Montana Foreclosure Laws and Procedures

Before the foreclosure crisis, which peaked in 2010, 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 Montana sign a promissory note and a deed of trust under the state's Small Tract Financing Act. These documents give homeowners some contractual rights in addition to federal and state legal protections.

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

• apply for loss mitigation
• receive notice of the foreclosure sale
• get current on the loan and stop the foreclosure sale
• receive special protections if you're in the military
• get caught up on overdue amounts to stop the sale
• pay off the entire loan to prevent a sale
• file for bankruptcy, and
• get any excess money after a foreclosure sale.

So, don't get caught off guard if you're a Montana homeowner who's behind in mortgage payments. Learn about each step in a typical Montana 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.

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 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."

Fees the Servicer Can Charge During Preforeclosure

If you miss a payment, most loans include a grace period of 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, most Montana deeds of trust 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.

Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.

Federal Mortgage Servicing Laws and Foreclosure Protections

Under federal mortgage servicing laws, 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 bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (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).

What Is a Breach Letter?

Many Montana deeds of trust 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. To find out if you'll receive this type of preforeclosure letter, check the paperwork you signed when you took out the loan.

When Can 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 Is the Foreclosure Process in Montana?

If you default on your mortgage payments in Montana, 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 foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale. When available, most lenders in Montana opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.

Which Is the Most Common Foreclosure Process in Montana?

As part of the home loan process in Montana, many homeowners sign a deed of trust under the Small Tract Financing Act of Montana. (Mont. Code Ann. §§ 71-1-301 through 71-1-321). To find out if the Small Tract Financing Act will govern your foreclosure, look at the security instrument that you signed when you took out the loan. Check for the language "Trust Indenture Under the Small Tract Financing Act of Montana." Montana law permits the use of trust indentures for properties not more than 40 acres, and this type of mortgage may be foreclosed nonjudicially under the Act. (Mont. Code Ann. § 71-1-304, § 71-1-305). To verify that that the Small Tract Financing Act applies in your case, check with an attorney.

Under the Small Tract Financing Act, the trustee has to record and mail a notice of sale to you (the borrower) at least 120 days before the sale, as well as:

• post the notice on the property at least 20 days before the sale and
• publish it in a newspaper at least once each week for three successive weeks. (Mont. Code Ann. § 71-1-313, § 71-1-315).

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, 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. In Montana, deficiency judgments typically aren't allowed (see below).

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 Can I Stop a Foreclosure in Montana?

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.)

Reinstating the Loan

Under Montana law, you may reinstate the loan by paying the overdue amounts at any time before the sale. (Mont. Code Ann. § 71-1-312).

Redeeming the Property Before the Sale

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. If the property is foreclosed nonjudicially under the Small Tract Financing Act, you don't get a redemption period after the sale. (Mont. Code Ann. § 71-1-318).

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.

Montana Deficiency Judgment Laws

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.

In Montana, the lender can't get a deficiency judgment following a nonjudicial foreclosure of a trust indenture. (Mont. Code Ann. § 71-1-317). A trust indenture may be foreclosed judicially, but the lender can't get a deficiency judgment if the property is an occupied, single-family residence. (First State Bank of Forsyth v. Chunkapura, 226 Mont. 54, 734 P.2d 1203 (1987)).

Where to Find Your State's Statutes and More Foreclosure Resources

In this article, you'll find details on foreclosure laws in Montana, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.

How to Find Federal Foreclosure Laws

If you're looking for federal laws, you might want to visit the Library of Congress's legal research website, which provides links to federal regulations and federal statutes.

How to Find State Foreclosure Laws

To find Montana's laws, search online for "Montana statutes" or "Montana 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.

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.

Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.

Getting Help

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 Montana'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).