5 Proven Ways to Stop Foreclosure of Your Home

Loan modification is a process negotiated with the mortgage lender. It feels like and very closely resembles starting the loan from scratch. It is designed to make the loan more affordable for the homeowner and remove the burden of having to pay a large lump sum to bring the loan current.

The loan modification process usually adds the amount in arrears to the loan balance, changes the loan interest rate and monthly payments, and often extends the duration of the loan back to 30 or even 40 years.

A loan modification often works best when:

• You are behind on your mortgage
• Your foreclosure auction date has NOT yet been set
• You had a hardship that caused you to miss payments (illness, loss of income, etc.)
• Your hardship situation has changed, and you now have the financial means to support loan payments (you are now healthy, you are back to work and you have stable income that is sufficient to make payments)
• You can prove or document both your hardship and the improvements in your finances since the time of hardship

A loan modification requires filling out a formal application with the lender, providing evidence or proof of hardship, proof of income to support the newly recalculated loan payments, and often additional financial information. It is like a new mini-loan application.

Approval for a loan modification is not guaranteed. It is up to the mortgage lender after it considers all factors in the application.

If you want to explore this way of stopping foreclosure, contact your mortgage lender and request a loan modification application. You will have to be patient and supply all of the requested paperwork.

If your foreclosure auction date has already been set and it is close, check with your lender if you are too late for a loan modification application.

If so, consider looking at the other proven ways to stop foreclosure below.

The surest way to stop a foreclosure auction is to pay the mortgage lender the full amount of the arrearage. Of course, if you could do it, you would have done it already, but...

Still, here are some less conventional ways to raise money that you may not have considered:

1. Hardship Withdrawal from a Self-Directed Account

If you have any self-directed retirement accounts (Roth, SDIRA, or others), you can often withdraw money for hardships without tax penalties (consult your CPA about this).

2. Employer Retirement Plan Hardship Withdrawal

If you have any kind of retirement plan with your employer (such as a 401(k), Solo 401(k), or others), you can often withdraw money for hardships without penalties.

3. Employer Retirement Plan Loan

Sometimes your employer's retirement plan administrator may allow you to borrow money from your own retirement account if you cannot simply withdraw it. You will slowly pay the loan money back to yourself.

4. Employer Loan Against Wages

If you have been employed by the same smaller company for some time, you may be able to request a loan from your employer against your future wages. It is not typical, but let us say you work for a small company and have a good working relationship with your boss. It may be worthwhile to talk to your boss and explain your predicament with the mortgage lender. The worst thing that can happen is that you will get a “no.” But you will not get the money if you do not ask.

5. Sell or Borrow Against Hard Assets

Do you have hard assets other than your primary home, such as rental properties, vacant lots or land, mobile homes, RVs, or paid-off trucks or cars? Those assets are often easy to pledge as collateral and borrow against, or to sell quickly.

6. Take on Family Members as Partners

If you have family members with cash to help you save the home, consider giving them a portion of the ownership in the property in exchange for the cash needed to save your home from foreclosure. Sometimes it means swallowing your pride, but desperate times call for desperate measures.

7. Sell Future Ownership of Your Home and Keep Present Ownership

This is a highly unconventional strategy. But if all other options are exhausted, it could work. It often works better for older homeowners with a low loan balance who do not have heirs they intend to pass the property to.

If that is you, you may be able to raise cash by selling a future interest in your property to an investor with a long-term investment horizon while you retain ownership and possession through a life estate in the property.

If that option is of interest, we may be able to connect you with such investors. Visit TexasForeclosureAnswers.com/life_estate to reach out and explore this option.

A TRO is a legal action that requires filing a mini-lawsuit against your mortgage lender and requesting that a county court grant a temporary stop or postponement of the impending foreclosure sale.

The TRO lawsuit is often filed very close to the auction date, often within one week of the auction, when other remedies to stop the foreclosure sale have failed.

This legal action is often used when:

• The date of the foreclosure auction sale is very near
• The owner is unable to negotiate a postponement or loan modification with the lender
• The owner does not have the financial means to pay the lender
• The owner is facing an imminent loss of the property
• The owner is likely to lose a large amount of equity in the house

To extend that postponement further, filing an additional lawsuit is required to continue litigation against the lender.

Continuing litigation against a mortgage lender in a separate lawsuit could take months and cost tens of thousands of dollars. If you are planning to do so, you will likely need to file a TRO just to stop the foreclosure as your first step.

However, in most cases, filing a TRO is used as a one-time tool to delay a foreclosure auction for 30 days.

In other words, filing a TRO may buy you a month of time to either raise the funds to bring the loan current or sell the property and get some cash for your equity. Often it is a better option than losing your property at the auction.

So, let us say you think a Temporary Restraining Order (TRO) is something that can help you. You will want to hire a lawyer experienced in filing TROs and persuading the courts to grant them.

