Ways to Stop a Mortgage Foreclosure

The mortgage foreclosure process can be lengthy and confusing—but the good news is that borrowers have options to stop the process before an auction takes place.

If the borrower wants to keep the property, their options include:

Make a Payment

Contact the lender to determine the total amount owed to bring the mortgage loan up-to-date. If possible, pay that amount in full (this is called “reinstating” the loan).

Borrowers may also be able to work with lenders to repay the missed payments in installments. Note: This will be in addition to making the current payments, which may be an additional financial hardship.

Mortgage Forbearance

Under certain financial hardship conditions, borrowers can apply for a mortgage forbearance which temporarily pauses (but does not waive) mortgage payments. Mortgage forbearances are not automatically approved, so borrowers should have a backup plan. 

Loan Modification

Borrowers and lenders can agree to modify the loan in an effort to both bring the loan up-to-date and lower the future monthly payments. Common loan modifications include adjusting the interest rate, adding the outstanding debt amount to the loan, and lengthening the repayment term. The principal loan amount, however, will not be decreased in a modification.

If the borrower wants to get rid of the property, their options include:

Deed-in-Lieu of Foreclosure  

A deed-in-lieu of foreclosure is an agreement between the borrower and lender where the borrower voluntarily vacates and turns over the deed and keys to the property to avoid foreclosure. Borrowers need to be aware that the agreement with the lender should relieve the borrower of all outstanding debt owed on the property—otherwise, the lender could seek to recoup the difference.

Lender-Approved Short Sale

In a short sale, a borrower sells the property to a third party for less than the outstanding debt amount owed to the lender. A lender must approve this kind of sale and acceptance of the sale proceeds by the lender should forgive any remaining debt owed to them by the borrower.

Sell the Property

Borrowers can sell the property to a third party (usually a real estate investor, but not always) and use the proceeds to pay off the mortgage loan. Real estate investors could pay cash or agree to reinstate the loan and take over the mortgage payments on the borrowers’ behalf (this is referred to as purchasing “subject to”). Non-investor purchasers could also pay cash or they may take out their own mortgage loan to finance the purchase. Note, however, that waiting for a buyer to get a mortgage may also be a lengthy process so borrowers may want to consider seeking cash offers if their timeline is short (which is usually the case).

This kind of sale must close and be on record at the local registry of deeds prior to the foreclosure auction.

Note: If the value of the property is less than the outstanding loan debt, listing the property for sale on the MLS will be considered a short sale and the lender must approve it.

Last ditch option:

File for Bankruptcy

Filing for bankruptcy should be a last resort to stop a foreclosure. Doing so places an automatic pause on foreclosure proceedings so the lender cannot bring the property to auction; however, it has serious consequences for the borrower. Based upon the kind of bankruptcy filed, the borrower may be able to keep their property. Borrowers are highly encouraged to seek legal advice if they want to exercise this option.  

Additional Resources:

“How Many Mortgage Payments Can You Miss Before Foreclosure?,” Jim Akin, https://www.experian.com/blogs/ask-experian/how-many-missing-mortgage-payments-before-foreclosure/

“How to Stop Foreclosure,” Jeanne Lee, https://www.bankrate.com/mortgages/how-to-avoid-foreclosure/

“Last-Minute Strategies to Stop Foreclosure,” Amy Loftsgordon, Esq., https://www.nolo.com/legal-encyclopedia/last-minute-strategies-stop-foreclosure.html

“Mortgage forbearance: What is it and how does it work?,” Ruben Caginalp,https://www.bankrate.com/mortgages/everything-you-should-know-about-mortgage-forbearance/

*Disclaimer: This blog post is for informational purposes only. Nothing contained in this post shall be construed as legal advice.