Life happens. Everyone faces hardships at some point that may cause financial obstacles. Whether you’ve hit a “bump” in the road with paying your mortgage, lost your job, or encountered other financial distress—no matter the reason, we want to help. Our goal is to provide you with ALL the information you need to make the best decision for your unique situation.
While everyone’s circumstances are different, the process for foreclosure and ways to stop it remain largely the same.
Understanding Foreclosure
Before we move forward, it’s important to understand how foreclosure typically works.
In most states, when you’ve missed a certain number of mortgage payments, your lender will file a legal notice called a “Notice of Default” (NOD). In some states, a “Notice of Sale/Auction” will be issued with a specific date for the auction.
States vary in their foreclosure processes:
- Some follow a “non-judicial foreclosure system” (such as Michigan).
- Others have a “judicial system” (like Florida and Delaware).
- Some states, like Georgia and Hawaii, use a combination of both.
Regardless of which system your state follows, once you receive a Notice of Default or Sale, you typically have a period of time to resolve the issue.
Note: We are not licensed attorneys, and this article is for informational purposes only. Please consult an attorney regarding your foreclosure situation.
Myth: A Notice of Default Means You’ve Lost Your Property
It’s a common misconception that receiving a NOD means you’ve lost your home. This is far from the truth!
After a NOD or Notice of Sale is issued, you may have anywhere from 90 days to 7 years (in states like Nevada and Hawaii) to resolve the situation. During this time, some lenders may contact you to negotiate. If they reach out, take advantage of the opportunity to discuss options, such as loan extensions or restructuring.
Two-Notice System vs. One-Notice System
Some states use a “2-notice” system where the NOD is followed by a Notice of Sale. Others only issue one notice. Regardless of your state’s process, once the final notice is issued—the “11th hour”—your property may be sold at auction, and you will lose any equity in the home.
You don’t want to reach this point. That’s why it’s important to take action early.
6 Ways (Plus a Bonus!) to Stop Foreclosure
Here are six options—plus a bonus—on how to stop foreclosure in its tracks:
1. Bank Negotiation
You can negotiate directly with your lender during the NOD stage. Banks are often willing to work with homeowners because they don’t want the hassle of owning property or going through an auction. Contact your lender to discuss modifying your loan or extending your payment terms. If they’ve sent you notices, they may be open to reaching a new agreement.
2. Short Sale
A short sale occurs when you sell your property for less than the loan amount. The bank must consider any offer you receive after a NOD is filed. If the sale price is lower than what you owe, the bank may agree to the short sale, even if it means taking a loss. A short sale is often a better option for the bank than taking the property back and selling it at auction. If this is an option for you, start seeking offers as soon as possible.
3. Bankruptcy
Filing for bankruptcy halts foreclosure proceedings by triggering an automatic stay on debt collections, including mortgage payments. While this provides you with time to sort things out, bankruptcy doesn’t necessarily erase your debt. It may lead to a court-mandated repayment plan, and the bankruptcy will remain on your record. Bankruptcy is a temporary solution that can buy you time, but it’s important to consult with a bankruptcy attorney to understand whether this strategy is right for your situation.
4. Deed in Lieu of Foreclosure
A deed in lieu of foreclosure allows you to voluntarily transfer the property to the lender in exchange for cancellation of your mortgage. This stops foreclosure but comes with some downsides. Most lenders are reluctant to accept deeds in lieu because they don’t want to own property. However, if you’ve struggled to sell the house and are facing financial hardship, it may be worth trying to negotiate this option. Keep in mind, many lenders may still refuse this option.
5. Assumption of the Loan
While most modern loans have a “due on sale” clause preventing the assumption of the mortgage, in some cases, you may be able to negotiate with your lender to have this clause removed. If successful, the new buyer can assume the loan and continue making payments. This can be a win-win situation for everyone, and you may even be able to receive a down payment from the buyer to pay off your outstanding mortgage balance.
6. Lease Option
In this scenario, the prospective buyer becomes your tenant and leases the property until they have saved enough for a down payment, improved their credit, or sold their other home. The buyer typically makes an upfront lump sum payment to secure the option to purchase your home later. This lump sum could help bring your mortgage current, preventing foreclosure. The buyer is likely to make timely payments since they have a vested interest in purchasing the property. While you can’t live in the house during this period, this strategy can be an effective way to stop foreclosure and keep your asset.
Bonus: Sell Your Home for Cash
Finally, one of the quickest ways to stop foreclosure is through a cash sale. If you’re facing foreclosure and want to sell your property quickly, we can often purchase your house in as little as 14 days. There are no repairs required, no closing costs, and no agent fees. You can even leave behind any unwanted items. Selling your home for cash is a hassle-free solution to avoid foreclosure and receive cash in hand (if you’re not too “underwater” on your mortgage).
Foreclosure doesn’t have to be the end. By exploring these options and acting quickly, you can find a solution that works for your unique situation. Be sure to consult professionals for legal advice and to determine the best course of action for you.