If you’re behind on your house payment or about to be, mortgage foreclosure help starts with a simple fact: federal law gives you at least 120 days of protection before your servicer can file the first legal step toward taking your home.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures That window exists so you can apply for a loan modification, forbearance, repayment plan, or government assistance — and if keeping the home isn’t realistic, so you can negotiate a controlled exit that limits the damage to your credit and finances. Most servicers would rather settle on terms than foreclose, because foreclosure is expensive for them too. The key is moving quickly.
The 120-Day Window Before Foreclosure Can Start
Your servicer cannot file the first notice to begin foreclosure until you are more than 120 days behind on payments.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures That’s roughly four months from your first missed payment. During that window, the servicer must reach out to you about loss mitigation options, and you can submit an application at any time.
What happens after those 120 days depends on your state. In about half the country, lenders have to file a lawsuit and go through the courts, which gives you a chance to raise defenses in front of a judge. In the other half, lenders can sell the property without a court case after a notice-and-waiting process set by state law. Non-court states move faster, which makes acting during the 120-day window even more important.
Options to Keep Your Home
Loss mitigation is the industry term for any arrangement that resolves a delinquent mortgage without foreclosure. Your servicer is required to evaluate you for every option you qualify for.
Loan Modification
A loan modification permanently rewrites your mortgage terms to make the payment affordable. For loans backed by Fannie Mae, the servicer works through a specific sequence: capitalizing missed payments into the balance, adjusting the interest rate, extending the term up to 480 months from the modification date, and deferring part of the principal as a non-interest-bearing balance due when you sell or refinance.2Fannie Mae. Flex Modification The servicer keeps going through the steps until your payment drops by at least 20%. Freddie Mac uses an aligned process.3Federal Housing Finance Agency. Loss Mitigation
Modifications are the most common loss mitigation outcome because they fix the underlying problem: a payment that’s larger than you can handle.
Forbearance
Forbearance temporarily pauses or reduces your payments while you recover from a short-term hardship like a medical emergency, job loss, or natural disaster.4Consumer Financial Protection Bureau. What Is Mortgage Forbearance? It does not erase anything. Every paused or reduced payment still has to be repaid, but the servicer won’t move to foreclose while you’re following the agreement.
When forbearance ends, your servicer should offer you a way to catch up without a lump-sum demand. Common options are spreading the missed amount over future payments, deferring it to the end of the loan, or rolling it into a full modification.4Consumer Financial Protection Bureau. What Is Mortgage Forbearance? Treat forbearance as breathing room to plan your next step, not as the solution.
Repayment Plan
A repayment plan works if you’ve already recovered from whatever caused the missed payments. The servicer adds your past-due total, including late charges, to your regular payments across a set number of months. Mortgage late fees are usually a percentage of the principal-and-interest portion of the monthly payment, so the arrears can add up quickly. The catch-up payment is higher than your normal one, so this option fits borrowers with stable income who had a temporary setback.
Extra Tools for FHA and VA Loans
If your mortgage is insured by the FHA, you have access to the partial claim: HUD pays your servicer a portion of the past-due amount, and you sign an interest-free subordinate lien against your property. You don’t repay that lien until you sell, refinance, or make your final mortgage payment.5U.S. Department of Housing and Urban Development. FHA’s Loss Mitigation Program It brings your loan current without raising your payment. HUD requires FHA servicers to evaluate borrowers through a priority sequence of options, starting with the least disruptive.6U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-06 – Updates to Servicing, Loss Mitigation, and Claims
Veterans with VA-backed loans can request repayment plans, special forbearance, modifications, extra time to arrange a private sale, short sales, or deeds-in-lieu.7U.S. Department of Veterans Affairs. VA Help To Avoid Foreclosure VA loan technicians at 877-827-3702 can walk you through which option fits. One warning: a VA short sale or deed-in-lieu could reduce your future VA loan benefit, so talk to a technician before agreeing to either.
