What Legal Rights Do You Have During a Foreclosure?

Anbarasan Appavu

If you are unable to make your mortgage payments, the prospect of foreclosure and home loss can be intimidating. Nevertheless, foreclosure is a complex legal procedure, and you have certain rights based on state law and the mortgage documents you signed.

Legal Rights  During  Foreclosure

Knowing your rights can assist you in navigating the foreclosure process as smoothly as possible, or even help you avoid it if your lender violates any foreclosure regulations. Here is pertinent information.

• If you fall behind on your mortgage payments, your lender may attempt a foreclosure to reclaim the property.

• Prior to initiating a foreclosure action, your loan servicer must notify you that the loan is in default.

• This notice gives you the opportunity to catch up on payments or negotiate a payment plan with your lender to avoid foreclosure.

• You may contest a foreclosure if you believe your lender has made an error or violated the law.

• Receiving a notice of preforeclosure does not require you to vacate the property.

What Is Foreclosure?

Simply put, foreclosure is the legal process that enables lenders to recover the balance owed on a defaulted loan by seizing and selling the collateral property. Default is typically triggered by nonpayment, but it can also occur if the borrower violates other terms of the mortgage contract.

The company that handles your mortgage account is your loan servicer, which may or may not be the same entity that issued or currently owns the loan. The loan servicer must contact you (or attempt to contact you) by phone to discuss "loss mitigation" no later than 36 days after your first missed payment, and no later than 36 days once each subsequent missed payment. Loss mitigation is the collaborative effort between you and your lender to avoid foreclosure.

Within 45 days of a missed payment, your servicer or service provider must provide written notice of your loss mitigation options and referring you to someone who can assist you in avoiding foreclosure. Your servicer cannot initiate foreclosure proceedings until you are at least 120 days behind on payments.

Notices of foreclosure are sent via mail. If you are behind on your mortgage payments, read your mail carefully and be sure to pick up any certified or registered correspondence.

Right to a Breach Letter

Typically, mortgage contracts contain a clause requiring lenders to send borrowers a "breach letter" when borrowers are in default. The letter of breach must include:

• Information regarding the default and its causes

• What must be done to rectify the default and reinstate the loan

• The deadline for correcting the default (usually at least 30 days from the date you receive the notice)

• Notification that failure to cure the default by the due date will result in the property's sale

To cure the default and avoid foreclosure, you must pay the total amount past due, plus any accrued interest, late fees, and penalties, by the date specified in the breach letter. If you do not and have not arranged an alternative solution, foreclosure proceedings will likely commence. Generally, you must be delinquent on payments for at least 120 days before a foreclosure can begin, so your lender will likely send a default letter around the 90th day of delinquency.

Notice of the Foreclosure

You are entitled to notice of a pending foreclosure regardless of the state in which you reside. In the case of a judicial foreclosure, you will receive a complaint and summons informing you that the foreclosure process has begun. If the foreclosure is nonjudicial, you may receive two notices:

Notification of default (NOD)

Depending on state law, a nonjudicial foreclosure commences with the recording of a notice of default at the county office. The NOD serves as notice to the public that the debtor is in default. It includes information about the borrowers, lender, trustee, property, default, required action to cure the default, and a statement that the lender will sell the property at a public auction if the default is not cured by the specified date.

Notification of sale (NOS)

It may be mailed to you, published together in local newspaper, posted on the property, as well as recorded in the county land records. It contains information about the property, a declaration that it will be sold at a public auction, and details about the foreclosure sale.

According to the laws of your state, if you do not receive the proper notice, you may have a defense against foreclosure. This may force the servicer to issue a new notice and restart the foreclosure process, although it does not necessarily mean you will be able to avoid foreclosure. This could give you enough time to catch up on payments or determine an alternative course of action. A FDCPA validation letter and a breach letter may be combined.

Right to Reinstate

Depending on state law, you may be able to stop a foreclosure by making a lump-sum payment to bring your loan, including all fees and costs, current. After that, your regular payments resume.

