No one wants to come home only to discover a Notice of Default posted on the door. Unfortunately, if you fall significantly behind on your mortgage payments, this is exactly what your future holds. A Notice of Default marks the beginning of the foreclosure process. The good news is that foreclosure isn't a rapid event, and you have options that will allow you to stop the foreclosure before your home ends up on the auction block.
You can apply for a loan modification at any time – even during the foreclosure process. Loan modification is a method by which your lender restructures your loan and makes your payments more affordable. After submitting your loan modification application, your lender adjusts your mortgage to reflect the new payments. You must then pay the new payment on time for a three-month trial period. If you successfully do so, your loan modification becomes permanent and the bank terminates the pending foreclosure.
Sell Your Home
One way to stop the foreclosure process is to sell your home and use the proceeds from the sale to pay off your mortgage. If no debt exists, neither does the need for a foreclosure. If you can't sell your house for enough to pay off your home loan, consider requesting permission from your lender to do a short sale. If your lender agrees, you can still sell your home – even if the sale proceeds don't pay off your mortgage.
Deed in Lieu
Foreclosing on a home isn't cheap. Because of this, many lenders are willing to accept a deed in lieu of foreclosure. With a deed in lieu option, you sign over your mortgage title to the bank. Although you don't get to keep your home, you don't have to carry a foreclosure on your credit record for the next seven years. Some lenders even offer a “cash for keys” option in which the lender pays you a set amount of money to turn over your home's title and move out without damaging the property.
After you file a bankruptcy case, creditors are temporarily prohibited from conducting collection activity during a period known as the “automatic stay.” Thus, filing a bankruptcy case will immediately stop the foreclosure process – even if you wait to file until immediately prior to the foreclosure auction.
The type of bankruptcy you file has an impact on how likely you are to keep your home. Chapter 7 bankruptcy requires that you liquidate your assets. Many individuals lose their homes in a Chapter 7 bankruptcy. Chapter 13 bankruptcy, however, restructures your debts and provides you with a payment plan that can help you save your home.
- NOLO: Foreclosure Timeline – After You Receive a Formal Notice of Intent to Foreclose
- Law Office of James C. White, L.C.: Mortgage Loan Modifications – How They Work and What to Avoid
- U.S. Department of Housing and Urban Development: How to Avoid Foreclosure (p.5)
- Homeownership.org: Foreclosure Help for Homeowners – Cash for Keys
- CNN Money: Bankruptcy Can Help Save Your Home From Foreclosure
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.