We took an early withdrawal from my wife's 401k. I've read that if the withdrawal was to prevent foreclosure that I might not have to pay the penalty. Is this true?

[Opus 17]

While certain hardships may allow you to make a withdrawal that would normally not be allowed, it doesn’t exempt you from the 10% penalty on early withdrawal.  

[dmertz]

And specifically, using the money to avoid foreclosure is not an exception to the early-distribution penalty.  See the list of exceptions:
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