In the wake of a natural disaster, such as Hurricane Katrina or Superstorm Sandy, there are certain foreclosure protections available for homeowners. A few state laws provide foreclosure moratoriums for borrowers or you may qualify for relief if your loan is an FHA, Fannie Mae, Freddie Mac, or VA loan. Additionally, states often implement specific programs to help borrowers after a disaster. Loan servicers too may also offer relief to affected homeowners. Read on to learn out more about the types of foreclosure relief available if you have been the victim of a natural disaster.
Foreclosure Moratorium Law in Mississippi
In Mississippi, the governor can declare a natural disaster and impose a moratorium on foreclosures for up to two years. (Miss. Code Ann. § 89-1-301.) To qualify for the moratorium, the borrower must:
- show that the home or property was “directly damaged” by the natural disaster and not some other reason
- prove he or she is unable to pay the debt
- prove that he or she made diligent efforts to secure refinancing of the debt, and
- prove the property’s value was reduced by 15%, which can be done by providing photos (if the damage is obvious), having an appraisal completed, getting an estimate from a contractor or a real estate agent, or showing a city tax appraisal. (Miss. Code Ann. § 89-1-301 to § 89-1-329.)
Once the moratorium ends, the foreclosure continues. At the end of the moratorium period, the borrower must pay all past-due amounts to stop the lender from pursuing a foreclosure at that time. To catch up on the past-due debt, borrowers may use:
- insurance proceeds
- a Community Development Block Grant (search for “CDBG program” at www.hud.gov to learn more about this program), and/or
- a U.S. Small Business Administration loan (much of the disaster assistance from the federal government is in the form of loans administered by the Small Business Administration).
The foreclosure moratorium law does not cover all loans. Mississippi’s moratorium law does not apply to mortgages held by the United States or any agency of the United States. (Miss. Code Ann. § 89-1-323.)
Foreclosure Protections in Iowa
A foreclosure delay (known as a "continuance") is available for agricultural and other properties in Iowa under certain circumstances.
An agricultural borrower in Iowa can apply for a foreclosure continuance, not to exceed two years, if:
- the borrower admits to being behind in payments, and
- the borrower fell behind in payments because of climatic conditions (for example, drought, flood, heat, hail, storm, or other climatic conditions or by reason of the infestation of pests), which affects the land. (Iowa Code § 654.15.)
Borrowers in Iowa can also apply for a foreclosure continuance if the governor declares a state of economic emergency. This type of continuance is available to:
- real estate used for farming
- designated types of real estate not used for farming, including real estate used for small business, or
- all real estate.
The governor must state in the declaration the types of real estate eligible for the moratorium continuance, which will last one to two years depending on the type of property. (Iowa Code § 654.15.)
Iowa law deems property that is unoccupied due to a natural disaster as “occupied” for purposes of certain legal protections. Iowa law states that where current occupancy is required for particular borrower protections and benefits (such as protection from a deficiency judgment), the property is considered occupied when the owner leaves because of a natural disaster (Iowa Code § 654.1A).
Example. In Iowa, the lender cannot get a deficiency judgment when the lender elects to foreclose without redemption and the mortgaged property is:
- the residence of the borrower
- a one-family or two-family dwelling, and
- the borrower does not file a demand for delay of sale. (Iowa Code § 654.26.)
So, if a homeowner moved out of the property because of a job change, it would no longer be considered a "residence" and the homeowner would not qualify for protection from a deficiency judgment. However, if the homeowner moved out because of a natural disaster,the property would be considered occupied and the deficiency protection would apply.
Foreclosure Assistance in Louisiana
While Louisiana does not have a specific state law providing a foreclosure moratorium after a natural disaster, in the past, the state has stepped in to assist borrowers when natural disasters have occurred. For instance, Louisiana used federal Community Development Block Grant disaster funds to assist homeowners whose homes suffered wind or flood damage in hurricanes Katrina and Rita in 2005. Eligible homeowners received a one-time grant payment up to $150,000 for damage to the home that was not covered by property insurance, Federal Emergency Management Agency (FEMA) grants, or other federal/state/local government programs. In exchange for the grants, borrowers were required to agree that:
- the structure would be rebuilt or repaired in accordance with housing codes and ordinances
- the structure would be elevated in compliance with FEMA standards, and
- they would occupy the property for three years.
Mississippi also instituted a similar program following the 2005 hurricane season. There, lenders managed the grant distribution process and were allowed to reduce the amounts homeowners received by any past-due payments or taxes owed.
Federal Housing Administration (FHA) Loans
The U.S. Department of Housing and Urban Development (HUD) provides a 90-day moratorium on foreclosures of FHA-insured home mortgages following natural disasters, so long as the property is:
- within the boundaries of a presidentially declared disaster area, and
- the property was directly affected by the disaster.
This time period may be extended if:
- the disaster affects a large area, or
- is especially severe.
If your property wasn't damaged by the disaster, but it did affect your financial viability, you might qualify for a moratorium if you can provide evidence that demonstrates the disaster’s negative financial impact on you.
To find out if your loan is FHA insured, call your loan servicer and ask if your loan is a FHA loan.
Fannie Mae and Freddie Mac Loans
Fannie Mae and Freddie Mac implement a 90-day foreclosure sale suspension immediately following a natural disaster if the property is within a federally designated disaster area.
To find out if Fannie Mae owns your loan, go to http://knowyouroptions.com and click on “Loan Lookup” in the upper-right corner. To find out if Freddie Mac owns your loan, go to https://ww3.freddiemac.com/corporate.
Veteran’s Affairs (VA) Loans
During times of natural disasters, the VA encourages loan holders and servicers to:
- establish a 90-day moratorium on initiating new foreclosures, and
- help individuals affected by a natural disaster by offering forbearance or modification of veterans’ loans.
Other Relief for Borrowers
Mortgage lenders and servicers may also provide relief from foreclosure by offering flexible loss mitigation options to borrowers following a natural disaster. Possible relief options include:
- loan modification
- temporary suspension or reduction in payments
- a waiver of late payments, and/or
- suspending delinquency reporting to credit bureaus.
Additionally, FEMA offers financial assistance so individuals and families whose property has been damaged or destroyed as a result of a federally declared disaster can make their mortgage payments or repair the home. Go to www.fema.gov for more information.