Missouri Foreclosure Laws and Procedures

Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.

Also, most people who take out a loan to buy a residential property in Missouri sign a promissory note and deed of trust. These documents usually give homeowners certain contractual rights after a home loan default.

So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about foreclosure laws in Missouri and how the Missouri foreclosure process works, from missing your first payment to a foreclosure sale.

What Are My Rights During Foreclosure in Missouri?

In a Missouri foreclosure, you'll most likely get the right to:

• receive a preforeclosure breach letter
• apply for loss mitigation
• bring the loan current and stop the foreclosure sale
• get notice of the foreclosure sale
• receive special protections if you're in the military
• pay off the loan to prevent a sale
• redeem the property after the sale (in some circumstances)
• file for bankruptcy, and
• get any excess money after a foreclosure sale.

Once you understand the Missouri foreclosure process and your rights, 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.

What Is Preforeclosure?

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 the preforeclosure period, the servicer can charge you various fees. Also, in most cases, federal law requires the servicer to let you know how to avoid foreclosure, and most mortgage contracts require the servicer to send you a breach letter.

When Can a Missouri Foreclosure Start?

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 with ample opportunity to submit a loss mitigation application to the servicer.

What Are the Different Types of Foreclosures in Missouri?

If you default on your mortgage payments in Missouri, the lender may foreclose using a judicial or nonjudicial method.

How Judicial Foreclosures Work

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.

How Nonjudicial Foreclosures Work

If the lender chooses a nonjudicial (power of sale) 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.

What Is the Power of Sale Foreclosure Process in Missouri?

Again, most residential foreclosures in Missouri are nonjudicial. Here's how the process works.

The lender or trustee must:

• mail a foreclosure sale notice to you (the borrower) at least 20 days before the sale date and
• publish notice in a newspaper 20 times, or for four successive issues or weeks, depending on the circumstances. (Mo. Rev. Stat. § 443.325, § 443.320).

How Do Foreclosure Sales in Missouri Work?

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 Missouri, 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.

How Long Do You Have to Move Out After Foreclosure in Missouri?

In Missouri, if you (the foreclosed homeowner) don't leave the home after a nonjudicial foreclosure, the lender may file an unlawful detainer (eviction) lawsuit against you. (Mo. Rev. Stat. § 534.030).

What Are the Options Available for Borrowers During Foreclosure in Missouri?

A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before or after the sale (if you get that right), 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.

Reinstating the Loan

Even though Missouri law doesn't provide a statutory right to reinstate the loan before the sale, many deeds of trust, like the uniform Fannie Mae/Freddie Mac deeds of trust, provide the borrower the right to complete a reinstatement. Check your loan documents to find out 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.

Redeeming the Property

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. Under Missouri law, if the foreclosing lender buys the property at the foreclosure sale, you get one year to redeem the home following the sale. If a third party buys the home at the sale, you don't get a right to redeem. To redeem property in Missouri, you have to give written notice of your intent to redeem at the sale or within ten days before the sale and satisfy a bond requirement. (Mo. Rev. Stat. § 443.410, § 443.420).

If you want to exercise your right to redeem, talk to a foreclosure lawyer to make sure you follow all required steps.

Filing for Bankruptcy

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.

Foreclosure Protections and Military Servicemembers

The Servicemembers Civil Relief Act provides legal protections to military personnel at risk of foreclosure.

Are Deficiency Judgments Allowed in Missouri?

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 $400,000, but the home sells for $350,000 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.

In Missouri, the foreclosing party can sue you for the deficiency after a nonjudicial foreclosure. (Mo. Rev. Stat. § 443.240). (Deficiency judgments are also permitted in judicial foreclosures.)

The amount of the deficiency judgment will generally be the loan balance less the amount paid for the property at the foreclosure sale, even if the sale price is less than the property's fair market value.

Voiding the Foreclosure Sale Based on a Low Sale Price Is Very Difficult

If you think the foreclosure sale price was inadequate, you can bring an action to void the foreclosure sale. But the sale will only be voided if the sale price was so inadequate as compared to the fair market value that it "shocks the conscience" of the court and is in itself evidence of fraud, a standard which was upheld by the Missouri Supreme Court in the case of First Bank v. Fischer & Frichtel, Inc., 364 SW 3d 216 (Mo. 2012).

This standard is a tough burden for a homeowner to overcome. In fact, Missouri's standard for proving a foreclosure sale "shocks the conscience" is one of the strictest in the country. There is more than one instance of a court refusing to set aside a sale where the property sold for only 20-30% of the fair market value.

Interestingly though, while the First Bank decision ultimately upheld the long-standing standard in Missouri regarding deficiency judgment amounts, it left the door open for potentially revisiting the issue of how to measure a deficiency in the state in the future and, with the right facts and circumstances, perhaps even to changing the standard in Missouri at some point down the line.

Will My Lender Sue Me for a Deficiency Judgment?

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.

What Are the Potential Consequences of Foreclosure?

A foreclosure could result in serious consequences, like lower credit scores, a deficiency judgment (as discussed above), or tax consequences.

More Foreclosure Information

For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.

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