Foreclosure is when a bank or lender takes your home or other property. They can do this because mortgages and home equity loans have the property itself as security for the debt. Payment is guaranteed—at least up to the value of the property—because if the debtor (the homeowner) defaults on the debt, the lender is allowed to take the property.
The mechanics of foreclosure are that the lender gets an order under which the sheriff (or equivalent law enforcement official) seizes the property. The property is then put up for sale at a foreclosure auction. The proceeds of the auction are applied against the amount owed on the mortgage or loan.
How to Stop a Foreclosure Auction
1.) GET THE LENDER TO AGREE TO STOP IT
Lenders do not want your property—they want their money, the money you promised to pay them when you took out the loan. (Think about it: if the bank wanted property, it could go and buy some.) If you have a credible and reasonable repayment plan, and especially if you can make a substantial good faith payment towards it, you may be able to get the lender to agree to hold off on selling your home in foreclosure while they see if you’re good for the money.
2.) PAY THE ARREARAGE
“Arrearage” is what you owe on the loan to bring it up to date—any missed or short payments. While you have to check your state law, most states give the homeowner the right to redeem their property almost up to the very last minute of the auction, by paying what they owe.
3.) ENFORCE THE RULES
Foreclosure is a legal mechanism. Legal proceedings or remedies have rules, such as rules for how much notice to give the other party (in this case, you), how papers need to be served on—or sent to—parties, the proper way to identify the people and assets involved in the proceeding, etc. If the bank or its lawyers have done something wrong, you may be able to challenge the foreclosure and the auction. However, this is usually only a stay of execution, not a pardon—nothing stops the bank from trying again. However, sometimes a little extra time is all you need, or is valuable in and of itself.
4.) FILE FOR BANKRUPTCY
When bankruptcy is filed, all collections efforts—and that includes foreclosure—must stop. If you are unable to make your mortgage payments, bankruptcy may not be a bad option for you anyway.
Depending on the type of bankruptcy you file and your circumstances, this is generally not a permanent stop—secured creditors, like mortgage lenders, have a lot of protections, and can often ultimately foreclose on the property unless the bankrupt debtor can at least make arrangements to pay off the debt over time. However, as with challenging a foreclosure by enforcing the rules, sometimes a delay is enough—it may at least give you time to make other living arrangements, to find other financing, or to work something out.
How a Lawyer Can Help
Banks have lawyers—you should, too. A lawyer will know your rights under bankruptcy law and state law; will be able to advise you on the course of action that makes the most sense for you; can negotiate on your behalf; and is in a better position than you to make sure the bank follows all the rules.
