Federal and state laws heavily regulate mortgage loan servicing and foreclosure processes. Most of these 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 Vermont sign a promissory note and mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Vermont foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Vermont homeowner who's behind in mortgage payments. Learn about each step in a Vermont 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 Vermont 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 Vermont 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 couple of 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 the mortgage payments for your Vermont home, the foreclosure will be judicial. The process could vary from other states that use a judicial process, though. While a "foreclosure by judicial sale" in Vermont is basically a typical judicial foreclosure, a "strict foreclosure" is a slightly different procedure. A strict foreclosure is allowed if the court finds that the property has no substantial value over the mortgage debt plus the assessed but unpaid property taxes. (Vt. Stat. Ann. tit. 12, § 4941).
A foreclosure by judicial sale begins when the foreclosing lender files a lawsuit (a "complaint") in court and serves a copy along with a summons to the borrower. (Vt. R. Civ. P. 80.1). The summons informs the borrower about the deadline to file a response, called an "answer," with the court, which is generally 21 days after the complaint and summons is served. (Vt. R. Civ. P. 12(a)(1)(A)).
If the borrower doesn't respond, the lender automatically wins the case. But if the borrower responds to the suit, the court will move the case through the litigation process. Either way, if the lender wins, the court enters a judgment against the borrower and sets a sale date. The lender mails a notice of the sale to the borrower no fewer than 30 days before the sale and publishes the notice in a newspaper no fewer than 21 days before the sale. (Vt. Stat. Ann. tit. 12, § 4952). The home is then sold at a foreclosure sale.
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 Vermont, 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.
The main difference between a foreclosure by judicial sale and a strict foreclosure is that in a strict foreclosure, the court enters a judgment and transfers the property directly to the lender without holding a sale. (Vt. Stat. Ann. tit. 12, § 4941).
A few potential ways to stop a foreclosure might include reinstating the loan, redeeming the property, 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.
Under Vermont law, in a foreclosure by judicial sale, the borrower has the right to reinstate the loan after the redemption period (see below) set forth in the judgment expires, but before the sale, if both the borrower and the lender agree. (Vt. Stat. Ann. tit. 12, § 4948).
Your mortgage contract might also give you the right to reinstate the loan by a specific deadline. Or your lender might agree to let you complete a reinstatement.
One way to stop a foreclosure is by "redeeming" the property (paying the lender the full amount of the outstanding mortgage loan plus all applicable costs and expenses).
Redemption period in a foreclosure by judicial sale. In a foreclosure by judicial sale, the redemption period for an owner-occupied principal residence is six months from the date of the foreclosure decree unless the court orders a shorter time. (Vt. Stat. Ann. tit. 12, § 4946(b)). In addition, if the borrower occupies the house as a principal residence at the time the lender applies for an entry of judgment, the sale can't take place until at least seven months after the lender serves the complaint unless the court orders a shortened redemption period or the borrower agrees to it. (Vt. Stat. Ann. tit. 12, § 4946(b)).
The borrower can also redeem the home at any time before the sale after the initial redemption period expires. (Vt. Stat. Ann. tit. 12, § 4952).
Redemption period in a strict foreclosure. In a strict foreclosure, the borrower may redeem the property within six months from the date of the foreclosure decree, unless:
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 $600,000, but the home sells for $550,000 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.
The lender may request a deficiency judgment in the complaint, and the deficiency is waived if not requested before the confirmation order. (Vt. Stat. Ann. tit. 12, § 4954(d)). If the lender buys the home at the foreclosure sale, the deficiency amount is limited to the difference between the home's fair market value and the total debt amount, plus expenses. (Vt. R. Civ. P. 80.1).
The lender can get a deficiency judgment by filing a separate lawsuit. The amount of the deficiency judgment is limited by the fair market value of the property.
In this article, you'll find details on foreclosure laws in Vermont, 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 Vermont's laws, search online for "Vermont statutes" or "Vermont 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 Vermont'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).