If you’ve fallen behind on your mortgage payments and a foreclosure sale is looming, you may still be able to save your home. Read on to learn about how you can file suit against your lender to potentially stop the foreclosure entirely, or at least delay the foreclosure process.
File a Lawsuit to Stop the Foreclosure
This is the most effective way. If your lender is using a nonjudicial process to foreclose (where the foreclosure is completed outside of the court system), then you can stop the foreclosure by filing a lawsuit against the lender to challenge the foreclosure. (This won’t work if the foreclosure is judicial since by the time of a foreclosure sale, you’ve already had your opportunity to be heard in court.)
To prevail in your lawsuit against your lender, you will need to prove to the satisfaction of the court that the foreclosure should not take place because, for example, the foreclosing lender:
cannot prove it owns the promissory note
did not act in compliance with state mediation requirements
violated the state’s Homeowner Bill of Rights
did not follow all of the required steps in the foreclosure process (as determined by state law), or
made some other grievous error.
File for Bankruptcy to Stop the Foreclosure
This process is life changing. If the foreclosure sale is scheduled to occur in the next few days, you can halt the sale immediately by filing for bankruptcy. 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.
Apply for a Loan Modification
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).
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.
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.
The National Mortgage Settlement Restricts Dual Tracking
Under this settlement (which applies to Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo), if the borrower submits a complete loan modification application more than 37 days before the scheduled foreclosure sale, the servicer cannot proceed to sale while the application is pending.
If the application is submitted at least 15 days before the scheduled sale date, the lender must review the package and, if the borrower is approved for a loan modification, cannot foreclose until the borrower declines or breaches the trial modification.