How To Stop The Foreclosure Process: 6 Tips For Homeowners

1. Educate Yourself. The last thing any homeowner should do is hide their head in the sand and ignore the problem. Understanding the foreclosure process as well as all your options will allow you to stay ahead of the game. Remember, the further behind you become, the harder it will be to stop the foreclosure process and likelihood of losing your home will increase.
2. Talk To Your Lender. The bank doesn’t want to repossess your house as much as you don’t want them to. So give your lender a call and ask about the options they have to help borrowers through difficult financial times. Contacting a HUD-approved housing counselor can also be helpful. These counselor’s offer their advice free of charge and can help you understand the law and your options as well as help you organize your finances.
3. Budget. Keeping your house should be your first priority. This means, other lifestyle luxuries you may be used to should be put on pause until you’re back above water. Review your finances to figure out where you can cut back and then create a tight budget and stick to it. Cable, memberships, and entertainment are a few examples of “optional expenses” you might consider cutting.
4. Identify Your Assets. Do you own any other assets besides your home? This might include a second car, expensive jewelry, or a whole life insurance policy. If so, you may consider selling these items for cash to help reinstate your loan. Perhaps your true assets lie in your skills and abilities. Can you put these assets to work by getting a second job?
5. Avoid Foreclosure Prevention Scams. If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, beware! You should never have to pay fees for foreclosure prevention help. Use that money instead to pay off your mortgage.
6. Know Your Rights. Find your loan contract and other documents and read them carefully. Your contract should clearly state what your lender may and can do if you can’t make your payments. Foreclosure laws and timeframes vary by state, so be sure you’re up to date on your state’s rules.

How To Avoid A Deficiency Judgement In Foreclosure

To avoid a deficiency judgment in foreclosure, homeowners must either consent to foreclosure, file bankruptcy, or short sale. If a homeowner is still in the middle of his or her foreclosure process, they have the option to fight the foreclosure by hiring a lawyer to help them obtain a loan modification or engage in a foreclosure defense.

But let’s backtrack and first define a deficiency judgement. A deficiency judgement, in its simplest form, is when a homeowner’s house sells during foreclosure for less than the homeowner owes his or her lender. For example, if a homeowner’s property is worth $100,000 but only sells for $50,000, the $50,000 difference is called a deficiency. If a homeowner has this type of judgement against them, they are personal liable for the amount are legally required to pay the money. If a homeowner fails to repay the deficiency, his or her lender can garnish their wages, bank and checking accounts and file a judgement lien against their personal property.

To avoid this judgement, homeowners can choose the short sale route. A lawyer can often negotiate a deficiency judgment waiver during the short sale process. If the homeowner’s lender agrees, the lawyer needs to include this special contingency in the short sale contract.

The second way homeowners can avoid a deficiency judgement is to file either a Chapter 7 or 13 bankruptcy as mentioned above. A Chapter 7 bankruptcy could discharge the deficiency while a Chapter 13 would allow the homeowner to repay the deficiency over a period of time.

Finally, a homeowner can simply agree to a consent foreclosure to avoid a deficiency judgement. If a homeowner agrees to willingly hand their property over to the bank — in order to avoid lengthy court process — the bank will waive its right to pursue a deficiency judgement. This is very similar to a deed in lieu of foreclosure.

If you’re a homeowner, understanding how to avoid foreclosure is in your best interest. If you found any of our tips useful or you have any additional tips of your own, please share in the comments below.