How can you stop foreclosure?
Foreclosure is generally due to the homeowner falling behind on their mortgage payments. However, foreclosure can also occur when you failed to pay your property taxes or someone is leveraging a mechanic's lien against your home. It could even be done by an HOA, if they filed a lien against your home for unpaid HOA dues. But how can you stop foreclosure? Let's look at a few options.
Bankruptcy
Bankruptcy is the surest method of stopping a home foreclosure in Texas. The filing halts all collection efforts. A bankruptcy filing puts all of these efforts on hold for around 90 days, unless you're able to enter a debt repayment plan. If you can't enter a debt repayment plan, then the house may still be foreclosed on. Yet the extra time allows you to find a place to live or arrange for the sale of your home.
Bankruptcy may be the only way you can get control over your payments and stay in the property. In Chapter 13 bankruptcy, you enter a debt repayment plan after which most of your debts are discharged. For example, you can reaffirm the mortgage debt and may even negotiate a lower payment. You'll still owe the remaining mortgage balance at the end of the three to five year payment period, but your credit cards and other unsecured debt will go away at the end of the plan.
A Deed in Lieu of Foreclosure
"Jingle mail" or sending the keys back to your lender isn't good enough. You need to talk to their legal department to arrange what is called a deed in lieu of foreclosure. You'll return ownership of the property to them in return for settlement of the debt. You should have legal counsel during this process, because you'll owe the difference between the loan amount and what the property sells for it is not settled in full.
A deed in lieu of foreclosure can sometimes be negotiated. You may be able to arrange when you vacate the property. Your credit won't take the same hit as if you were foreclosed on. If you're working with the lender, you might even be able to take out an unsecured loan for the difference between your mortgage balance and the sale price of the home. Note that you will have to move, but it avoids the embarrassing and stressful forced eviction process.
A Short Sale
One solution to a foreclosure is to sell the house before it is foreclosed upon. This process is made easier if your creditors are informed. However, you can arrange a short sale before the foreclosure on your own. You will rarely sell the house for what are called retail rates. The people able to buy it with cash on short notice are typically wholesalers or investors who pay less than the price you'd get if the house sold for top dollar after a few weeks on the market. If you pay off the loan, you stop the foreclosure. You may be able to negotiate with the new buyer for the ability to remain in the house as a renter for a while. This is more likely if you're selling it to an investor searching for rental properties than an investor who wants to do a fix and flip.
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