Facing Foreclosure? Here Are Some Options

If you’ve missed a mortgage payment, or a few, you’re probably feeling stressed, and maybe a little embarrassed. First, know that you’re far from alone. Life happens, from job loss to medical bills to surprise expenses, and plenty of homeowners find themselves behind, from a big city like New York, NY to a small city like Oxford, MS. Second, you likely have more foreclosure options than you think.

The catch is that most of them work best when you act early. Here’s how the process works, what you can do about it, and who can help.

This article is for general information only and isn’t legal advice. Foreclosure laws vary by state, so talk with a qualified attorney or HUD-approved housing counselor about your situation.

How the foreclosure timeline works

Foreclosure doesn’t happen overnight. In most cases, it unfolds in stages: you miss payments, your servicer sends notices, and then the lender starts the legal process of taking the home. The exact foreclosure process, steps, and deadlines depend on where you live. Some states go through the courts (judicial foreclosure), while others allow the lender to move forward without a court case (nonjudicial foreclosure).

That gap between your first missed payment and the actual sale is your window to act. 

David DiNatale, managing partner and attorney at Capital Funding, says the best way to use that time is to start talking to your lender. “Communicate and be proactive. This is the most important step. Lenders don’t want red ink on the balance sheet. A foreclosure costs the lender legal fees, months of carrying costs, and usually a loss at sale. Call the servicer as soon as you know you’ll miss a payment, ask for the loss mitigation department, and propose an extended repayment plan that spreads the arrears over 6 to 12 months on top of your regular payment. Get every agreement in writing.”

Don’t ignore the notice

It’s tempting to set that envelope aside and hope things improve. Unfortunately, that’s the move that costs homeowners the most. Elliot S. Schlissel, managing partner of Schlissel DeCorpo, LLP, sees it often. “The most common mistake homeowners make is ignoring a foreclosure notice. There are many things that can be done to save a home facing foreclosure and a foreclosure defense attorney can help educate you regarding those options.”

If hiring an attorney feels out of reach, you may still have support. A HUD-approved housing counselor should be able to walk you through your options along with your local legal aid organization.

Your foreclosure options

The exact path depends on your income, how much you owe, and how much the home is worth. Here are the main options to know:

Loan modification

A loan modification permanently changes the terms of your mortgage. For example, a modification could lower your interest rate, extend the loan term, or add missed payments to your total balance. The goal is a monthly payment you can realistically keep up with.

Steven J. Grace, a  bankruptcy and foreclosure defense attorney in Chicago, says timing and income matter here. “If you fall behind on your mortgage but still have income, contact your mortgage servicer immediately about a loan modification. If you can increase your income by working additional hours or taking a second job, start now, because demonstrating the ability to afford future payments is critical to obtaining a modification.”

If you apply, submit a complete application and keep copies of everything. 

Forbearance

If you’re dealing with a short-term setback, like a temporary job loss or medical issue, your servicer may agree to let you pause your payments or pay a smaller amount for a set period. Forbearance doesn’t erase what you owe, so you’ll need a plan for catching up afterward. Depending on what your servicer offers, you might repay the missed amount all at once when payments restart, or have extra payments added at the end of your loan. 

Repayment plan

A repayment plan is a temporary agreement between you and your lender that spreads your missed payments out over time on top of your regular payment. It typically lasts for a set period, and doesn’t change the term of your original mortgage. Make sure to review the exact documents and terms to understand what you are financially responsible for and when before signing anything. 

Short sale or selling your home

Sometimes keeping the home just isn’t realistic, and that’s okay. Selling on your own terms can protect your finances far better than letting foreclosure run its course. Arman Javaherian, CEO of Homa, puts it this way, “There are more ways out of foreclosure than most homeowners realize. And if keeping the home just isn’t realistic, selling it, even through a short sale, may be better than foreclosure.”

If you owe more than the home is worth, a short sale lets you sell for less than your mortgage balance with your lender’s approval. A deed in lieu of foreclosure, where you voluntarily hand the property over to the lender, is another option. If you go that route, make sure the agreement covers everything you still owe. Both are generally considered less damaging to your credit than a completed foreclosure, though your lender has to agree to them. 

>>Read: Short Sale vs. Foreclosure

Bankruptcy and the automatic stay

Bankruptcy is usually a last resort, but it can be a powerful tool in the right situation. Filing triggers what’s called an automatic stay, which temporarily halts most collection activity, including a foreclosure sale. There are different types of bankruptcy filings, each of which differently affect your mortgage repayments and whether or not you may be able to keep the home.

Bankruptcy also comes with real costs, including a long-lasting hit to your credit, so it’s a decision to make with an attorney’s guidance. Paul Young, Esq. of Young, Marr, Mallis & Associates says it often comes into play when other routes fall through. “If a modification is either not offered or consists of terms that are not realistic for the homeowner, it is important to contact experienced counsel to discuss bankruptcy options to alleviate pending foreclosure and potential sheriff sale action.”

Watch out for foreclosure scams

When you’re under pressure, offers that sound like a rescue can be tempting. Be wary of any company that guarantees it can stop your foreclosure, asks for large upfront fees, or tells you to stop talking to your lender. Legitimate help, like HUD-approved housing counseling, is available for free. 

Know all your options first

Foreclosure feels overwhelming, but it’s rarely all or nothing. Between working with your servicer, exploring a loan modification or forbearance, selling on your own terms, and getting legal advice, you have more room to maneuver than that notice might suggest. The right move depends on your income, how much equity you have, and your state’s rules, so it helps to understand every path and consult with professionals for help before you commit to one.

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