If you want to save your house from foreclosure, federal law gives you a running start: your mortgage servicer cannot begin any foreclosure action until your loan is more than 120 days past due, and once you apply for loss mitigation the servicer generally cannot push a sale forward while it reviews your request.1eCFR. 12 CFR 1024.41 Loss Mitigation Procedures Inside that window and after it, the tools that actually stop a foreclosure are a loss mitigation application (forbearance, repayment plan, modification, short sale, or deed in lieu), Homeowner Assistance Fund money in states that still have it, a full reinstatement payment, or, when a sale date is close, a bankruptcy filing. Which one fits depends on whether your hardship is temporary or lasting, how far behind you are, and how much time is left.
Know Your 120-Day Head Start
Your servicer cannot file the first foreclosure notice, judicial or nonjudicial, until you are more than 120 days delinquent.1eCFR. 12 CFR 1024.41 Loss Mitigation Procedures That four months is meant to be used, not waited out. Call your servicer’s loss mitigation or home retention department (the number is on your monthly statement) and tell them you want to apply for assistance. Do this even if you cannot make the next payment.
Timing matters after the 120 days too. If you submit a complete loss mitigation application before the servicer files the first foreclosure notice, the servicer cannot move forward with foreclosure until it finishes reviewing your request.2Consumer Financial Protection Bureau. 1024.41 Loss Mitigation Procedures If you submit it after proceedings have started but at least 37 days before a scheduled sale, the servicer still has to pause and evaluate you. Miss that 37-day mark and those protections drop away.
Apply for Loss Mitigation
A loss mitigation application is the single most important document most homeowners will send during a foreclosure crisis. It is what forces the servicer to consider alternatives to a sale, and it is what triggers the anti-dual-tracking protections above.
What to Put in the Package
Requirements vary by lender, but a typical package includes:
- Income documentation: pay stubs from the most recent 30 days and federal tax returns for the past two years, plus a signed IRS Form 4506-C letting the servicer pull your tax transcripts.
- Bank statements from all accounts covering the most recent 60 days.
- A hardship letter explaining what happened (job loss, medical event, divorce, other), whether it is temporary or ongoing, and whether you want to keep the home.
- A monthly budget listing all income and expenses, which the servicer uses to run your debt-to-income ratio.
Accuracy beats volume. Inconsistent or incomplete packages often get denied outright. Ask the loss mitigation department for a checklist before you send anything.
How to Send It, and What the Servicer Owes You
Send everything to the loss mitigation or home retention department, not general customer service. Use certified mail with return receipt, the servicer’s secure portal, or fax with a saved confirmation. You need a verifiable record of when they received it.
Within five business days of receipt, the servicer must acknowledge your application in writing and tell you if anything is missing.1eCFR. 12 CFR 1024.41 Loss Mitigation Procedures Once complete, they must evaluate you for every option available and send a written decision. If you are denied or offered something you think is wrong, you have 14 days from the date of the offer to appeal, and the servicer has 30 days to answer.
What Loss Mitigation Can Actually Offer
The review can end in several places. Which one you land in depends on your numbers and your loan type.
Forbearance or a Repayment Plan
Forbearance pauses or reduces payments for a set period. It does not erase what you missed; you owe it after the pause ends. A repayment plan spreads the past-due amount across future payments, adding a piece to each regular installment. Both fit best when the disruption is short and you expect to be earning normally again soon.
Loan Modification
A modification permanently rewrites terms, usually the interest rate, the term length, or both, to bring the monthly payment down to something you can carry. Past-due amounts typically get rolled into the new principal.3U.S. Department of Housing and Urban Development. FHA Loss Mitigation Program Servicers often require a trial payment plan of a few months at the proposed new payment before finalizing anything. For FHA-insured loans, you can generally receive only one permanent loss mitigation option in any 24-month period.
Short Sale or Deed in Lieu
If the numbers simply do not work, two exits still beat a foreclosure on your credit. In a short sale, the lender agrees to let you sell for less than the balance owed; you generally need a buyer’s offer in hand, and every lienholder has to consent. In a deed in lieu, you hand ownership back to the lender voluntarily, which lenders usually accept only if there are no other liens on the property. Both require a loss mitigation application and approval.
Look for Outside Money and Free Help
The Homeowner Assistance Fund
The Homeowner Assistance Fund, created under the American Rescue Plan Act, gives direct financial help to homeowners hit by the COVID-19 pandemic.4U.S. Department of the Treasury. Homeowner Assistance Fund Depending on the state program, HAF money can cover past-due mortgage payments, property taxes, homeowner’s insurance, utilities, and some home repairs.5Consumer Financial Protection Bureau. Get Homeowner Assistance Fund Help You apply through your state’s housing finance agency, and eligibility turns on income limits and a pandemic-related hardship.
