not a long term strategy for success. You can buy a lot of time if the lender can’t produce the note, but in most cases you won’t be able to stop foreclosure once the note is found.
2. Consider selling the house before the house is auctioned off. If you can manage to sell the house before the foreclosure of your home actually clears, you can keep whatever equity you still have invested in the home. It may be hard to sell your home on such a quick turnaround, but it’s definitely possible, especially with the market heating up. Read here for more tips on how to sell your home quickly.
- The database that keeps of the chain of title is called the Mortgage Electronic Registration System, or MERS. It was established specifically in order to track the chain of title, a tall task given the rate at which many mortgages were being securitized and then traded. But some courts are skeptical of MERS’ legitimacy. One popular foreclosure defense rests on forcing the lender to independently verify the chain of title without using MERS.
- In order to save your home from foreclosure using the chain of title defense, you’re probably going to need a lawyer. This may be a bit more expensive than some of the other options, but it’s a defense that’s quickly gaining traction.
Stopping Foreclosure by Declaring Bankruptcy
- Understand personal bankruptcy. Bankruptcy is the process of eliminating some of all of your debts in exchange for either regular payments or a seizing of your property. Although it may not seem like an enviable option, it’s the smartest way out of an underwater mortgage for many homeowners. When you file for bankruptcy, the foreclosure proceedings can be stopped with an automatic stay.
- Qualify for bankruptcy. In order to qualify, you have to complete a means test, pre-bankruptcy credit counseling, as well as acquire the correct paperwork such as tax documents.
- In chapter 7 bankruptcy, you ask to have most, if not all, or your debts discharged by the courts. In exchange for this discharge, the courts can take any property not exempt from collection, sell it, and distribute the proceeds to your creditors. With chapter 7, you won’t be able to keep your house, but you will be able to stall the foreclosure for at least a couple of months.
- In chapter 13 bankruptcy, you agree to a plan to pay back all or most of your debts over a certain period of time. The time you have to repay the debt, as well as the repayment plan itself, depends on how much you earn, as well as the types of debt you currently own. With chapter 13, you should be able to keep your home, especially if you think you’ll be able to make payments in the future. The repayment plan usually lasts three to five years.
What Not to Do in Foreclosure