It can happen to anyone at any time. Foreclosure doesn’t care if you’re rich, poor, smart, old, young, black, or white.
You lose your job, lose your spouse, have a major health condition. Whatever it is that’s stopping you from paying your mortgage triggers the foreclosure process.
Banks really don’t care to work with you either.
We’ve put together a few ways to help you stop foreclosure in the Worcester and surrounding areas. The market here is unique when compared to other states around the country, so this information is specific to help you in that area.
File for Bankruptcy to Stop the Foreclosure
The first thing you probably thought about was filing for bankruptcy in order to stop foreclosure on your Worcester home.
Bankruptcy is one of the fastest ways to stop foreclosure right in its tracks. In fact, even if the auction is just a few days away, you can file for bankruptcy and they cannot auction it.
Filing for bankruptcy is probably one of the easiest ways but it’s also the least desirable. The only thing that will destroy your credit more than foreclosure is bankruptcy. So, weigh all of your options very carefully before going down this path.
The Automatic Stay Stops Foreclosure (for a while at least)
As soon as you file for bankruptcy something is initiated called an “automatic stay” and it immediately goes into effect.
The stay is an injunction that prohibits the lender from foreclosing on your house or from trying to collect its debt from you.
So, all foreclosure activity is immediately halted right in its tracks until you go through the bankruptcy process.
Chapter 7 vs Chapter 13 Bankruptcy
There are some important difference between chapter 7 and 13 bankruptcy. If your ultimate goal is to keep your home, then Chapter 13 is probably the way that will help you.
IF you’re trying to buy some time and stall the foreclosure process, then Chapter 7 might work better for you.
Here are the quick pros and cons of each type to help you figure out how you can stop foreclosure fast.
Chapter 13 Bankruptcy.
Chapter 13 bankruptcy is all about restructuring your debts. That’s the key.
You aren’t getting out from the debts, but you’re going to restructure them so you can pay them back over a period of time in a repayment plan.
So, you may be able to keep your home and avoid foreclosure because with this bankruptcy option you’ll be able to repay any delinquent mortgage payments.
You may get to eliminate certain unsecured debts such as credit cards. You may be able to get out from under second or third mortgages.
Regardless of what the outcome is, it will definitely buy you some time and slow the foreclosure process down while you weigh your other options.
Chapter 7 Bankruptcy.
Chapter 7 bankruptcy isn’t really a good option to save your home, but it will delay the foreclosure process and provide you time to live in the home without making payments.
The savings can help you save up some money for rental or consult with a real estate agent or home buyer to help you sell it while the foreclosure is delayed.
You can also use this time to try to work with the lender to restructure the loan.
Chapter 7 bankruptcy eliminates your personal liability for your mortgage which means you won’t be liable for any balance remaining after the foreclosure.
Foreclosure Can Continue If…
The lender can attempt to get around the automatic stay by filing a motion to continue with the foreclosure.
Even if the court grants this, you’ve gained a month or two of time which will allow you to seek out alternative methods to avoid foreclosure.
Here are some alternatives to foreclosure.
Apply for a Loan Modification
It’s important to not wait until the last minute to pursue this option. But, even if you do, it may delay the foreclosure. The reason for this is the lender is prohibited from dual tracking which simply means they proceed with foreclosure while the application is pending.
If it’s approved, foreclosure is stopped permanently. If it’s denied, the lender can continue with the foreclosure. Either way, it will help you delay the foreclosure.
Federal Rules About Dual Tracking
The Consumer Financial Protection Bureau (CFPB) set some rules in 2014 that if a complete loss mitigation application is received more than 37 days before a foreclosure sale, the loan servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:
- the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
- the borrower rejects all loss mitigation offers, or
- the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.
Since these are federal rules, it doesn’t matter if you live Worcester, Leominster, Auburn, or anywhere else in the county.
File a Lawsuit to Stop the Foreclosure
If the lender is using a nonjudicial process for foreclosure, meaning it’s being done outside of the court system, then you may be able to stop foreclosure quickly with a lawsuit.
This doesn’t work with a judicial foreclosure because you are given the opportunity to be heard in court. But, if it’s nonjudicial, you can sue for your right to have it heard in court.
To win against the lender, you need to prove the foreclosure should not take place because of a number of reasons. A few examples are the foreclosing lender:
- doesn’t own or can’t prove it owns the promissory note
- Did not follow state mediation rules
- Violated the Homeowner Bill of Rights
- Skipped steps in the foreclosure process
- made some other serious errors.
If you can’t prove a violation of some sort, you’ll only succeed in delaying the foreclosure and not preventing foreclosure.
Also, attorneys and lawsuits are expensive. Here’s the kicker, if you didn’t have a reasonable basis to file the claim, you may end up paying for the lender’s court costs and attorney’s fees!
So, weigh this option carefully.
Selling Your House to Stop Foreclosure
The lender just wants to get paid. The fastest way to pay them is to sell the property.
It may be a tough decision to sell the house, but it’s generally better to sell it than to let the bank take it. Here’s why.
