Iowa 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 Iowa sign a promissory note and mortgage. These documents give homeowners some contractual rights after a mortgage default.

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

What Are My Rights During Foreclosure in Iowa?

In an Iowa foreclosure, you'll most likely get the right to:

• receive preforeclosure notices
• apply for loss mitigation
• get notice of the foreclosure and the chance to respond in court
• receive special protections if you're in the military
• get current on the overdue amounts to stop the sale
• pay off the total loan to prevent a foreclosure sale, and
• get any excess money after a foreclosure sale.

Once you understand the Iowa 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.)

Here's generally what happens during the preforeclosure period:

• the servicer can charge you various fees
• in most cases, federal law requires the servicer to let you know about ways to avoid foreclosure and
• most mortgage contracts require the servicer to send you a breach letter (a preforeclosure notice).

When Can a Foreclosure Start in Iowa?

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

What Is the Foreclosure Process in Iowa?

If you default on mortgage payments for your home in Iowa, the foreclosure will probably be judicial.

Preforeclosure Notices

The lender must mail a notice of default and right to cure (reinstate) to you at least 30 days before filing suit (or 45 days for agricultural properties). (Iowa Code § 654.2D, Iowa Code § 654.2A).

After the reinstatement period expires, the lender sends a demand letter giving you 14 days to pay off the loan; otherwise, it can't qualify for an award of attorneys' fees. You'll also get a notice about counseling and mediation, if available. (Iowa Code § 654.4B).

How Judicial Foreclosures Work in Iowa

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 petition. 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.

Then, notice of the sale is posted publicly and published twice in a newspaper, with the first publication at least four weeks before the sale happens. (Iowa Code § 626.75).

How Do Foreclosure Sales Work in Iowa?

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. Sometimes, in Iowa foreclosures, 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 (money over and above what's needed to pay off all the liens on your property), you're entitled to that surplus money.

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

A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property, or filing for bankruptcy. Of course, if you can 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 foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)

Reinstating the Loan

Under Iowa law, you may reinstate the loan within 30 days after the notice of default if the land is nonagricultural unless the lender gave a notice of right to cure concerning a prior default that occurred within 365 days of the present default. (Or, the borrower gets the right to reinstate for 45 days after the notice of default is given, once in twelve months, if the property is agricultural. Also, if you have two previous defaults at any time for agricultural land, you don't get the right to reinstate.) (Iowa Code § 654.2A, § 654.2D).

Does Iowa Have a Right of Redemption for Foreclosure?

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. Under Iowa law, whether you get a post-sale redemption period depends on the type of foreclosure the lender chooses.

Judicial foreclosure with redemption. If foreclosure is judicial with redemption, the borrower can redeem the home within:

• one year
• if the lender waives the deficiency in the foreclosure action and other criteria are met, six months (or three months if the property is not used for agricultural purposes) or
• 60 days (if the borrower abandons the home and other criteria are met). (Iowa Code § 628.3, § 628.26, § 628.27).

Judicial foreclosure without redemption. If the foreclosure (nonagricultural) is without redemption (that is, without a post-sale redemption period), you get the right to redeem before the sale by paying the judgment amount. But you don't get the right to redeem the property after the sale. Instead, you may ask the court to delay the sale for six months, but the delay will be three months if the lender waives a deficiency judgment in the foreclosure lawsuit, or two months if you don't live in the home or under some other conditions. (Iowa Code § 654.20).

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" happens. 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 the options available, speak with a local bankruptcy attorney.

Are Deficiency Judgments Allowed in Iowa?

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 $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.

Iowa law prohibits deficiency judgments in some circumstances.

Iowa Deficiency Judgment Laws

In Iowa, the lender can't get a deficiency judgment under certain circumstances, like when:

• The mortgage contract reduces the redemption period, the lender waives a deficiency judgment in the foreclosure, and the property is less than ten acres. (Iowa Code § 628.26).
• The lender chooses to foreclose without redemption and waives its right to obtain a deficiency judgment in the petition. (Iowa Code § 654.26).
• The lender forecloses without redemption and doesn't include a waiver of the deficiency in the lawsuit, but you don't request a delay of the foreclosure sale (and the property is a one- or two-family primary residence). (Iowa Code § 654.26).

Foreclosure Protections and Military Servicemembers

The federal Servicemembers Civil Relief Act provides legal protections to military personnel facing foreclosure.

What Are the Potential Consequences of Foreclosure?

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

More Foreclosure Resources

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

To learn where to look for accurate foreclosure information on the Internet, see How to Find Foreclosure Help Online.

Getting Help

If you have questions about Iowa'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 about different loss mitigation options.