Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, federal and state laws now 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 Wisconsin sign a promissory note and mortgage. These documents give homeowners some contractual rights along with federal and state legal protections.
So, don't get caught off guard if you're a Wisconsin homeowner behind in mortgage payments. Learn about each step in a Wisconsin 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.
In a Wisconsin foreclosure, you'll most likely get the right to:
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 opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments for your home in Wisconsin, 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. Most people get 20 days to file an answer to the complaint.
You might receive notice about foreclosure mediation along with the summons and complaint. Wisconsin's Department of Justice and Attorney General have established a Wisconsin Foreclosure Mediation Network and foreclosure mediation is available in participating counties.
Also, several counties in Wisconsin have their own mediation programs. For many of these programs, the lender must attach a notice about mediation to the complaint and an application to participate.
If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, allowing it to hold a foreclosure sale.
But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. The lender might then ask the court to grant 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.
A notice of the sale must be published in a newspaper once a week for three weeks. The notice must also be advertised in a public place and posted on the county website, if the county has one, at least three weeks before the foreclosure sale date. (Wis. Stat. § 815.31).
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 Wisconsin, 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.
You can stay in the home through the redemption period (see below) up until the court confirms the foreclosure sale. The order confirming the sale might also include a writ of assistance, which is an order from the court directing the sheriff to remove you (the foreclosed homeowner) from the property.
Some ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Of course, if you can work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid a foreclosure. But you'll have to give up your home.
Wisconsin law gives you the right to reinstate the loan before the judgment. The court will then dismiss the foreclosure. You may also reinstate after the judgment (before the sale), which will stay (postpone) the foreclosure, but if you default on payments again, the foreclosure will go ahead. (Wis. Stat. § 846.05).
In some states, homeowners who lose their home to a foreclosure get a specific amount of time, called a "redemption period," after a foreclosure to repurchase the property from the person or entity that bought the home at the sale. In Wisconsin, however, the redemption period happens before the sale. (Wis. Stat. Ann. § 846.13).
In Wisconsin, the redemption period is the time between the judgment and the foreclosure sale. During the redemption period, you may pay off the total debt, including the principal balance, plus certain additional costs and interest, to stop the foreclosure.
Wisconsin's redemption period law is complicated and, depending on the circumstances, like whether the bank is seeking a deficiency judgment and when you signed the mortgage, the redemption period will be between five weeks and one year. Talk to a foreclosure lawyer if you need specific information about Wisconsin's redemption period law.
If you're facing a foreclosure, filing for bankruptcy might help. 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 prohibiting the lender from foreclosing on your home or 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.
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.
Deficiency judgments are allowed under Wisconsin law if the lender requests the judgment in the complaint. (Wis. Stat. § 846.04). However, lenders often waive the right to the deficiency to reduce the length of the redemption period. (Wis. Stat. § 846.101).
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
If you have questions about Wisconsin'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 about different loss mitigation options.