Free Help and Emergency Funds
HUD-Approved Housing Counselors
Housing counseling agencies approved by HUD provide free or low-cost foreclosure prevention guidance.8Consumer Financial Protection Bureau. Find a Housing Counselor A counselor can review your finances, help prepare your loss mitigation application, communicate with your servicer, and explain your rights at each stage. A counselor can often get a servicer to return calls faster than a homeowner can alone. You can search for one through the CFPB.
The Homeowner Assistance Fund
The Homeowner Assistance Fund, created under the American Rescue Plan Act, distributed roughly $10 billion to help homeowners cover mortgage payments, property taxes, insurance, utilities, and some home repairs. Eligibility requires a financial hardship that began after January 21, 2020, and most state programs limit participation to households earning less than 150% of area median income or $79,900, whichever is higher.9Consumer Financial Protection Bureau. Get Homeowner Assistance Fund Help
The program is winding down. Treasury has set a closeout deadline of September 30, 2026, and many state programs have already begun closing or exhausting their allocations.10U.S. Department of the Treasury. Homeowner Assistance Fund If your state’s program is still accepting applications, apply immediately. Funds are first-come, first-served.
How to Apply
What to Send
Your servicer needs a detailed picture of your finances. Expect to provide at minimum:
- Recent pay stubs covering at least 30 days of earnings. Self-employed borrowers should send a signed profit-and-loss statement for the most recent quarter.
- Federal tax returns and W-2s, typically for the past two years.
- Two months of recent statements for all bank accounts.
- A hardship letter explaining the specific event that caused you to fall behind, such as job loss, a medical issue, or divorce.
- A monthly budget showing household expenses, including housing, food, transportation, and insurance.
Most servicers use a standardized Request for Mortgage Assistance (or a similar intake form) to collect this. Download it from your servicer’s website, fill it out carefully, and make sure your reported income and expenses match the supporting documents. Inconsistencies between stated income and the pay stubs or returns are one of the fastest routes to a denial.
The Deadlines Your Servicer Has to Meet
Regulation X sets specific deadlines once you submit an application. Within five business days of receiving your paperwork, the servicer must send a written acknowledgment stating whether your application is complete or listing what’s still missing.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
Once your application is complete and was received more than 37 days before any scheduled foreclosure sale, the servicer has 30 days to evaluate you for every available option and send a written decision.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures During that evaluation, the servicer generally cannot move forward with a foreclosure sale or seek a foreclosure judgment.11Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures That protection is sometimes called the “dual tracking” ban, and it’s one of the most important rights you have.
A denial notice must explain why, and the regulation gives you the right to appeal based on errors in the evaluation. Submit everything by certified mail with a return receipt or through the servicer’s secure upload portal so you can prove when it arrived. Timing matters because the protections hinge on your application being complete before specific deadlines.
If Keeping the Home Isn’t Realistic
Sometimes the math doesn’t work. A controlled exit is still much better than letting foreclosure run its course.
Short Sale
In a short sale, your lender agrees to let you sell the home for less than you owe.12Consumer Financial Protection Bureau. What Is a Short Sale You list with an agent, find a buyer, and submit the offer to your servicer for approval. The process can take months.
The critical detail is the deficiency — the gap between what you owe and what the home sells for. In some states, a lender can sue you for that remaining amount if you don’t get a written waiver.12Consumer Financial Protection Bureau. What Is a Short Sale For Fannie Mae loans, the borrower is relieved of responsibility for the remaining balance after a completed short sale.13Fannie Mae. Fact Sheet – What Is a Short Sale? Helping Borrowers Avoid Foreclosure Never agree to a short sale without getting the deficiency waiver in writing first.
Deed-in-Lieu of Foreclosure
With a deed-in-lieu, you voluntarily transfer the home back to the lender in exchange for cancellation of the mortgage debt.14Consumer Financial Protection Bureau. What Is a Deed-in-Lieu of Foreclosure? The property usually needs to be free of other liens like second mortgages or tax liens, because the lender won’t want to inherit those.