The lender is generally owed less than the property is worth. So, you have equity in it. But, the lender is allowed to be reimbursed for court costs and the cost of foreclosure.
They have absolutely no reason to limit the costs of the attorneys. These costs are through the roof and eat up all of your equity in the property.
Also, when the house goes to auction, the lender is only interested in covering these basic costs. If the house sells for more than what they are owed, you get to keep the difference. So, why would they push the price higher when there is no benefit to them?
Instead, you can sell it and pocket all of the equity.
Listing it on the MLS
The multiple listing service has the widest audience and considered the “traditional” way to sell a home. You hire a Realtor, pay them around 6% of the selling price, then they take some pictures and market it.
The agent will then show the property to numerous potential buyers and try to get an offer from them.
Generally, within 30-60 days you’ll get an offer (depends on the market, city, price range, and a number of factors). If the offer works you’ll accept it and begin the sale process.
The buyer generally gets 7-10 days to do an inspection and renegotiate the sale. Here, you’ll have to hire contractors to fix the problems necessary to keep the deal alive.
Then the buyer will begin the loan process which takes 30-45 days.
During that time the seller’s bank may do an inspection and require certain repairs to make it compliant with their loan requirements.
So, you’ll have to hire another contractor to fix those problems.
Then, if the buyer gets approved, you’ll close on the house.
The whole process takes 65-90 days generally. If the buyer is rejected, you start over.
This is great for people who have a lot of time available to sell and the money needed to do repairs after each inspection.
For Sale By Owner
With this option, you will cut out the agent and do most of the work yourself. You can list it online on a number of FSBO websites. Your job is to stage the property, take calls, show it to buyers, negotiate the deal, etc.
The benefits to this are you’ll save a lot of commission! In exchange, you’ll have to do all the work yourself.
The biggest drawback to this is the vast majority of buyers work with a real estate agent. Since you aren’t paying a commission, the buyer’s agent won’t even show your property to their buyers.
So, you’ve seriously limited the number of people who can buy your property.
Quick Sale for Cash
This is the fastest of all options, but you’ll generally get a little less for your house.
With this option, buyers like us at Caliber Property Buyers will take a look at your property and see what sort of offer we can make. Once we come to a price, we’ll make the offer and can close quickly, sometimes in the same week.
The benefit to this is you can stop foreclosure instantly and permanently. Also, some creative option can be available where you might have help moving to a new apartment, or even be given a bit of time to get out of the house. (Tthe bank won’t be so generous to let you stay after foreclosure.)
The drawback is the lower price. But, once you take into account the months of time it takes to sell the traditional way and all the interest and fees you’ll be accumulating as the foreclosure process drags on, a lower selling price today may actually be better than waiting those months.
Also, once you take into account the Realtor fees, it really tips the scale and makes this option a lot more competitive.
Get Creative to Stop Foreclosure
There are still a couple options that can stop foreclosure. These are a bit more creative and takes more effort, but might be worth your consideration!
Deed in Lieu of Foreclosure
This is exactly what the name suggests. You are giving the deed to the bank and walking away.
You’re giving it to them voluntarily.
Lenders may accept this option, but they’re often wary to take this because there is some risk.
First, they are afraid you’ll sue them later and claim you didn’t understand what was going on.
Second, if they take it they are responsible for paying any 2nd or 3rd mortgages, liens, etc. Also, the lender will want to make sure you actually are in financial distress and foreclosure is one way to make sure you are not faking.
Generally, a deed in lieu is not granted unless:
- Foreclosure is approaching and imminent
- The property has been listed for sale for months and unable to sell
- No 2nd or 3rd loans
- You have a documented financial hardship
- You are the one that initiates the process and its documented that it’s voluntary.
Even with all of those boxes checked, the lender may still not accept it. But, it’s worth trying!
Most loans have a due on sale clause, but some loans are assumable, which means another borrow can take over the loan.
When someone wants to assume your loan, the lender will generally follow the same guidelines as a normal loan application. If the buyer is qualified, they can take over your loan.
If they can do this, you may be able to negotiate a down-payment (which means cash in your pocket so you can move). The borrower may get a house a reduced price. And, the lender will get paid again and avoid having to foreclosure.
It’s truly a win-win-win. This is an option we’ve used a number of times and it’s truly a great outcome for everyone.
This is related but a little different than the loan assumption.
Here, the buyer actually becomes your tenant and you continue owning the property until the buyer has saved enough money as a down payment, improved their credit, or have done whatever they needed to do in order to qualify for a loan. The tenant has an option to purchase for a period of time and can execute it at any time during the option period.
That’s why it’s called Lease-Option because you give them a lease and simultaneously give them an option to purchase.
You’ll get paid rent and can use that money to pay your lender, which will help you avoid foreclosure.
Once the tenant can qualify for a loan, the option to purchase is executed and they become the new owners and your bank is repaid in full.
Weighing Your Options to Stop Foreclosure Now
If you are trying to avoid foreclosure, there are a TON of options. You don’t have to let a bad situation ruin your financial future.
Weigh all of your options and decide which one is the best way forward for you.