I hear way too many Realtors and investors tell me they missed out on a deal because the homeowner was “too close to foreclosure”. This is never the case! If you find a homeowner and need to delay the foreclosure so you can close the deal, you have options!
Option 1: Bankruptcy
While this will be a “credit hit” to the seller, bankruptcy is an option they can take to delay the auction. The good news is this can be done right up to the morning of the auction and can be done for free! The sellers do not need an attorney, however, you can not act as one and help them if you are not an attorney. But they should know that they can call the local Federal Bankruptcy Court and a Court Clerk will be more than happy to let them know which documents they need to download and file in order to prevent the foreclosure. This is known as the “emergency bankruptcy kit”. If they ask the Clerk for that, they will get what they need.
Some other things the homeowner needs to know:
- If they file an emergency bankruptcy kit, the case will be dismissed unless they file the remaining documents and attend their court date. Most sellers have no intention of doing any of that and dismissal is what they want since it accomplished the goal of delaying the auction!
- Bankruptcy will go on their credit, even if they allow it to be dismissed. However, that is much better than a foreclosure!
- Bankruptcy will not prevent the foreclosure, only delay it. They will still need to either catch up the payments or sell the property.
- Chapter 7 can be done for free with a fee waiver.
- Once filed and dismissed the person will not be able to apply again for a period of time unless for a different chapter. That does not apply to spouses. So to maximize their ability to delay auctions in the future, only one spouse should file. That will allow for 4 different filings (Chapter 7 and Chapter 13 for each spouse) and that means, 4 delays in foreclosure!
Option 2: TRO
A TRO or “Temporary Restraining Order” is a way to delay the auction. This is where an attorney files a temporary restraining order against the lender and a judge rules that they cannot auction the property.
What you are saying to the judge is that you need more time to investigate the possibility that the lender does not have the right to foreclose. Again, this will not prevent the lender from eventually foreclosing, but a delay is all you are looking for!
This tactic has the advantage of not being a detriment to the seller’s credit like bankruptcy. However, this will be more costly and many homeowners simply cannot afford the attorney fees to file a TRO.
Option 3: Call and Ask!
My favorite technique is to have the homeowner call the lender and simply ask for a delay in the auction. No detrimental credit report and FREE!
This usually requires a little training/coaching of the homeowner. I find that most homeowners in foreclosure have bitter feelings toward their lender who probably harassed them for several months. If, however, the homeowner calls with a bitter attitude, they are unlikely to get a delay. But if they call with a remorseful and apologetic attitude, more often than not, you can get a delay.
Having an offer from a buyer that is for more than the payoff can help strengthen the chances of the lender delaying auction as well.
This method is definitely not 100% like the first two…. but I believe always worth the effort to try!