When Is It Too Late to Stop Foreclosure in Texas?

Introduction

Foreclosure for a homeowner is the beginning of a ten-year nightmare (I talk more about the fallout at the end of the article). Not only do you lose your home, it's a nuclear bomb to your credit and financial future on top of being humiliating and dehumanizing.

Take action early and explore all possible options - if you slam the brakes too late, you might end up like the car in the above photo (that hit my wife)! Let's go through the details of what, how, and why.

The short answer is that until the auction happens (at least in Texas), it's not too late to stop foreclosure. Let's go through the details and your options. Keep in mind I'm not a lawyer and this is not legal advice.

Understand the Foreclosure Process

Foreclosure is the legal process by which a lender (for most people, the bank) takes possession of a property. It can happen for various reasons, but most commonly is due to missing mortgage payments.

The Typical Foreclosure Timeline

Missed Payments: It all begins when you miss your mortgage payments. Most mortgages have a grace period of a few days or a week or two before considering the payment late - check your mortgage documents to be sure. However, once you miss two to three consecutive payments, the lender will typically start the foreclosure process.
Notice of Default: After several missed payments, the lender will issue a Notice of Default (NOD). This is a formal notice that informs you that you are in default and gives you a specific period, commonly 90 days, to bring your payments up to date.
Pre-Foreclosure Period: During this period specified in the NOD, the lender may work with you to avoid foreclosure by offering alternatives like loan modification or repayment plans, but these seldom pan out (and I'll tell you why later).
Auction and Sale: If you cannot resolve the default within the specified period, the lender will schedule a foreclosure auction. Your property will be sold to the highest bidder, at which point it's game over for your property ownership.
Post-Foreclosure: After the auction, you'll have to vacate the property. If you don't do so willingly, the police will do so forcibly. The foreclosure will remain on your credit report for up to seven years and will make it extremely difficult to buy a home (or use credit) again in the near future.

The Pre-Foreclosure Period: Peace Talks

This is your time to shine. The pre-foreclosure period offers the most opportunities to prevent foreclosure, but you need to be proactive and realistic.

When you realize you'll get behind on payments, contact your lender immediately. Most lenders do not want to foreclose on you, despite what you may think! I cannot emphasize this enough, don't think it will just go away, because it won't.

Loan Modification: This involves changing the terms of your loan to reduce your monthly payments to a more affordable amount. This usually means extending the loan term, reducing the interest rate, and rolling overdue payments back into the loan.
Repayment Plans: The lender might agree to a repayment plan where you pay back the missed payments over time, along with your regular mortgage payment.
Forbearance Agreements: In some cases, lenders might offer forbearance, allowing you to pause or reduce your payments for a certain period, giving you time to catch up financially.
Explore Refinancing Options: Refinancing your mortgage to obtain a lower interest rate or different terms is a viable option to reduce your monthly payments, assuming a lower interest rate is available.

One point I'd like to emphasize here: many homeowners facing foreclosure simply can't afford the payments anymore, and using a method above doesn't change that fact, it only delays the inevitable. You've been warned!

Notice of Default: Escalating Tensions

Receiving a Notice of Default is a wake-up call. The lender is now serious about pursuing foreclosure and preparing to repossess the property, but it there's still time to act, typically 90 days.

If none of the options during the peace talks phase worked, there are other options, albeit more desperate. These options will also hurt the bank's willingness to work with you, so keep that in mind.

Temporary Restraining Order: Filing a TRO against the bank will again delay foreclosure for a few months. Speak to an attorney for more details on this option. If a few months makes all of the difference, this might make sense.
‍Bankruptcy: Filing for bankruptcy will delay foreclosure for a few months. Again, speak to an attorney about this one. This will blow up your credit and you're still on the hook for the mortgage.
Family Money: Just remember, family money comes with family opinions. Prepare to hear these opinions every Christmas, Thanksgiving, and Easter. I hesitate to mention this one but it's an option nonetheless.

Approaching the Auction: Nuclear Codes

As the foreclosure auction date approaches, the bank readies the shiny briefcase with the big red button. Your options are limited, but there are still steps you can take to avoid losing your home.

Once the NOD period ends, the lender will schedule a foreclosure auction. This date is typically set a few weeks to a couple of months in advance and gives you a final window to act.

At this point, if none of the other options have worked or aren't viable, you need to consider selling. I know this is the option everyone wants to avoid, but it's about the only option left.

Last-Minute Options to Consider

Property Sale: Depending on the condition and value of your house, you may be able to sell it on the MLS traditionally. Note that this takes months which is precious time you don't have.
Short Sale: If your home's market value is less than the mortgage balance, you might opt for a short sale, where the lender agrees to accept less than what is owed on the mortgage.
Deed in Lieu of Foreclosure: You can voluntarily transfer the deed to your lender to avoid foreclosure. It can be less damaging to your credit than a foreclosure but also means the loss of all equity.
Selling the Property Quickly in a Cash Sale: Some companies specialize in buying homes quickly, even if they are in pre-foreclosure. This can provide you with the cash needed to pay off your mortgage and avoid foreclosure.

If you're in the Austin area or Central Texas and are considering selling while facing foreclosure, reach out to us - we specialize in fast, fair, cash offers and can close as quickly as a week.

After the Auction: Radioactive Fallout

If the auction proceeds and your home is sold, it's game over. The big red button has been pressed and it's too far gone now. You might think foreclosure is the end of the problem, but believe me, it's only the beginning.

In Texas, this ten-year hellscape begins with the sheriff dragging you, your family, and all of your possessions to the curb in front of all of your neighbors and friends.

Then, over the next decade, prepare for all of the following:

IRS garnishing your wages to recover taxes for the 1099 the bank will file against you for up to the full value of the loan
Creditors and debt collectors hounding you every hour of the day to collect on the judgment filed against you for the full value of the loan
Not being able to buy another home
Not being able to buy another car
Not being able to get a credit card
Not being able to find a place to rent

That sure doesn't sound fun to me.

Concluding Thoughts

Believe me when I say, foreclosure is an event that can and should be avoided at all costs! Act early, communicate often, and explore all of your options with your lender. Don't be afraid to seek professional advice and assistance and good luck!