Prevent and Manage Foreclosure FAQ

NNo one wants to be forced into foreclosure after finding a suitable home. But sometimes, it's unavoidable in homeownership when times get tough. However, homeowners have several ways to prevent foreclosure or manage the process more smoothly. Below are answers to frequently asked questions regarding foreclosure prevention.

See FindLaw's Real Estate Foreclosure section for additional articles and resources.

• How does foreclosure work?
• I am receiving letters from my lender regarding missed mortgage payments. What should I do?
• Are any free housing counseling services available to homeowners struggling to stay in their homes?
• Are there any alternatives to foreclosure?
• Can I negotiate with my bank to lower my rate and prevent foreclosure?
• Can I sell my house for less than what I owe?
  
• Would filing for bankruptcy prevent foreclosure?
• What will happen to my tenants if my property is foreclosed?
• Can I give my lender the deed to my house instead of foreclosing?
• Do military personnel have any special protections to prevent foreclosure?
• Is there anything else I should watch out for?
• How can a lawyer help?

How does foreclosure work?

Foreclosure is the legal means your lender can use to repossess (take over) your home. When this happens, you must move out of your house. Your bank may conduct a foreclosure auction to sell your home to the highest bidder. They'll give you a notice of sale informing you of their intent to sell the property to a new owner via a public auction or other sale.

If your property's market value is less than the total amount you owe on your mortgage loan, your lender may pursue a deficiency judgment. If that happens, you not only lose your home, but you also owe your lender an additional amount. Both foreclosures and deficiency judgments could seriously affect a borrower's credit score. So, you should avoid foreclosure proceedings if possible.

In states that allow nonjudicial foreclosure, your home loan note or deed of trust may have a power of sale clause. This means your lender can conduct a foreclosure sale without going through the court. Not all state laws allow for this legal process, as many require judicial foreclosure instead.

I am receiving letters from my lender regarding missed mortgage payments. What should I do?

Do not ignore letters from your lender. If you are having problems making payments, call or write to your lender's loss mitigation department as soon as possible and explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. With this information, they may be able to help.

If you've missed payments, your home may have gone into pre-foreclosure. If you do nothing, you could receive a notice of default. You'll soon be facing foreclosure. Ideally, you should get in touch with your mortgage servicing company and resume your monthly mortgage payments.

You may have incurred late fees for past-due payments, but it's better to pay them if possible. You can avoid foreclosure by bringing your payments up to date to restore your relationship with your lender. This is known as mortgage reinstatement.

Are any free housing counseling services available to homeowners struggling to stay in their homes?

Yes. The U.S. Department of Housing and Urban Development (HUD) website provides a directory of HUD-approved housing counseling agencies. You can also call (800) 569-4287 or TDD (800) 877-8339 for the nearest housing counseling agency.

Housing counselors can provide information on services and programs offered by government agencies, as well as private and community organizations that could help you. The housing counseling agency may also provide credit counseling. These services are usually free of charge.

Are there any alternatives to foreclosure?

Yes. You may qualify for several alternatives to the foreclosure process, including special forbearance, in which your lender may arrange a repayment plan based on your financial situation. They may even provide for a temporary reduction or suspension of your payments. Other types of foreclosure alternatives include:

• Loan modification
• Deed-in-lieu of foreclosure
• State foreclosure laws that allow for a redemption period or grace period

Learn more about Alternatives to Foreclosure.

Can I negotiate with my bank to lower my rate and prevent foreclosure?

Some lenders are more willing to adjust your mortgage than others, so you should always call your bank's loan mitigation department to try. Typical solutions banks will put forward include:

• Accepting partial payments for a set period
• Accepting late payments
• Modifying the terms of your loan

The federal government has also set up programs to help homeowners prevent foreclosure. For example, the Homeowner Affordability and Stability Plan was a program offered in 2009 to help struggling homeowners during the Great Recession. It provided options for reducing the interest rate on mortgages.

It offered refinance programs for loans owned by Freddie Mac or Fannie Mae. More recently, the federal government funded state programs that helped many homeowners during the coronavirus pandemic.

Can I sell my house for less than what I owe?

Selling your house for less than you owe is a short sale. In many states, you must get your lender's permission before doing this. If you don't, the lender may sue you after the sale for the difference. If you live in a state that does allow this, you can sell your house for less than the mortgage amount, and the lender can't do anything about it. Finally, short sales typically aren't possible if you have more than one mortgage unless the same lender owns the additional mortgage liens.

Would filing for bankruptcy prevent foreclosure?

Bankruptcy cannot prevent foreclosure, but it can certainly delay it. Once you file, the court can enter a stay, which would cease all collection actions, sales, and foreclosures. The lender must then file for a motion to lift the stay and proceed with the foreclosure. This may be an attractive option if it also makes sense for other reasons. You can use the time to:

• Live in your home for a while longer without making mortgage payments
• Use the money you saved to secure a new place or help with your outstanding mortgage payments.

What will happen to my tenants if my property is foreclosed?

Leases are generally wiped out upon foreclosure unless the lease preceded the mortgage (which is rare). That does not mean, however, that your tenants will leave immediately. You must give them a proper eviction notice (up to 90 days in some places). There are a variety of other potential laws that may prevent your tenants from being evicted (such as Section 8 housing laws).

Can I give my lender the deed to my house instead of foreclosing?

You can. This is known as a deed in lieu of foreclosure. But in most states, the lender can still sue you for the difference between what it sells the house for and what you owe. Thus, this is not an attractive option unless you can get your lender to agree, in writing, to not sue you for the difference. Similar to short sales, this option typically isn't available if there is more than one mortgage on the property unless the same lender holds the additional mortgages.

Do military personnel have any special protections to prevent foreclosure?

Yes. Mortgage lenders cannot foreclose on a house owned by military personnel on active duty unless the lender gets permission from a court. Lenders might not pursue this course of action as it can make for bad publicity.

Is there anything else I should watch out for?

Yes. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, some people may try to take advantage of your financial difficulty. Learn more about Foreclosure Scams.

How can a lawyer help?

A foreclosure attorney can help you get relief before it's too late. They can talk with your lender to renegotiate your mortgage. They may also be able to represent you in court in case a bank has improperly initiated foreclosure proceedings against you.