If you’re facing foreclosure, you might be able to stop the process by filing for bankruptcy, seeking for a loan modification, or filing a lawsuit.
1. Stop the Foreclosure by Filing for Bankruptcy
If a foreclosure sale is set to take place within the next few days, filing for bankruptcy is the best method to stop it right now.
The automatic stay will put a stop to the foreclosure process. When you file for bankruptcy, something called an “automatic stay” takes place right away. The stay acts as an injunction, preventing the bank from foreclosing on your house or attempting to collect the debt in any other way. As a result, any foreclosure activity must come to a halt.
A motion for relief from the stay may be filed by the bank. The bank will almost certainly try to have the stay lifted by filing a motion with the court asking for permission to proceed with the foreclosure. Even if the bankruptcy court grants this request and allows the foreclosure to continue, it will be at least a month or two before the foreclosure can begin. This should give you enough time to talk to your bank about alternatives to foreclosure.
Bankruptcy under Chapter 13 vs. Bankruptcy under Chapter 7
If you want to maintain your house, a Chapter 13 bankruptcy may be able to assist you to do so. A Chapter 7 bankruptcy, on the other hand, maybe appropriate if you’re only seeking to buy some time by delaying the foreclosure.
By restructuring your debts, a Chapter 13 bankruptcy can help you maintain your house. As part of a repayment plan, you will repay loans over a three to five-year period, some in part and some in whole. Because you can refund any outstanding mortgage payments under the plan, you may be able to prevent foreclosure and keep your house with this sort of bankruptcy.
Furthermore, you will most likely pay a fraction (or none) of your unsecured debts during the plan period, and you may be able to completely eliminate certain other debts—such as underwater second and third mortgages, which are considered unsecured loans—when you finish your plan, freeing up money for your first mortgage. Even if you are unable to fulfill the plan, filing for Chapter 13 bankruptcy will give you at least several months to avoid foreclosure.
If you’re already facing foreclosure, Chapter 7 bankruptcy isn’t usually a smart option unless you can get a loan modification. However, it will postpone the foreclosure process and give you more time to remain in the house without having to make payments. You can use this money to contribute towards a rental deposit. You might also take advantage of this time to try to work out a plan with the bank to avoid foreclosure. Even if you still face foreclosure, a Chapter 7 bankruptcy can wipe off your personal liability for the mortgage debt, meaning you won’t be responsible for any leftover deficit after the foreclosure. Check to see if you qualify for a Chapter 7 bankruptcy.
Additionally, if you have already filed for bankruptcy within the last year, the stay may be reduced to 30 days or removed entirely.
2. Stop the Foreclosure with a Lawsuit
If your bank is foreclosing through a non-judicial method (where the foreclosure is completed outside of the court system), you may be able to delay or stop the foreclosure by filing a lawsuit against the bank. If the foreclosure is judicial, this strategy usually won’t work because you’ve already had your chance to be heard in court by the time of the foreclosure sale.
To win, you must show that the foreclosure should not take place because, for example, the foreclosing bank:
The disadvantage of suing your bank is that if you can’t prove your case, you’ll only be able to postpone the foreclosure process for a short time. Lawsuits can be costly, and if your claims are without merit, you may be forced to pay the bank’s court costs and attorneys’ fees.
3. Request that the servicer postpones the sale.
If a foreclosure auction is imminent, you should consider requesting a postponement from the servicer. Although the servicer is unlikely to agree to reschedule a foreclosure sale, it never hurts to ask.
4. Request a Loan Modification
While you won’t be able to put off a foreclosure by applying for a loan modification or another foreclosure avoidance option until the very last minute, you might be able to avoid foreclosure by applying for a loan modification or another foreclosure avoidance option because the bank may be prohibited from dual tracking. When a bank proceeds with a foreclosure while a loss mitigation application is ongoing, this is known as dual tracking.
If your modification application is approved, the foreclosure process will be permanently halted as long as you make your adjusted payments on time.
Dual tracking is illegal in some states.
For example, California, Colorado, Nevada, and Minnesota have all passed Homeowner Bills of Rights prohibiting the dual tracking of foreclosures. Before beginning or continuing the foreclosure process, servicers must decide whether to grant or deny a (usually) first-lien loss mitigation application. To be protected from foreclosure under these regulations, you must submit your application by a particular time. Consult a lawyer to learn more about specific deadlines.
Keep in mind that the servicer isn’t required to look at more than one loss mitigation application from you. However, if you bring your loan current after submitting an application, the servicer will have to take it into account.
PS: This is not a legal advice, please seek a professional. This is for informational purposes only.
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