In early 2021, President Joe Biden signed the American Rescue Plan Act into law. This law created a Homeowner Assistance Fund, a federal program, to give $10 billion to the states to help households that are behind on their mortgages and other housing expenses due to COVID-19.
Eligible homeowners in Alabama who’ve experienced a financial hardship because of COVID-19 can get a portion of the approximately $125 million allocated to the state—up to $50,000 per household—from the Mortgage Assistance Alabama program. This program uses federal money to help homeowners in Alabama pay overdue mortgage payments and other home-related costs.
The Mortgage Assistance Alabama program offers three kinds of assistance to eligible homeowners:
To qualify for relief from this program, you must have suffered a financial hardship after January 21, 2020, because of COVID-19. In addition, you have to meet some other guidelines:
You can qualify even if you previously received assistance from the Hardest Hit Alabama program. But if you’re receiving federal mortgage payment assistance from another agency, you’re not eligible.
Assistance is structured as a grant that you don’t have to repay. Only in cases of fraud or wrongful misrepresentation would an applicant have to repay the funds.
Mortgage Assistance Alabama payments go directly to the loan servicer, not to homeowners.
To apply for help from this program, go to the Mortgage Assistance Alabama website and take the pre-screening quiz. If you’re potentially eligible, you can create an account and complete the online application. You may also request a hard copy of the application by contacting the program’s call center at 888-460-9977 or you can complete the application over the phone.
You’ll have to provide some documentation with your application, like mortgage statements, proof of income (such as pay stubs and tax returns), and a government-issued ID (like a driver’s license). Click here for a complete list of documents you’ll need to provide. The program accepts applications Monday through Friday.
If you get an unsolicited offer by phone, in the U.S. mail, through email, or by text message offering mortgage relief or foreclosure rescue services, be wary. Scammers sometimes target homeowners who’ve been affected by COVID-19.
The Mortgage Assistance Alabama program is free. If anyone asks you to pay a fee to get housing counseling or foreclosure prevention services from this program, it’s a scam. If you experience fraud associated with this program, be sure to report it.
Call 888-460-9977 or go to the Mortgage Assistance Alabama FAQs website if you need more information. If you need help with your application, contact a HUD-approved housing counselor who will assist you at no cost. To find a counselor near you, go to HUD's website or call 800-569-4287.
Go to the program's Resources website to get a list of available resources that can potentially help with food and shelter or legal services.
]]>A “redemption period” is a period of time after a foreclosure during which a foreclosed homeowner, or others, may reclaim the property by paying the foreclosure sale price or, sometimes, the full amount owed to the bank, plus certain other allowable charges.
In Alabama, if the mortgage was taken out on or after January 1, 2016, the homeowner gets a 180-day redemption period after the foreclosure sale of a residential property on which a homestead exemption was claimed in the tax year during which the sale occurred. (Ala. Code § 6-5-248(b)).
The foreclosing bank has to mail the borrower, by certified mail with proof of mailing, a notice about the right to redeem at least 30 days before the foreclosure sale. (Ala. Code § 6-5-248(h)).
Previously, the 180-day period didn’t start to run until the bank sent the homeowner the required notice, and lasted for up until two years if the bank didn't provide the notice. Now, under Act 2018-126 (HB 90), Alabama law says that while the redemption period doesn’t start until the bank provides the notice, homeowners can’t redeem—under any circumstances—more than one year after the foreclosure sale.
Also, Alabama law previously said that sending a defective notice or failing to send the notice about the right to redeem wouldn’t invalidate the foreclosure sale, and that a lawsuit related to the notice requirement had to be brought within two years after the foreclosure. The revised law shortens this time period to one year after the foreclose sale.
To get more information about foreclosure laws in Alabama, see Alabama Foreclosure Laws and Procedures.
]]>Also, most people who take out a loan to buy a residential property in Alabama sign a promissory note and mortgage. These documents give homeowners certain rights.