Typically, you must reinstate the loan by a certain deadline, such as by 5:00 p.m. on the last business day before the scheduled property sale.

Right of Redemption

Your mortgage contract may also grant you reinstatement rights. Check also your mortgage or deed of trust for the clause titled "Borrower's Right to Reinstate After Acceleration" (or similar language) to determine whether and how you can reinstate your loan.

If you do not have a reinstatement right under state law or your mortgage contract, the lender may grant your reinstatement request after considering it. If the lender refuses, you may petition the court for reinstatement. In general, a judge would prefer that you avoid foreclosure if you have the funds to bring your loan current.

Before a foreclosure sale, all states permit borrowers to pay off their debt (including fees and expenses) and "redemption" their property. Some states even permit the borrower to repurchase the property following a foreclosure sale. To redeem the property, you must either pay the entire balance due prior to the auction or reimburse the person or entity that purchased the property at the auction, depending on the circumstances.

Right to Foreclosure Mediation

Some states, counties, and municipalities permit homeowners facing foreclosure to participate in mediation. In foreclosure mediation, you and your lender (or servicer) meet with an impartial mediator to discuss options such as a loan modification, short sale, repayment plan, or deed in lieu of foreclosure.

In the event of a potential foreclosure, homeowners are afforded certain rights and safeguards. Most lenders would rather negotiate an arrangement with you than foreclose on your home.

The right to contest a foreclosure

You have the right to challenge the foreclosure regardless of your location. If the existing foreclosure lawsuit is a judicial foreclosure, you may participate. However, if the foreclosure is nonjudicial, you must file a lawsuit. In general, it may be prudent to contest the foreclosure if you believe the servicer committed an error or violated the law.

Right to an Excess

If the property sells for more than you owe (including all fees, expenses, and liens), you are entitled to the excess proceeds, known as a surplus. Obviously, depending on state law, you may be liable for a deficiency judgement if the proceeds from the foreclosure sale do not cover your debt.

Letter of Validity Under the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is a federal statute that regulates when, how, and how frequently debt collectors may contact debtors. FDCPA may apply to foreclosures, depending on whether or not the foreclosure is judicial or nonjudicial:

Judicial foreclosures: Because creditors can obtain deficiency judgments, judicial foreclosures are generally viewed as subject to the FDCPA.

Nonjudicial foreclosures: In March 2019, the United States Supreme Court ruled unanimously in Obduskey v. McCarthy & Holthus, LLP that the FDCPA does not apply to companies pursuing nonjudicial foreclosures.

When the FDCPA applies, your mortgage servicer must send you an FDCPA validation notice containing the following information:

• The amount owed, including interest, late fees, attorney fees, and other fees;

• The identity of the debtor

• A statement explaining that the debt will be presumed valid if you do not dispute its validity within 30 days of receiving the letter.

• A statement that the debt collector will obtain written verification of the debt and send you a copy if you notify them within 30 days that you dispute the debt.

• A statement that, if requested within 30 days, the debt collector will provide the name and address of the original creditor, if different from the current creditor.

What is Foreclosure?

When your mortgage payments are overdue for 120 days or more, a foreclosure occurs. If you fail to pay your mortgage, the bank (or lender) will initiate foreclosure proceedings. If you're unable to stop a foreclosure, you may lose your home.

What is the meaning of pre-foreclosure?

If your home is in pre-foreclosure, it merely indicates that your mortgage lender has issued a notice of impending foreclosure and you are at chance of losing your home. When a home is in pre-foreclosure, you may be able to work with the lender and other parties to attempt to keep it.

How Can I Prevent Foreclosure on My Home?

The best way to prevent foreclosure on your home is to pay your mortgage on time. If you are having trouble paying your bill, contact your lender immediately and ask for assistance. Most loan servicers do not want to see their borrowers' homes go into foreclosure, so they frequently attempt to assist their borrowers.

The Bottom Line

Your legal rights vary based on state law, your mortgage contract, and your circumstances. Consult a local foreclosure attorney who can guide you through the process and ensure that your rights are protected to learn more about your rights.

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