Nearly 1 out of every 200 homes experiences foreclosure. As a business owner, it only takes one bad quarter to put your investment properties at risk. When you can't meet your mortgage payments, your lender has no choice but to start the foreclosure process.
However, there are a few ways to stop foreclosure immediately. With more time to get your finances in order, you'll be in a better position to save your property. And, if not, you can at least avoid a technical foreclosure and spare your credit score.
You don't have to lose your real estate. Keep the banks at bay with these 5 ways to stop foreclosure in its tracks.
1. File for Bankruptcy
Debt collectors cannot pursue compensation once you file for bankruptcy. This includes your mortgage lender, meaning you'll keep the property. For now.
In certain situations, your lenders may request court permission to continue collection activities. If this motion passes, the foreclosure process will start again. However, it will take a few months for collectors to go through the courts, which means you'll have extra time to prepare.
Depending on how you file for bankruptcy, you'll still be responsible for some or all of your debts. But creditors are expected to work with you to come up with a repayment strategy that suits your needs. If this repayment plan includes mortgage payments, there's a good chance you'll be able to keep your property.
But let's say it doesn't, which may happen if you file for Chapter 7 bankruptcy. In this case, you've still avoided foreclosure for an extra few months, giving you time to get your savings in order.
2. Have a Short Sale
Have you received a notice of default? If so, your time and options are limited. The mortgage company is preparing to collect as laid out on your borrower's agreement.
As they prepare to auction your property, you could instead have a short sale. The creditors are selling the building anyway, so you'll save them the trouble by doing it yourself. Be prepared to make a case for why they should accept the short sale, even if it's a decent offer.
A short sale means you're selling the property for less than its total mortgage debt. If they agree to the sale, you may be off the hook for any remaining payments. Plus, since there was no foreclosure, you'll avoid any credit score penalties.
3. Sign a Deed in Lieu of Foreclosure
Try stopping foreclosure with a deed in lieu. Here, we use the word try because your lender doesn't have to accept the deed. And in most cases, they won't.
A deed in lieu of foreclosure gives the creditor the title of the property. Although it sounds easier than going through the foreclosure process, it opens up avenues of legal recourse against the bank. Plus, they become responsible for any third-party debts related to the property.
Worst of all, you'll still take a credit hit. So why use a deed in lieu of foreclosure?
It gives you more negotiating power if they accept the deed. You can ask for more time in the home or the dissolving of outstanding debts. They may be willing to offer these incentives as a way to simplify the foreclosing process.
4. Negotiate Ways to Stop Foreclosure Immediately
Here's the reality: Your mortgage company doesn't want to deal with foreclosure. It's time-consuming and always results in a significant financial loss.
This means you have more leverage than you might think. Most banks would rather come to the negotiation table, even if it means changing the agreements of the loan. Although they may lose out based on the original deal, it can still be worthwhile compared to selling the house themselves.
Contact your lender directly. When they know you're serious about paying back the loan, they may immediately stop the foreclosure process. How can you come to a compromise and keep your property?
The lender may agree to a forbearance. For a time, you won't be responsible for any mortgage payments. Once that time has passed, you'll resume payments in addition to paying off those you missed.
Another solution may be a loan modification. You may both agree to a change in the mortgage contract, such as a lower interest rate or a longer-term loan. Either of these options will lower your monthly payments and help you keep the property.
5. Avoid Foreclosure With a Lawsuit
A lawsuit will stop an ongoing foreclosure if your lender has a "power of sale" clause. This gives them the right to pursue the foreclosure process without court oversight. By initiating a lawsuit, you'll make them work with the court system and stop the foreclosure for a brief time.
Of course, filing a lawsuit means you'll have to defend yourself in the court of law. Failure to make a convincing argument will end with foreclosure anyway. In addition to losing your real estate, you'll end up paying for an attorney.
This option is best reserved for those who truly believe their lender broke state law or can't prove you owe the debt in question.
A Foreclosure is Not Inevitable
Too many property owners assume they can't stop a foreclosure. The reality is quite different. In fact, even lenders turn to foreclosure as a last resort.
Now that you know several ways to stop foreclosure immediately, you can keep your property and credit score intact. Before you begin a serious legal process, contact a lawyer to ensure you are making the best decision for your financial debt situation.
For more property advice, explore our blog's Real Estate section. Also visit the Finance and Loan sections to learn more avoid avoiding debt or losing your assets!
