Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. Now, however, federal and state laws heavily regulate loan servicing and foreclosure processes. And most of the 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 Indiana sign a promissory note and mortgage. These documents give homeowners certain contractual rights in addition to federal and state legal protections.
In an Indiana foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're an Indiana homeowner behind in mortgage payments. Learn about each step in an Indiana 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 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 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 plenty of time to submit a loss mitigation application to the servicer.
If you default on your mortgage payments for your home in Indiana, the foreclosure will be judicial.
Indiana law requires lenders to send homeowners a pre-foreclosure notice by certified mail at least 30 days before filing the foreclosure suit. The notice must:
This information might be included in the breach letter.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender gives notice of the suit by serving you a summons and complaint. The summons notifies you about the right to request a settlement conference no later than 30 days after receiving the summons to discuss options that might prevent a foreclosure. (Ind. Code § 32-30-10.5-8).
You generally get 20 days to file an answer to the complaint. If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, allowing it to hold a foreclosure sale. But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. The lender might then ask the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the critical aspects of the case. If the court grants summary judgment for the lender or you lose at trial, the judge will enter a judgment and order your home sold at auction.
In most cases, the foreclosure sale can't occur until three months after the complaint is filed (longer for mortgages prior to July 1, 1975). (Ind. Code § 32-29-7-3). Before the home is sold at a foreclose sale, the sheriff (the party that handles the sale) must post a notice of the sale at the courthouse and advertise the sale in a newspaper for three weeks, with the first advertisement occurring at least 30 days before the sale. The sheriff must also serve a copy of the notice of sale to you (the homeowner) at the time of the first advertisement. (Ind. Code § 32-29-7-3).
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 Indiana (under some circumstances), 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.
Immediately after the sale, the sheriff provides a deed of conveyance to the purchaser and files a deed in the county records. (Ind. Code § 32-29-7-10). At this point, the foreclosed homeowners face eviction if they don't vacate the property.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale, 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.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid a foreclosure. But you'll have to give up your home.
Under Indiana law, the foreclosure will be dismissed if you reinstate before the court enters judgment. But if you reinstate after judgment but before the sale, the foreclosure will be stayed (postponed). The foreclosure can go ahead if you later miss another payment. (Ind. Code § 32-30-10-11).
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 a redemption period after the foreclosure sale, during which they can buy back the home. Indiana law, however, doesn't provide a redemption period for foreclosed homeowners after the sale. (Ind. Code § 32-29-7-13).
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 is basically an injunction that stops 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 the options available, speak with a local bankruptcy attorney.
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 $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 Indiana, deficiency judgments are generally allowed. However, you might be able to avoid one. Indiana law usually requires a three-month waiting period between when the lender files the lawsuit and the order of sale. (Ind. Code § 32-29-7-3). If you waive the waiting period with the lender's consent, the lender can't get a deficiency judgment. (Ind. Code § 32-29-7-5).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Also, the Indiana Foreclosure Prevention Network provides free help to Indiana residents with mortgage difficulties and at risk of foreclosure.
If you have questions about Indiana'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 good. 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.