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 Ohio sign a promissory note and mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In an Ohio foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're an Ohio homeowner who's behind in mortgage payments. Learn about each step in an Ohio 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 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."
If you miss a payment, most loans include a grace period of, say, 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, many Ohio mortgages 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.
Additional types of fees the servicer might charge include, among others, fees for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, if the property is your principal residence, 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 for bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.30, 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).
Many Ohio mortgages 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.
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.
If you default on your mortgage payments for your home in Ohio, the foreclosure will be judicial.
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 will have instructions as to when and where to file an answer, along with other important foreclosure case information. If the court has a mediation program, the summons will likely include information on how you can participate in mediation, including a form to request it.
Review the complaint carefully and examine the documents attached exhibits, which will probably include a copy of the promissory note and mortgage you signed when taking out the loan. If you disagree with the allegations or see that the lender failed to include appropriate documentation, you can raise these issues in your answer. You get 28 days to answer the complaint and serve (or mail) your answer or other response to the foreclosing lender's lawyer. You also have to file your answer or other response within three days of serving your answer. (Ohio Civil Rule 12(A), 5(D)). If you need more time to answer, you can file a motion with the court asking for an extension. If you don't file an answer or raise a particular defense in your answer, you'll be barred from raising it later, subject to a few exceptions.
If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, which will allow it to hold a foreclosure sale. But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. Your case might be assigned to a special foreclosure magistrate, like in Cuyahoga County. The magistrate makes findings and recommendations about the foreclosure. If you don't object to these findings, or if the court overrules your objection, then the court may adopt the magistrate's decision in full or in part.
The lender might ask for 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.
The property is then appraised because, in Ohio, the home can't be sold for less than two-thirds of its appraised value at the foreclosure sale. (Ohio Rev. Code §§ 2329.17, 2329.20). Notice of the date, time, and place of sale is published for three consecutive weeks in a newspaper. (Ohio Rev. Code § 2329.27).
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 Ohio, 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.
Your legal rights in the property terminate when the court confirms the sale and a writ of possession is issued to the buyer.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale (or for a short period after that), 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.
Ohio law doesn't give the borrower the right to reinstate the loan. But your loan paperwork might allow for reinstatement. Check your mortgage to see if you get the right to complete a reinstatement. If not, the lender might agree to let you reinstate your loan.
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. In Ohio, you have a right to redeem up until the court confirms the sale. (Ohio Rev. Code § 2329.33). You can file a motion with the court asking to delay the confirmation if you need more time to redeem.
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 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 about the options available to you, speak with a local bankruptcy attorney.
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 Ohio, the lender can get a deficiency judgment against you for the remaining balance as part of the foreclosure lawsuit. But at the foreclosure sale, the home can't sell for less than two-thirds of its appraised value. (Ohio Rev. Code § 2329.20, § 2329.17).
In most cases, the lender has two years following sale confirmation to collect the judgment. (Ohio Rev. Code § 2329.08).
In this article, you'll find details on foreclosure laws in Ohio, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
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.
To find Ohio's laws, search online for "Ohio statutes" or "Ohio 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.
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.
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 Ohio'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).