So, don't get caught off guard if you're about to go through a foreclosure. Learn all about Alabama's foreclosure laws and the Alabama foreclosure process.
In an Alabama foreclosure, you’ll most likely get the right to:
Once you understand the foreclosure process and your rights in Alabama, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.
During this time, the servicer can charge you various fees, including late and inspection fees, and, in most cases, must let you know how to avoid foreclosure, and send you a breach letter (a preforeclosure notice).
Under federal law, the servicer usually can’t officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample time to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Alabama, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don’t respond with a written answer, the lender will automatically win the case.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After finishing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt to use the nonjudicial process because it’s quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Alabama are nonjudicial. Here’s how the process works.
The lender publishes notice in a newspaper once a week for three consecutive weeks before the sale, but Alabama law doesn’t require that the lender send a notice to the borrower. (Ala. Code § 35-10-13).
Even though Alabama law doesn’t require the lender to notify you in person or by mail about the foreclosure, again, you’re probably entitled to a breach letter (see above). Also, if you took out your mortgage on or after January 1, 2016, you'll likely receive a notice about your right to redeem (see below) at least 30 days before the foreclosure sale.
If you're a homeowner facing foreclosure in Alabama, you might be able to participate in a statewide foreclosure mediation program. Under this program, trained mediators assist Alabama homeowners when dealing with foreclosures.
For more information on Alabama’s foreclosure mediation program, visit the Alabama Center for Dispute Resolution website.
At the sale, which is a public auction, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.
In some states, including Alabama, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. If the lender is the highest bidder, the property becomes “Real Estate Owned” (REO).
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what’s needed to pay off all the liens on your property—you're entitled to that surplus money.
After an Alabama foreclosure sale, the purchaser must give you ten days’ notice to leave before starting eviction proceedings.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before or after the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
Even though Alabama law doesn't provide a statutory right to reinstate the loan before the sale, many mortgages, like the uniform Fannie Mae/Freddie Mac mortgage, allow the borrower to complete a reinstatement.
Check your loan documents to determine if you get a reinstatement right and, if so, the deadline to complete one. Or your lender might agree to let you reinstate the loan.
One way to stop a foreclosure is by “redeeming” the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. Generally, the redemption period after foreclosure in Alabama lasts for one year after foreclosure sale. (Ala. Code § 6-5-248(b)).
But if the loan originated on or after January 1, 2016, a homestead exemption was claimed in the tax year during which the sale occurred, and proper notice about the right to redeem was given at least 30 days before the foreclosure sale, then the redemption period is 180 days after the sale. If the lender doesn't provide a redemption notice before the sale, the redemption period doesn't start until the lender provides it; however, homeowners can’t redeem, under any circumstances, more than one year after the foreclosure sale. (Ala. Code § 6-5-248(b),(h)).
After a foreclosure sale, you must surrender the property to the buyer within ten days after a written demand for possession of the property (if the buyer makes such a demand), or you'll lose the right of redemption. (Ala. Code § 6-5-251).
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
The federal Servicemembers Civil Relief Act provides legal protections to military personnel in default on their mortgages.
Under state law, if a servicemember dies while deployed overseas, the lender must wait at least 180 days before starting a foreclosure against the surviving spouse or the servicemember’s estate provided that the surviving spouse or the estate notifies the lender and asks for a delay (and the mortgage was taken out after August 1, 2009). (Ala. Code § 35-10-70, § 35-10-71).
In a foreclosure, the borrower’s total mortgage debt frequently exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a “deficiency.”
For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
Alabama law has no significant restrictions on deficiency judgments following nonjudicial foreclosures. But lenders owe borrowers a duty of fairness and good faith in coming up with their credit bids at foreclosure sales. So, lenders can't make an unreasonably low bid that's shockingly less than the property's fair market value to pursue a large deficiency judgment against the borrower. (Mt. Carmel Estates, Inc., et al. v. Regions Bank, 853 So.2d 160 (Supreme Court of Alabama 2002)).