Fannie Mae offers a $7,500 relocation incentive when a deed-in-lieu involves the borrower’s principal residence, to help with moving costs and deposits on a new place.15Fannie Mae. Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure) Other servicers and investors may offer their own relocation payments, sometimes called “cash for keys,” with amounts varying by property value and local market. As with a short sale, confirm in writing that the deed-in-lieu satisfies the debt in full so you aren’t exposed to a deficiency claim later.
Taxes on Forgiven Mortgage Debt
When a lender forgives part of your mortgage through a short sale, deed-in-lieu, or principal-reducing modification, the IRS generally treats the forgiven amount as taxable income.16Internal Revenue Service. Canceled Debt – Is It Taxable or Not? Your lender will send you a Form 1099-C reporting the canceled amount, and the resulting tax bill can be substantial.
A federal exclusion under 26 U.S.C. § 108 has allowed homeowners to exclude up to $750,000 in forgiven debt on a principal residence from taxable income. That exclusion applies only to debt discharged before January 1, 2026, or under a written arrangement entered into before that date.17Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Unless Congress extends it, homeowners completing a short sale or receiving a principal reduction in 2026 without a prior written agreement may owe taxes on the forgiven amount. If you’re negotiating a loss mitigation outcome, the timing of when the agreement is finalized could make a significant tax difference.
You may also qualify for a separate exclusion if you’re insolvent when the debt is canceled, meaning your total debts exceed the fair market value of your assets. That exclusion doesn’t expire and has no dollar cap, but it requires careful documentation.
What This Does to Your Credit
A completed foreclosure stays on your credit report for seven years from the date of the first missed payment that led to it.18Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports Short sales and deeds-in-lieu follow the same seven-year reporting window under the Fair Credit Reporting Act. All three will significantly lower your score, with the exact drop depending on where you started.
The practical difference is what happens afterward. Most mortgage programs impose waiting periods before you can qualify for a new home loan. Those waiting periods are generally shorter after a short sale or deed-in-lieu than after a foreclosure, and shorter still after a completed modification. If you’re trying to minimize long-term damage, any of the alternatives above is better for your credit trajectory than letting a foreclosure proceed to sale.
Bankruptcy as a Last-Resort Defense
Filing for bankruptcy triggers an automatic stay that immediately halts foreclosure proceedings, along with most other collection actions.19Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay The stay takes effect the moment the petition is filed, and your lender must stop any pending sale until the court lifts the stay or the case concludes.
Chapter 13 is the most common filing for homeowners trying to save a property. It lets you propose a repayment plan, typically three to five years, during which you catch up on arrears while continuing regular payments. Chapter 7 provides the automatic stay too, but because it includes no mechanism to cure the mortgage default over time, it usually only delays rather than prevents foreclosure.
Bankruptcy carries consequences well beyond the mortgage. A Chapter 13 filing stays on your credit report for seven years; Chapter 7 stays for ten. Lenders can also ask the court to lift the automatic stay if you filed primarily to stall, if you don’t have equity in the property, or if you’ve filed multiple petitions affecting the same property.19Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Evaluate it with an attorney as a genuine restructuring tool, not a delay tactic.
Avoiding Foreclosure Rescue Scams
Homeowners facing foreclosure are prime targets for scammers, and the FTC has a specific rule aimed at the problem. The Mortgage Assistance Relief Services (MARS) Rule makes it illegal for any company to collect fees from you before actually delivering a written offer of relief from your lender.20Federal Trade Commission. Mortgage Assistance Relief Services Rule – A Compliance Guide for Business If someone demands money upfront to negotiate with your servicer, that’s a violation of federal law.
Legitimate companies must also disclose that they are not affiliated with the government or your lender, that the lender may not agree to change your loan terms, and that you can stop using their services at any time. Any company that tells you to stop paying your mortgage without clearly warning that this could cost you your home is breaking the law.20Federal Trade Commission. Mortgage Assistance Relief Services Rule – A Compliance Guide for Business The same goes for anyone telling you not to communicate directly with your servicer.
The safest path is a HUD-approved housing counselor, who provides the same services at no cost, or a direct call to your servicer. Every program in this article can be accessed without paying a third party.