Federal and state laws heavily regulate mortgage loan servicing and foreclosure processes. Most of these laws give protections to borrowers. Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, most people who take out a loan to buy a residential property in Connecticut sign a promissory note and loan contract called a “mortgage deed.” These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Connecticut foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Connecticut homeowner who's behind in mortgage payments. Learn about each step in a Connecticut foreclosure, from missing your first payment to a foreclosure sale. Once you understand the process, 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 actually happens as "preforeclosure," too.) During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a “breach letter.”
If you miss a payment, most loans include a grace period of, say, ten or fifteen days, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out the late charge amount and grace period for your loan, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, many Connecticut mortgage contracts allow the lender (or the current loan holder, referred to as the “lender” in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Additional types of fees the servicer might charge include, among others, fees for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, if the property is your principal residence, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or repayment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed for bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.30, 12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Connecticut mortgage deeds have a provision that requires the lender to send a notice, commonly called a “breach letter,” informing you that the loan is in default before the lender can accelerate the loan. The breach letter gives you a chance to cure the default and avoid foreclosure.
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 couple of exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments for your home in Connecticut, the foreclosure will be judicial. The process might vary from other states that use a judicial process, though. While a “decree of sale foreclosure” (or "foreclosure by sale") is basically a typical judicial foreclosure, a “strict foreclosure,” is a slightly different process.
A foreclosure by sale officially begins when the foreclosing lender files a lawsuit (a “complaint”) in court and serves a copy to the borrower. If the borrower doesn't respond, the lender automatically wins the case. If the borrower responds to the suit, the court will move the case through the litigation process. Either way, if the lender wins, the court enters a judgment against the borrower and sets a sale date. The home is then sold at a foreclosure sale (see below).
A strict foreclosure and foreclosure by sale involve the same process up until the setting of the sale date, at which point the process differs. In a strict foreclosure, rather than setting a sale date, the court sets a “Law Day” for the borrower and the other defendants in the case. The borrower has to redeem the home (discussed below) by this deadline or lose the legal right to the property. When all assigned Law Days pass, the lender files a Certificate of Foreclosure in the land records, which serves as evidence that the foreclosure is complete and the lender now owns the property. A foreclosure sale isn't held.
In a foreclosure by sale, the property is sold to the highest bidder at the sale. At the sale, 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 Connecticut, 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 what's called “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.
Along with the complaint, the lender also has to provide notice to the borrower about Connecticut's foreclosure mediation program. The mediation program applies to foreclosure actions that have a return date up to June 30, 2023. (Conn Gen. Stat. § 49-31l).
The Connecticut Housing Finance Authority (CHFA) helps homeowners in Connecticut avoid foreclosure by providing financial counseling, mortgage assistance loans, and job training. To learn more about programs the CHFA offers to homeowners trying to avoid a foreclosure, get information about eligibility requirements, and find out how the programs might be able to help you, go to the CHFA website.
A few potential ways to stop a foreclosure might include reinstating the loan, redeeming the property, or filing for bankruptcy. Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
While Connecticut law doesn't allow a homeowner to stop the foreclosure by “reinstating” the loan, the mortgage contract might provide this right. Or your lender might agree to let you complete a reinstatement.
One way to stop a foreclosure is by “redeeming” the property. In Connecticut, you have up until:
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 that 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.
In a foreclosure, the borrower's total mortgage debt sometimes 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 $600,000, but the home sells for $550,000 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.
Connecticut law allows the lender to seek a deficiency judgment with both decree of sale foreclosures and strict foreclosures.
In a decree of sale foreclosure, the lender can ask the court for a deficiency judgment as part of the foreclosure suit. But if the property sells for less than its appraised value, the lender has to credit you with half of the difference between the sale price and the appraised amount. (Conn Gen. Stat. § 49-28).
To get a deficiency judgment following a strict foreclosure, the lender must file a motion with the court within 30 days after the Law Day. The deficiency amount will be the difference between the total outstanding debt and the home's fair market value. (Conn. Gen. Stat. § 49-14).
In this article, you'll find details on foreclosure laws in Connecticut, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
How to Find State Foreclosure Laws
To find Connecticut's laws, search online for “Connecticut statutes” or “Connecticut laws.” Make sure you're reading the most recent, official laws. Usually, the URL will end in “.gov” or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. If you have questions about Connecticut'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.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).