A foreclosure could result in serious consequences, like lower credit scores, a deficiency judgment (as mentioned), or tax ramifications.
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
If you have questions about Alabama’s foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.
]]>In most states, if a foreclosure sale results in a deficiency, the lender may get a deficiency judgment against the borrower for the deficiency amount. In Alabama, the lender may obtain a deficiency judgment against the borrower by filing a lawsuit after a nonjudicial foreclosure.
Again, when the foreclosure sale price doesn't bring in enough money to pay off the borrower's mortgage loan, the difference between the total debt and the sale price is called a "deficiency."
If you default on your mortgage loan, the lender can use a legal process (a foreclosure) to sell your home to repay the debt. After the lender completes all the legal procedures for foreclosure, the final step in a judicial or nonjudicial foreclosure is the foreclosure sale, where the home is sold to a new owner at a public auction.
The foreclosing lender submits the first bid at the sale, which is a "credit bid." With a credit bid, the lender gets a credit in the amount of the borrower's debt. Generally, the lender makes the highest bid at the sale and becomes the new owner of the property when no one else bids.
The lender can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less. Lenders regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales. Once again, the difference between the total debt and a lesser bid is the deficiency.
For example, if your total mortgage debt is $400,000, but the home sells to the lender at a foreclosure sale for a credit bid of $350,000, the deficiency is $50,000.
If state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency if one exists. This kind of money judgment is called a “deficiency judgment.”
In some states, the lender asks for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender must file a lawsuit against the borrower after the foreclosure to get a deficiency judgment.
State law sometimes prohibits or limits deficiency judgments. And some states restrict deficiency judgment amounts. Other states set a deadline for the lender to get a deficiency judgment (a "statute of limitations").
If the sale price equals (or exceeds) the mortgage debt amount, you’re off the hook because there's no deficiency. If the sale results in excess proceeds, you might be entitled to that extra money after the foreclosure auction.
However, if the property had any junior liens recorded against it, such as a second mortgage or home equity loan, or a creditor recorded a judgment lien against the property, those parties can get the excess funds to pay off the amount they’re owed. Then, any proceeds left over after paying off these liens belong to the foreclosed homeowner.
Generally, once a lender gets a deficiency judgment, it may collect this amount (in the example above, $50,000) from the borrower using regular collection methods, like garnishing wages or levying a bank account.
Even if your lender gets a deficiency judgment, you can probably eliminate your liability for a deficiency judgment, like many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy. Or you might be able to raise a defense to the deficiency, such as the lender's bid at the foreclosure sale was so shockingly low that it creates a presumption of unfairness.
Even if your lender has the right under state law to go after you for a deficiency judgment, it might decide not to do so—especially if you don’t have many assets to satisfy the judgment. The lender might decide it isn’t worth the expense and effort of getting a deficiency judgment.
Still, you should know whether your lender can potentially pursue you for a deficiency after a foreclosure. Also, even if the lender decides not to sue you for a deficiency judgment, it could later sell the debt to a debt buyer who might file a lawsuit against you for the deficiency later on.
Most foreclosures in Alabama are nonjudicial, which means the lender doesn’t have to go through state court to foreclose. (The lender could alternatively choose to foreclose through the state court system, called a "judicial foreclosure." However, in states with an available nonjudicial process, lenders almost always choose this route rather than pursuing a judicial foreclosure because an out-of-court foreclosure is relatively quick and inexpensive.)
Because Alabama foreclosures are ordinarily nonjudicial, this article focuses on laws on that process.
Alabama law has no significant restrictions on deficiency judgments following nonjudicial foreclosures. But lenders owe borrowers a duty of fairness and good faith in coming up with their credit bids at foreclosure sales.
So, lenders can’t make an unreasonably low bid that's shockingly less than the property's fair market value to pursue a large deficiency judgment against the borrower. (Mt. Carmel Estates, Inc., et al. v. Regions Bank, 853 So.2d 160 (Supreme Court of Alabama 2002)).
If you have questions about Alabama’s foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.
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