While you don’t want to wait until the very last minute with this option, you can delay a foreclosure by applying for a loan modification since the lender may be restricted from dual tracking. (Dual tracking is when the lender proceeds with the foreclosure while a loss mitigation application is pending).
Last Minute Strategies to STOP Foreclosure
Ultimately, if your modification application is approved, the foreclosure will be permanently stopped so long as you keep up with the modified payments.
State Laws in California, Nevada, and Minnesota Prohibit Dual Tracking
California, Nevada, and Minnesota have each passed a Homeowner Bill of Rights that prohibits the dual tracking of foreclosures. This means loan servicers must make a decision to grant or deny a first-lien loss mitigation application before starting or continuing the foreclosure process. (Learn more about the California, Nevada, and Minnesota Homeowner Bill of Rights.)
New Federal Rules Ban Dual Tracking
As of January 10, 2014, under new rules promulgated by the Consumer Financial Protection Bureau (CFPB), if a complete loss mitigation application is received more than 37 days before a foreclosure sale, the 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.
(Learn more about the CFPB’s new mortgage servicing rules in Nolo’s article New Federal Rules Protecting Homeowners With Mortgages.)
The automatic stay will stop the foreclosure in its tracks. Once you file for bankruptcy, something called an automatic stay immediately goes into effect. The stay functions as an injunction prohibiting your mortgage lender from foreclosing on your home or otherwise trying to collect its debt. This means that any foreclosure activity must be halted during the bankruptcy process.
The lender may file a motion for relief from the stay. The lender may attempt to have the stay lifted by filing a motion seeking permission from the court to continue with the foreclosure. Even if the bankruptcy court grants this motion and allows the foreclosure to proceed, the foreclosure will be delayed at least a month or two. This should provide you with time to explore alternatives to foreclosure with your lender. (To learn more about options to avoid foreclosure, see our section on Alternatives to Foreclosure.)
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
If you want to keep your home, a Chapter 13 bankruptcy may help you accomplish this goal. However, if you’re simply trying to buy some time by stalling the foreclosure, a Chapter 7 bankruptcy may be right for you.
Benefits of a Chapter 13 bankruptcy. A Chapter 13 bankruptcy can help you keep your home by restructuring your debts. You will repay debts (some in part and some in full) over a period of three to five years as part of a repayment plan. You may be able to avoid foreclosure and remain in your home with this type of bankruptcy since you can repay any delinquent mortgage payments through the plan.
Also, you will likely pay a fraction (or sometimes, none) of your unsecured debts during the plan period and possibly eliminate certain other debts (such as underwater second and third mortgages since they are considered unsecured loans) entirely when you complete your plan, freeing up money for your first mortgage. Even if you can’t complete the plan, filing for Chapter 13 bankruptcy will give you at least several months before a foreclosure can be completed.
(Learn more in our Your Home & Mortgage in Chapter 13 Bankruptcy topic area.)
Benefits of a Chapter 7 bankruptcy. If you’re already in foreclosure, filing Chapter 7 bankruptcy isn’t a good way to save your home, but it will delay the foreclosure proceedings and provide you with time to live in the home without making payments. (You can put this money towards saving up for a rental. You can also use this time to try to work with the lender to come up with a way to avoid foreclosure.) And, even if you still go through a foreclosure, the Chapter 7 bankruptcy will eliminate your personal liability for the mortgage debt, which means you won’t be liable for any deficiency remaining after the foreclosure. (To learn more about deficiency judgments, see our Deficiency Judgments After Foreclosure area.)
(Learn more in our Your Home in Chapter 7 Bankruptcy topic area.)
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