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A consumer struggling to keep up with mortgage payments may worry about losing their home. However, the situation may not be as bleak as it seems. Justia offers a Foreclosure Law Center that describes some potential options and alternatives.
Many Americans develop a strong attachment to their homes. Failing to keep up with a mortgage or certain other financial obligations may lead to the loss of the property. A homeowner facing this prospect may want to know more about how a foreclosure may unfold and the legal options that may be available to them. The Foreclosure Law Center provided by Justia aims to illuminate what can be a complex process. It provides general answers to some questions that may arise in this situation.
What Is the Difference Between Judicial and Non-Judicial Foreclosure?
In a judicial foreclosure, the lender seeks a judgment from a court to foreclose on the home. This may take several months or more. A homeowner who has a defense to foreclosure can raise the defense in response to the lawsuit. On the other hand, a non-judicial foreclosure allows a lender to foreclose on the property outside court. This process tends to unfold more efficiently. A homeowner who has a defense would need to file a new lawsuit in court. (Not every state allows for non-judicial foreclosures, though, and lenders do not always choose this path when it is available.)
When Might a Foreclosure Be Expedited?
Only a relatively small number of states allow for an expedited (or fast-track) foreclosure. In these states, an expedited foreclosure may occur when the homeowner moves out of the home before the process ends. The lender would need to prove that the home has been abandoned. This warrants accelerating the process to prevent any harm to the property that would reduce its value. If the homeowner has not abandoned the home, they can respond to the lender’s motion. Eventually, they probably will need to go to a court hearing on the issue.
Can the Homeowners’ Association Foreclose on My Home?
The homeowners’ association ultimately may be able to pursue a foreclosure if you do not keep up with fees and assessments. Fees are paid at regular intervals for general community maintenance, while assessments are specific payments for certain improvements or repairs. Failing to pay a fee or assessment results in a lien on the property. The homeowner would need to catch up with missed payments in addition to accounting for any penalties and interest. If they cannot remove the HOA lien, they will face both the risk of a foreclosure and limits on their ability to sell the property due to the “cloud” that the lien places on their title.
What Happens When a Tax Agency Forecloses on a Home?
If a homeowner falls behind on property taxes, the tax authority may conduct a tax sale of the property. This could involve selling the home, known as a tax deed sale, or selling the tax lien on the property to a third party, known as a tax lien certificate sale. The purchaser of the lien then could pursue a foreclosure or potentially convert the lien certificate into a deed if the homeowner does not pay off the debt.
What Happens to a Mortgage in a Divorce?
If one spouse signed the mortgage and the promissory note for the home, the other spouse will not be liable for any related debt. On the other hand, if the divorcing spouses each signed these instruments, each of them will be on the hook. Sometimes neither spouse wants to continue living in the home after a divorce. They might consider selling or renting the home to pay off the mortgage. If both spouses are on the loan instruments, and one spouse wants to keep the home, that spouse should “assume” (take over) the mortgage or refinance the loan so that the other spouse is not involved.
What Is the Difference Between Redemption and Reinstatement?
Redemption prevents foreclosure by paying off the full remaining balance of the loan, in addition to interest and penalties. Every state provides a right to redemption before the foreclosure sale. Some states extend this right for a certain time after the sale. Meanwhile, reinstatement involves catching up on payments that are in default, plus related costs like late fees. The homeowner then must keep up with future loan payments to avoid a renewed risk of foreclosure. Unless applicable laws or the terms of the mortgage provide a right to reinstatement, a lender does not need to permit reinstatement, but they may find this solution simpler than foreclosure.
What Happens to a Tenant in a Foreclosure?
Under federal law, a tenant generally can stay until the lease ends even if their landlord loses ownership of the property. If the new owner of the property wants to live there, they can end the lease with 90 days’ notice. (The tenant might sue the former landlord in this case for damages such as moving costs and increased rent.) A tenant on a month-to-month lease must receive 90 days’ notice before they must leave the property. Some state and local laws may establish greater rights for tenants.
How Can You Defend Against a Foreclosure?
Defenses to foreclosure may take procedural or substantive forms. A procedural defense often involves arguing that the mortgage servicer did not follow the rules that govern the process, such as filing within the statute of limitations or providing notice to the borrower. Some of these defenses may result in only a delay rather than a conclusive victory for the borrower, since the mortgage servicer may be able to restart the process after fixing the problem. Meanwhile, a substantive defense challenges the factual basis for the foreclosure. For example, a mortgage servicer might have neglected to keep records of payments, failed to make adjustments to account for a loan modification, or violated the law or the mortgage terms.
What Are Some Alternatives to Foreclosure?
A homeowner may be able to save their home by pursuing a loan modification to reduce their monthly payment, while lengthening the loan period. If their struggles to keep up with payments stem from a temporary financial problem, they might find a forbearance agreement useful. This means that the lender will agree to suspend payments or accept reduced payments for a limited time, although the homeowner will need to make up for this grace period. If a homeowner has accepted that they cannot hang onto the home, they might pursue a foreclosure alternative called a short sale. This involves selling the home for a price less than the debt on the mortgage, while the lender waives the resulting deficiency. Meanwhile, a deed in lieu of foreclosure transfers ownership to the lender so that it can sell the property.
Can Filing for Bankruptcy Save Your Home?
Filing for bankruptcy triggers an “automatic stay,” which brings a temporary halt to foreclosure activities. However, filing under Chapter 7 may not save your home. It may be sold to pay off creditors unless an exemption fully covers it. Chapter 7 may delay the process, though, which may allow a homeowner to plan their move or try to work out a solution with the lender. In contrast, Chapter 13 will allow a homeowner to keep their home if they make payments as provided under their repayment plan, while keeping up with current payments.
Final Thoughts
Laws governing foreclosure contain nuances that vary from state to state. Justia provides a 50-state survey of issues such as whether a state requires a reinstatement opportunity or provides a right to redemption after the foreclosure sale. However, a homeowner should consult a foreclosure defense lawyer who can review their specific situation. Timely, knowledgeable advice and representation can make a world of difference. In the meantime, the Foreclosure Law Center offers a readable overview of some key concepts in this area. Like the other Justia Legal Guides, it furthers our mission of making the law free and accessible to all.
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