Funds are limited. The program is scheduled to end in September 2026 or when your state’s allocation runs out, whichever comes first.5Consumer Financial Protection Bureau. Get Homeowner Assistance Fund Help Some states have already depleted theirs. Check your state’s status early.
HUD-Approved Counselors
The Department of Housing and Urban Development funds a national network of housing counseling agencies that help homeowners fight foreclosure at no cost. Counselors will review your finances, help build your loss mitigation package, and talk to the servicer for you. Find one through HUD’s website or by calling 800-569-4287.
Reinstate the Loan if You Can Raise the Cash
If you can put your hands on enough money to cover the whole delinquent balance, reinstatement is the cleanest way to stop a foreclosure. You pay every missed principal and interest payment, all late fees, and all legal costs in one lump sum, and the loan is current again. Many contracts and state laws allow reinstatement up to a few days before the scheduled sale, though the exact cutoff varies.
Ask the servicer’s payoff department or the lender’s attorney for a written reinstatement quote. It will itemize every charge and set a deadline. Servicers almost always require certified funds, meaning a cashier’s check or wire, not a personal check. If you come up short by even a small amount, they can reject the payment and let the sale go through. Once you are in active foreclosure, do not assume a partial payment will hold the sale off.6eCFR. 24 CFR 203.556 – Return of Partial Payments
Bankruptcy When a Sale Date Is Close
Filing a bankruptcy petition triggers an automatic stay, a federal court order that immediately stops all collection activity, including a scheduled foreclosure sale.7Office of the Law Revision Counsel. 11 USC 362 Automatic Stay It takes effect the moment you file, without a hearing. Once the lender has notice, it cannot proceed.
Chapter 13 to Keep the House Long Term
Chapter 13 is the bankruptcy tool built for homeowners who want to stay. You propose a repayment plan of three to five years that cures the mortgage default in monthly installments while you keep making your regular current payments.8Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan Plan length depends on your income: below your state’s median, as short as three years; above, generally five. As long as you make the plan payments, the lender cannot foreclose.
Chapter 7 for Breathing Room
Chapter 7 offers no built-in way to catch up on missed payments, but the automatic stay can delay a sale by weeks or months. That pause can be enough to negotiate a modification, line up a short sale, or plan an orderly move out.
The stay is not bulletproof. A lender can ask the bankruptcy court to lift it, and repeat filings meant only to stall foreclosure can lead to reduced stay protections in later cases.7Office of the Law Revision Counsel. 11 USC 362 Automatic Stay
Things to Know Before You Sign Anything
Forgiven Debt Can Be Taxed
If a lender forgives part of your mortgage through a short sale, a principal-reducing modification, or a foreclosure where the home sells for less than the balance, the IRS generally treats the canceled amount as taxable income and the lender reports it on Form 1099-C.9Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not? A special exclusion of up to $2 million on a primary residence applied to debt discharged before January 1, 2026, or under a written arrangement entered into before that date; an extension has been introduced but as of early 2026 has not been enacted. If the exclusion is unavailable, you may still avoid tax if you were insolvent when the debt was canceled, reported on IRS Form 982.10Internal Revenue Service. Instructions for Form 982 Talk to a tax professional before agreeing to anything involving debt forgiveness.
Deficiency Judgments and Redemption Rights
If your home sells at foreclosure for less than you owe, the leftover balance is a deficiency, and in many states the lender can sue you for it. Roughly 10 to 12 states restrict or forbid deficiency judgments, especially on purchase-money loans or nonjudicial foreclosures. Federally held mortgages carry a six-year window to pursue a deficiency.
Some states also give you a statutory right of redemption, letting you reclaim the home after the sale by paying the sale price plus costs within a set period. Those periods range from 30 days in some states to a year or more in others.11Justia. Foreclosure Laws and Procedures 50-State Survey Not every state offers it, and the length can depend on the type of foreclosure, your equity, and whether the property was abandoned.
Avoid Foreclosure Rescue Scams
Companies that promise to save your home for an upfront fee are breaking federal law. Under the Mortgage Assistance Relief Services Rule, no such company can charge you anything until it has delivered a written offer from your lender and you have accepted it.12Federal Trade Commission. 16 CFR Part 322 Mortgage Assistance Relief Services Walk away from anyone who demands money upfront, tells you to stop talking to your lender, claims a government tie, or guarantees a result. Attorneys can charge fees in advance only under narrow conditions.13Federal Trade Commission. Mortgage Relief Scams Verify anyone offering help through HUD’s counselor directory before you pay a cent.