Visit TexasForeclosureAnswers.com/tro_attorney to request a referral to a law firm with a lot of experience filing TROs in Texas. The firm does a lot of work for parties who need to stop a foreclosure auction at the last minute.

Keep in mind that filing a suit for a Temporary Restraining Order (TRO) could be a somewhat expensive way to stop the auction for a short time, and there are no guarantees that the Court will approve it. But sometimes it is the most effective one if you have a plan for using that time to either raise money or sell the property.

A short sale is a term used to describe a process mortgage lenders use to cut their losses on over-financed properties in foreclosure, instead of taking them to the auction block.

A Short Sale is often used when:

• A homeowner is behind on loan payments
• A homeowner owes more total loan debt on the property than the property can be sold for
• The lender realizes it may not be able to sell the property at the auction and recover the loan balance
• The lender is looking to cut its losses and get the property sold on the market rather than taking it to the auction
• The homeowner realizes they will not be able to sell the property on the market and make any money from the sale

With a short sale, the lender may allow the sale of the property at a lower price and agree to accept a lower total payoff on the loan than the full balance owed.

The short sale process requires the owner to list the property for sale with a real estate agent. The list price is often set below market value to speed up the process.

The mortgage lender is in control of the short sale process. Usually, the lender requires the homeowner to submit an application for a short sale. The property has to be listed for sale with a real estate firm.

Once a purchase offer from a buyer is accepted, the lender has the right to approve or decline the offer. The lender usually wants a closing or settlement statement prepared by the title company in advance so it can see how much it will receive in net proceeds at closing.

The main benefits to homeowners who take the short sale route are:

1. It stops the auction sale of the property.
2. The short sale is not reported as a foreclosure auction sale on the credit report, so it may result in less credit damage.
3. Often, if requested, the mortgage lender will release the homeowner from liability for the deficiency, meaning the amount it is losing on the loan that it might otherwise require the homeowner to pay.

Challenges with a Short Sale

1. Lenders often take 30, 60, or 90 days just to review submitted short sale contracts and approve or decline them. That means buyers have to wait a long time just to learn whether their offer was truly accepted.
2. Most buyers have limited interest-rate lock windows and letters of preapproval with three- to four-week timelines. Therefore, they are often not willing to wait a month for a mortgage lender to give the short sale contract a green light.
3. Most real estate agents will not take a short sale listing. Short sales take much more work from the real estate agent than a usual listing. They also take a lot longer to close, and there is an additional layer of uncertainty about the closing.

The good news is - there are still some real estate agents who specialize in short sales. They are patient. They are skilled in the short sale process. They can help and advise both homeowners and buyers on how to put together short sale packages and contracts that the mortgage lender is more likely to approve.

Should you decide to take the short sale approach to stop your foreclosure sale, feel free to visit TexasForeclosureAnswers.com/short_sale_realtor to get a referral to a real estate agent in your area who understands short sales and can help you push the process forward.

If your home is sold at the foreclosure auction, the sale will be recorded in your credit file with all three credit bureaus and kept there for seven years. As a result, you will suffer long-lasting credit damage.

Often, when the home is sold at the auction, other adverse situations arise in addition to credit damage:

1. Somebody else now owns the house, and they will request that you vacate quickly.
2. If you still live in the house at the time of sale, you will not have time to plan your move to a new place.
3. You may not have the funds to cover moving expenses and pay for a new place.
4. If you have a lot of equity in the home, you may not receive any money for it if the house has been auctioned off.
5. If the property is owned by the heirs of a deceased owner, the heirs will be cut off from ownership.

If you tried all other options, they failed to stop foreclosure for you, and you are now facing a fast-approaching auction date, it may be time to consider a quick sale to an investor.

The benefits of selling to an investor:

1. An investor, unlike a regular homebuyer, does not usually expect to move into the home. Therefore, an investor can work with you to offer a reasonable timeline to find a new place and move.
2. An investor may help with moving expenses and even with movers.
3. An investor may be able to help you rent a new place if your credit is shaky and you cannot get a good rental place on your own.
4. You will get the funds to move and some additional money to help pay bills after your move.
5. You preserve your credit from the long-term damage of the auction sale. In some cases, an investor may be willing to take over responsibility for the payments and continue making payments on your loan. A year or two of steady loan payments to your mortgage lender will rebuild your credit and increase your credit score.

Keep in mind that pre-auction situations are very dynamic. The timeline is often much shorter than with a traditional 30- to 45-day sale through a real estate broker.

Stopping the auction requires special expertise and skills to deal with mortgage lenders and title companies quickly and efficiently.

Often, there are other obstacles to navigate, such as liens, judgments, unfinished estate matters, or heirship issues. You want to work with a party who understands how to push through all of these challenges and get you to the closing table quickly.

If you are thinking of selling to an investor, visit TexasForeclosureAnswers.com/sale_to_investor to get a referral to an investor in your area.