How to Stop Foreclosure: Defense Basics

As a result of the current economic crisis, many distressed homeowners are wondering how they can stop the foreclosure.  Once a lender starts the foreclosure process, a homeowner has only a limited amount of time to find a viable solution to stop his lender from foreclosing. 

Modify the Mortgage Loan Terms

If a homeowner wishes to remain in his home, loan modification may be an option to stop the foreclosure.  Loan modification entails changing at least one of the loan terms in order to make the payments more affordable for the homeowner.  Typically, a loan modification will involve one or more of the following changes: 

• Lowering the interest rate;
• Changing the interest rate from adjustable to fixed;
• Reducing the principal balance of the loan to the present value of the property; and
• Extending the term of the loan. 

Sell the Property

Selling the property may also be a viable means of stopping the foreclosure.  In instances where the homeowner is behind on his mortgage payments and is underwater, a short sale may be necessary to sell the property.  A short sale is an agreement between the lender and the homeowner whereby the lender agrees to accept less than what is owed on the mortgage.  Anyone who is contemplating a short sale should remember that: 

• A short sale requires lender approval;
• A short sale may have federal and state tax implications; and
• A lender may have the right to seek a deficiency judgment after a short sale. 

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is an agreement between a homeowner and his lender whereby the homeowner transfers title to the property to the lender in order to avoid foreclosure.  As with a short sale, a deed in lieu of foreclosure requires the lender’s approval.  A deed in lieu of foreclosure may result in federal and state tax liability and expose the homeowner to a deficiency judgment. 

Challenge the Legality of the Foreclosure

Some homeowners have successfully challenged a lender’s right to foreclose.  There are a variety of legal challenges that a homeowner can make to a foreclosure action, including:

• Ownership of the loan;
• Standing to foreclose;
• Unconscionability;
• Breach of Contract;
• RESPA, TILA, and other consumer protection violations;
• Servicing errors; and
• Violations of state foreclosure laws. 

A forensic loan audit can be a useful tool in identifying any violations of federal and state law in the loan documents and loan process.  The results of a forensic loan audit can be used as leverage against a lender to get it to agree to a loan modification, deed in lieu of foreclosure, or short sale. 

Getting Legal Help

If you are a homeowner facing foreclosure, you should not attempt to find a solution on your own.  You need the assistance of a qualified foreclosure defense attorney who can assist you in exploring your options and advise you of the legal and tax consequences of those options.