Montana 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, many 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 contractual rights after defaulting on a mortgage loan.

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

What Are My Rights During Foreclosure in Montana?

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.

Once you understand the Montana 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 Montana?

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.

What Type of Foreclosure Is Permitted 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.

Is Montana a Nonjudicial Foreclosure State?

When available, most lenders in Montana opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.

What Are the Steps Involved in the Nonjudicial 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 §§ 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."

When the Small Tract Financing Act Applies

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 § 71-1-304, § 71-1-305).

To verify that the Small Tract Financing Act applies in your case, check with an attorney.

Foreclosure Notice in Montana

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 § 71-1-313, § 71-1-315).

How Do Foreclosure Sales Work in Montana?

The foreclosure sale will be between 9:00 a.m. and 4:00 p.m. at the courthouse of the county or one of the counties where the property is situated or at the location of the property or the trustee's usual place of business if within the county or one of the counties where the property is situated. (Mont. Code § 71-1-313). 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 "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.

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

A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before the sale, 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

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

Does Montana 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 a foreclosure sale, during which they can buy back the home. However, if the property is foreclosed nonjudicially under the Small Tract Financing Act, you don't get a redemption period after the sale. (Mont. Code § 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 the options available, speak with a local bankruptcy attorney.

Foreclosure Protections and Military Servicemembers

The Federal Servicemembers Civil Relief Act provides legal protections to military servicemembers facing foreclosure. Some states also provide legal protections to military personnel.

In Montana, courts may stay civil proceedings related to a servicemember's nonpayment on a mortgage for their primary residence or adjust the payment due. (Mont. Code § 10-1-903).

Are Deficiency Judgments Allowed in Montana?

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 $800,000, but the home sells for $750,000 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.

Montana law prohibits deficiency judgments in some circumstances.

Montana Deficiency Judgment Laws

In Montana, the lender can't get a deficiency judgment following a nonjudicial foreclosure of a trust indenture. (Mont. Code § 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)).

What Are the Potential Consequences of Foreclosure?

A foreclosure could have serious consequences, like lower credit scores or tax ramifications.

Learn More About Foreclosure

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

Getting Help During a Montana 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 to learn about different loss mitigation options.