How to Stop a Foreclosure – Step 1

A homeowner can stop a foreclosure by following three general steps to help determine the best option:

1. Step 1: Personal finances analysis (discussed below)
2. Step 2: Finding the best foreclosure solutions
3. Step 3: Taking action, getting the right home foreclosure help

Personal Finances and a Homeowner’s Situation

The first step to a successful home rescue plan is to prepare a clear picture of your personal finances, what they look like currently and what they probably will look like in the near future.  Included in this portion of your analysis, a homeowner should also look at what other personal factors might influence the ability to pay a mortgage and meet other financial obligations. To get started, consider the following:

1. Understand your objectives and needs.  Is the hardship or drop in income temporary or long-term?
2. Determine what time constraints are a factor in your hardship or foreclosure.  Are there any deadlines that you are facing, like a foreclosure sale date?  When facing a foreclosure, deadlines are extremely important to track and abide by.  If you are facing a foreclosure sale tomorrow for example, it is not realistic to attempt a home loan modification, but considering filing for bankruptcy would be a reasonable option to stop a foreclosure.
3. What are the reasons for your default?  A hardship letter should be prepared providing the reason(s) for falling behind or expecting to fall behind on your mortgage payments.
4. Prepare a budget so that you know exactly what your income and expenses are.  This will be a starting point for you to determine what can be done to either increase your income or decrease your expenses, in addition to helping you evaluate what amount of money could realistically be allocated to your mortgage payment.
5. Explore ways to increase your income or available cash.
   1. Do you qualify for public assistance, food stamps, or medical benefits?
   2. Are there any assets that you could sell?
   3. Is it realistic to expect to ask for and receive more hours at work or for you to be able to find a second job?
   4. Do you have any relatives that you could ask for help?
6. Consider how you might decrease your expenses. Particular issues to consider:
   1. Property taxes: Special programs are usually available for people who can not afford to pay their property taxes. This includes installment payment plans, exemptions and deferrals. In California:
      1. Homestead: $7000 is exempt from taxation on the full value of the homeowner’s primary residence. For further information: California Constitution article XIII, § 3(k); California Revenue & Taxation Code § 218.
      2. Elderly: Homeowners who are at least 62 with a gross household income of less than $32,251 (as of 2009, adjusted annually) can obtain tax assistance on taxes paid on the first $34,000 of the home’s assessed value. For further information: California Revenue & Tax Code §§ 20501-20564, plus a provision for property tax postponement California Revenue & Taxation Code §§ 20581-20622.
      3. Disabled: Those homeowners who are disabled are eligible for the same assistance as the elderly. For further information: California Revenue & Tax Code §§ 20501-20564, plus a provision for property tax postponement California Revenue & Tax Code §§ 20581-20622.
      4. Veterans: Disabled veterans and those who died during active duty (surviving spouses are also eligible) can be exempt from taxation based on a number of factors. For further information: California Revenue & Taxation Code § 205.5.
   2. Utilities: Most utility companies offer assistance to low-income homeowners. Homeowners in some areas may be eligible for government assistance through LIHEAP (Low Income Home Energy Assistance Payments) through a local energy-assistance agency.
   3. How to prioritize debts:
      1. Always pay family necessities such as food and medical expenses that are due before service is provided first.
      2. Housing-related expenses are next, such as taxes and insurance if they are not escrowed or included in your monthly mortgage payment.
      3. Pay only the minimum required to keep your utilities on.
      4. Car payments such as car loans or leases for any essential vehicle, including auto insurance for any of those essential vehicles.
      5. Child support commitments.
      6. Income taxes.
      7. Unsecured or uncollateralized loans, typically credits cards or money owed to professionals such as doctors, attorneys, and hospital bills.
      8. Loans collateralized by household goods.
      9. A court judgment does not necessarily move a debt up in priority, unless there is a threat of asset or income seizure, where you must evaluate the price of not paying the debt.
      10. Federal government student loans are medium priority.
      11. The priority of a debt should not be changed by the threat of a lawsuit by a creditor or collection agency, any type of collection efforts or the threat of having your credit history ruined.
7. Set aside money to commit to a foreclosure avoidance plan once you have finalized a realistic budget.
8. Determine the exact amounts for the current mortgage payments, the balance on the mortgage and any arrears.

Next Step…

After completing the steps to clarify and stabilize your personal financial situation, you are ready to evaluate the foreclosure solutions that will help you to stop a foreclosure, which we’ll discuss in Part 2 of this section.

1. Step 1: Personal finances analysis
2. Next >> Step 2: Finding the best foreclosure solutions
3. Step 3: Taking action, getting the right home foreclosure help

More Information

• Hardship Letter Sample
• Prepare a Budget
• Request an Itemized Mortgage Balance
• All Worksheets, Forms and Sample Documentation