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.
So, don't get caught off guard if you're about to go through a foreclosure. Learn all about Alabama's foreclosure laws and the Alabama foreclosure process.
In an Alabama foreclosure, you'll most likely get the right to:
Once you understand the foreclosure process and your rights in Alabama, 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, including late and inspection fees, and, in most cases, must let you know how 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 ample time to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Alabama, the lender may foreclose using a judicial or nonjudicial method.
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.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After finishing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Alabama are nonjudicial. Here's how the process works.
The lender publishes notice in a newspaper once a week for three consecutive weeks before the sale, but Alabama law doesn't require that the lender send a notice to the borrower. (Ala. Code § 35-10-13).
Even though Alabama law doesn't require the lender to notify you in person or by mail about the foreclosure, again, you're probably entitled to a breach letter (see above). Also, if you took out your mortgage on or after January 1, 2016, you'll likely receive a notice about your right to redeem (see below) at least 30 days before the foreclosure sale.
If you're a homeowner facing foreclosure in Alabama, you might be able to participate in a statewide foreclosure mediation program. Under this program, trained mediators assist Alabama homeowners when dealing with foreclosures.
For more information on Alabama's foreclosure mediation program, visit the Alabama Center for Dispute Resolution website.
At the sale, which is a public auction, 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 Alabama, 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.
After an Alabama foreclosure sale, the purchaser must give you ten days' notice to leave before starting eviction proceedings.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before or after 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.)
Even though Alabama law doesn't provide a statutory right to reinstate the loan before the sale, many mortgages, like the uniform Fannie Mae/Freddie Mac mortgage, allow the borrower to complete a reinstatement.
Check your loan documents to determine if you get a reinstatement right and, if so, the deadline to complete one. Or your lender might agree to let you reinstate the 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. Generally, the redemption period after foreclosure in Alabama lasts for one year after foreclosure sale. But if the loan originated on or after January 1, 2016, a homestead exemption was claimed in the tax year during which the sale occurred, and proper notice about the right to redeem was given at least 30 days before the foreclosure sale, then the redemption period is 180 days after the sale. If the lender doesn't provide a redemption notice before the sale, the redemption period doesn't start until the lender provides it; however, homeowners can't redeem, under any circumstances, more than one year after the foreclosure sale. (Ala. Code § 6-5-248(h)).
After a foreclosure sale, you must surrender the property to the buyer within ten days after a written demand for possession of the property (if the buyer makes such a demand), or you'll lose the right of redemption. (Ala. Code § 6-5-251).
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.
The Servicemembers Civil Relief Act provides legal protections to military personnel in default on their mortgages.
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 $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.
Alabama law has no significant restrictions on deficiency judgments following nonjudicial foreclosures. But lenders owe borrowers a duty of fairness and good faith in coming up with their credit bids at foreclosure sales. So, lenders can't make an unreasonably low bid that's shockingly less than the property's fair market value to pursue a large deficiency judgment against the borrower. (Mt. Carmel Estates, Inc., et al. v. Regions Bank, 853 So.2d 160 (Supreme Court of Alabama 2002)).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
If you have questions about Alabama'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 a good idea.