Saving Your Home From Foreclosure

There are some tactics you can employ to avoid disaster

Finally, attaining the home of your dreams—or any home—doesn’t mean it will be safe from foreclosure. A crisis could come that puts you at risk for foreclosure, mainly if your dream house entails significant mortgage payments.

If your home is at risk of foreclosure, the problem should be addressed immediately, and it may be averted by taking the proper steps.


  • There are options you can take to prevent your lender from foreclosing on your home.
  • If you can gather enough money to pay back your missed mortgage payments in one lump sum, then reinstatement of the mortgage is possible.
  • You may be able to negotiate a short refinance with your lender.
  • In the case of a sudden emergency that may soon be ameliorated, you can ask your lender to grant you a period of forbearance.
  • If you end up in foreclosure, it may be worth seeing if a friend or family member might buy the property and offer you a lease on it, with the option of buying the property back.

How to Avoid Foreclosure: What Are the Options?

It is important to scrupulously research the best interest rates available and pick the mortgage term that is right for you. For example, 40-year mortgages will typically allow you to make lower monthly payments than traditional 30-year fixed mortgages. That said, the interest rates for these mortgages tend to be higher. Use an online mortgage calculator to best estimate your total mortgage costs and plan ahead.

If your home is at risk of foreclosure, don’t start packing—take action. The following options for avoiding foreclosure should be easily available to anyone with a government-backed loan provider and built-in mortgage insurance, such as in an FHA loan.


When you are behind on your mortgage payments, reinstatement lets you pay back the amount in lump-sum payment (which may include any interest and penalty charges) before a specific date.

Short Refinance

In a short refinance, the lender may agree to forgive some part of your debt and refinance the remaining debt into an entirely new loan. 

Refinancing your mortgage with a private lender as a hard money loan should be a method of last resort, as the interest rates and fees are extremely high.


Sometimes a short-term financial hitch, such as a medical emergency or a sudden, unexpected decrease in income, may not allow you to make mortgage payments on time. If your lender believes that you have a valid reason behind the missed payments, it may agree to help you out by granting you a forbearance.

Depending on your financial circumstances, your lender may consent to a repayment plan that temporarily lowers your payments—or even suspends them for a specified period. However, to secure this agreement, you will have to assure your lender that you will firmly abide by the new repayment plan.

During the height of the coronavirus pandemic, if a residential borrower was experiencing financial hardship due to COVID-19, they had until Sept. 30, 2021, to request forbearance on their federally-backed mortgage loan for up to six months. Borrowers who entered forbearance between July 1, 2020, and Sept. 30, 2020, were eligible for a three-month extension.1

Mortgage Modification

Loan modification allows you to refinance your mortgage loan or extend its term. The lender may settle for monthly mortgage payments within your financial means. However, to qualify for this alternative, you need to persuade your lender that your money problems are only temporary and will soon be resolved.

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).2

Refinance With a Hard Money Loan

Your lender may refuse to refinance your loan if it considers you to be a high-risk borrower. In this case, you can contact a private lender to refinance with a hard money loan to stop foreclosure. Such loans generally have astronomical interest rates and fees, but one could allow you to buy the time you need to avoid foreclosure.

Bankruptcy will usually not buy you enough time to catch up on your debts; more often than not, it merely postpones the inevitable.

What to Do When Foreclosure Is Inevitable

If your situation makes foreclosure unavoidable, here are some tactics you can use to dampen the financial blow.

Pre-Foreclosure Sale

If you are convinced about your deteriorating finances, the only option left for you is to sell your home for less than the amount required to pay the mortgage loan. You may be eligible for this alternative only if you default on your mortgage payments by a few months or as specified by your lender. Also, you may be required to sell your home in a specific amount of time.

If you can’t bear to move out, you could sell your house to a friend or an investor who will lease the home to you. The best way to do this is to sign a lease (or contract) that includes an “option to purchase” clause, which gives you the right to buy back your home once your finances have improved. However, this alternative does have significant risks, as the investor can borrow against your property or even sell your home without your authorization while you are leasing it.

Deed in Lieu of Foreclosure

Another way is to willingly give your property to the lender in return for pardoning your debt. You will qualify for a deed in lieu of foreclosure only if you cannot sell your home before foreclosure. The only advantage of this option is that you are rescued from foreclosure and the lower credit record that inevitably results from it.


Many people believe that filing for bankruptcy is an excellent solution to foreclosure. In reality, all bankruptcy can do is delay the foreclosure process and possibly buy you some time to catch up on your payments.

Once the bankruptcy-instated suspension is revoked, the lender can ask for a full payment, which may require that you apply for a refinancing loan. However, the chances of getting a refinance loan are almost zero at this point because the bankruptcy declaration will have left you with a negative credit score.

What Is Foreclosure?

Foreclosure is when a home lender seizes and sells your home or property if you cannot pay the mortgage.

How Do I Avoid Foreclosure?

You an avoid foreclosure by always paying your mortgage loan on time. You may also be able to avoid foreclosure by making arrangements with your lender, if you are having financial difficulties.

What If My House is Pre-Foreclose?

If your house is in pre-foreclosure, try to not panic. Ask your lender if you can negotiate back payments, ask if the mortgage can be put into forbearance, or take out a hard money loan, from a private lender.

The Bottom Line

As a homeowner, it is up to you to take all the necessary steps to save your house from foreclosure. The easiest way is to stay away from situations that cause it. Excessive debt, adjustable-rate or exotic mortgages, insufficient emergency resources, lack of insurance, and buying a home you can’t really afford will all increase your risk of foreclosure.

Occasionally, financial setbacks can get in the way of making regular mortgage payments. When this happens, the only wise thing to do is to immediately inform your lender about the situation. In most cases, they will be willing to cooperate with you and help you catch up. Often lenders are not interested in foreclosing on your house except as a last resort, because of the costs and time involved in the process.

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