For over a year, people throughout the United States have experienced multiple types of financial difficulties. Many families have had to deal with health issues related to COVID-19, resulting in large medical bills and affecting people’s ability to work and earn an income. Others have suffered job losses or decreases in work hours and income due to pandemic-related business closures. These financial problems have caused some families to be unable to cover their ongoing expenses, including mortgage payments. While many homeowners have been protected from foreclosure by a moratorium put in place by the federal government, this moratorium is coming to an end on July 31, 2021. However, federal agencies have implemented new rules and procedures that may help homeowners avoid the loss of their homes.

Lenders Required to Provide Borrowers With Options to Avoid Foreclosure

For mortgages that are backed by the federal government, including through agencies such as the Department of Housing and Urban Development (HUD), the Department of Agriculture (USDA), Fannie Mae, and Freddie Mac, the Consumer Financial Protection Bureau (CFPB) has implemented a new rule to provide homeowners with protections during foreclosure proceedings. Under this rule, most lenders will be unable to initiate foreclosure proceedings prior to December 31, 2021, and they must meet certain requirements before doing so.

Lenders must determine whether borrowers are eligible for affordable loss mitigation options that will allow them to continue living in their homes. Any homeowners who have not yet taken advantage of their ability to receive a forbearance on missed mortgage payments will be allowed to do so prior to September 30, 2021. Those who have already received a forbearance may be eligible to continue their forbearance based on hardships related to COVID-19. Homeowners who receive a forbearance may have missed payments added to the end of their loans, or they may be able to work with lenders to find ways to make up these payments.

It is extremely difficult to face foreclosure. You may feel angry, upset, and frustrated, and all of those feelings are to be expected. However, if you are in danger of losing your home, it is important to remain calm and to understand how the process works. This is the only way to identify any potential defense you may have, which will give you the best chance of keeping your home. To learn more, our attorneys have created a list of the most frequently asked questions they are asked about foreclosure, and the answers to them.

Is Texas a Judicial Foreclosure State?

Most foreclosures in Texas are non-judicial. This means that when a borrower defaults on their mortgage, the lender can foreclose on the home without first filing a lawsuit against them and going to court. Non-judicial foreclosure is only available when the mortgage deed contains a Power of Sale clause. When a mortgage loan does include a Power of Sale clause, the borrower has already agreed that the lender can foreclose on the home in the event that they default on the mortgage.

When a mortgage loan does not contain a Power of Sale clause, lenders must go through the judicial foreclosure process. This requires them to file a lawsuit and go to court to obtain an order that allows them to foreclose.

If you are behind on your monthly mortgage payments and you have reached the point that your loan is in default, you could be facing a possible foreclosure on your home. You probably realize that if the bank forecloses on your loan, your home will be seized and sold, with the proceeds of the sale will go toward satisfying what you owe the bank. In the meantime, you might not have a place to live, and the foreclosure will leave a lasting mark on your credit.

Most people who are facing possible foreclosure often have a substantial amount of other debt in addition to their home loan. These obligations may include medical bills, credit card debt, and outstanding loans, such as personal loans and educational loans. As a result, it is not unusual for an individual in such a situation to consider filing for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. In certain cases, Chapter 7 bankruptcy might allow you to stop foreclosure proceedings, and a qualified bankruptcy attorney can help you understand your available options.

Bankruptcy Puts a Stay on Collection Activities

Under federal law, filing for bankruptcy of any type will result in an automatic stay being issued on all collections activities related to any debt that you have. The automatic stay applies to foreclosure, even if the lender has already initiated formal foreclosure proceedings. If the lender continues to push the proceedings after the stay has been ordered, your lender is violating federal law, and sanctions against the lender are possible.

Filing a Chapter 7 case stops foreclosure of your home temporarily, helping you gather funds for your transition to your next housing.

Last week we went through a list of ways Chapter 7 buys you time when dealing with a home foreclosure. Included was that filing a Chapter 7 case “can give you time to surrender your home while saving up for moving expenses.” This deserves a more thorough explanation.

Stopping a foreclosure through Chapter 7 or 13 while addressing your whole financial picture can be much better than hurrying a home sale.

The last few blog posts in this series has been about how filing bankruptcy can buy you a few more months or even several years, so you don’t have to sell your home when under pressure from your creditors but rather when you’re financially and personally ready. There’s no greater pressure than when you are under threat of foreclosure by your mortgage lender, and especially when the actual date of foreclosure sale is looming.