“Stop foreclosure” is a tricky phrase to say the least. it is often used in situations where ‘postpone’ or ‘delay’ would be more accurate. The Federal Trade Commission (FTC) has deemed the phrase to be potentially misleading. Consequently, they require other clarifying language or phrasing in advertising to homeowners. According to the FTC, “stop the foreclosure process”, or “postpone foreclosure” are preferred. So, let’s sort out the different ways that a foreclosure can be “stopped” and what each really means.
1. Apply for a Loan Modification or other Foreclosure Alternative via a Request for Mortgage Assistance.
If you are facing a foreclosure or just falling behind, this is the best place to start. After years of legislative and regulatory evolution, the National Mortgage Settlement and countless lawsuits, it is generally agreed that a lender is required to “suspend” any foreclosure proceedings while a Request for Mortgage Assistance is being considered. This has not always been the case, and lenders have consistently violated this “rule”. Many homeowners have been led to believe that they were obtaining a loan modification, only to find their home sold at auction. This deceptive practice is known as “dual-tracking”. In many states, lawmakers have passed legislation making the practice illegal and giving homeowners grounds to sue their lenders.
So, theoretically, submitting an RMA will “stop foreclosure”, but only until the lender has rendered a decision. If the request is denied, the lender can then resume the foreclosure process. There is, however, an appeals process available through the Treasury’s Office of the Comptroller of the Currency. Regardless, submitting a complete RMA will “stop foreclosure” until a decision has been rendered. If the decision is favorable, such as the granting of a loan modification or foreclosure alternative, then it is safe to say that the foreclosure has truly been “stopped”!
One popular foreclosure alternative is a deed-in-lieu of foreclosure. In this process, a lender will forego the foreclosure process by simply allowing you to return the property. This solution is appropriate when a homeowner simply cannot afford the house. Frankly, if you force your bank to foreclose and evict you from the property, then you are part of the problem. Voluntarily surrendering the property in good order is honorable, and lenders will often pay you to exit gracefully.
2. File a Bankruptcy
Many homeowners file an emergency bankruptcy to stop a foreclosure sale when they have waited too long. When you file bankruptcy, an “automatic stay” is granted, which postpones a foreclosure or the sale of a home. So, bankruptcy will “stop foreclosure”, but for how long? Well, it depends on the Chapter of the bankruptcy, the District, and the Trustee. In some Districts, a resolution is reached between the Trustee and the lender, allowing you to keep your home with a modified mortgage. In other words, a loan modification is a part of the bankruptcy. However, if the bankruptcy is dismissed for any reason, the lender can foreclose. Also, if the mortgage is not resolved by the bankruptcy, the lender can ask the court to lift the automatic stay and resume foreclosure. Unless the mortgage debt is resolved within the bankruptcy, the lender will resume the foreclosure process.
3. Filing an Injunction or Temporary Restraining Order (TRO).
A court issued restraining order can stop a foreclosure dead in its tracks. If good cause can be shown, courts will grant a restraining order. If a homeowner has filed a legitimate lawsuit against their lender, it is likely that a TRO will be granted. With all of the mortgage fraud, MERS chain of title issues, the robo-signing scandal, and many deceptive practices like “dual-tracking”, many homeowners today find themselves with the upper hand in legal battles with their lenders. In many instances where a legitimate case is filed, the court will grant a restraining order. This TRO stops foreclosure proceedings until the homeowner’s case is concluded. In most states, particularly those with a “judicial” foreclosure process, resolving such a case can take years. Accordingly, lenders facing a legitimate lawsuit will often offer an aggressive settlement in order to resolve the lawsuit.
In addition to the methods listed above, there are other services which postpone foreclosures, using a variety of methods. At the end of the day, the only thing that will truly “stop” a foreclosure is reaching some lasting resolution to your troubled mortgage.