Your Rights in a Foreclosure

When you take out a loan from a bank or mortgage company to buy a home, you have to promise to comply with a payment schedule and agree that the lender can sell the property at a foreclosure sale if you fail to make the required payments.

If you're facing a foreclosure, don't panic. You have legal rights, including the right to:

• apply for loss mitigation
• receive certain foreclosure notices
• get current on the loan and stop a foreclosure sale
• receive special protections if you're in the military
• pay off the loan to prevent a sale
• participate in mediation, in some cases
• challenge the foreclosure in court
• file for bankruptcy, and
• get any excess money after a foreclosure sale.

These rights are based on federal law, state law, and the mortgage or deed of trust you signed when you took out the loan.

Your Loss Mitigation Rights In a Foreclosure

Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options (that is, foreclosure avoidance alternatives, like a loan modification or deed in lieu of foreclosure) no later than 36 days after you miss a payment and again within 36 days after each subsequent 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 bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act.

Also, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments. This preforeclosure period should provide you with ample opportunity to submit a loss mitigation application to the servicer.

State law might provide you with even more loss mitigation and preforeclosure protections. Check out our Summary of State Foreclosure Laws and talk to a local foreclosure lawyer to learn more about your state's laws.

Your Right to Get a Breach Letter Before Foreclosure Starts

Mortgages and deeds of trust typically have a provision that requires the lender to send you 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.

Some state laws also require the lender to send a preforeclosure notice.

Your Legal Right to Get Notice of the Foreclosure

Depending on state law and the circumstances, the foreclosure will be either judicial or nonjudicial. In all states, you're entitled to notice of a pending foreclosure.

Notice In a Judicial Foreclosures

If the foreclosure is judicial, you'll get a complaint and summons telling you that a foreclosure has started.

Notice In a Nonjudicial Foreclosures

You'll also get some kind of notice about a pending nonjudicial foreclosure. In some states, you'll get a notice of default. You might also get a notice of sale that lets you know when the sale will happen.

Some states require the lender to send a combined notice of default and sale. Or you might get just a notice of sale. In other states, notice of the foreclosure consists of publishing information about the sale in a newspaper and posting a notice on the property or in a public location.

To get details about the process in your state, see our Summary of State Foreclosure Laws.

The Right to Get Current On the Loan (Reinstate)

State law and the terms of the mortgage contract sometimes allow the borrower to stop a foreclosure by getting current on the loan with a lump-sum payment covering overdue payments, fees, and expenses. The foreclosure stops, and you resume making regular payments.

Right to Reinstate Based on State Law

Generally, under many state statutes, you must reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other deadline.

Contractual Right to Reinstate

Also, many mortgages and deeds of trust give you the right to reinstate. Usually, the contract says reinstatement is allowed up until five days before the sale in a nonjudicial foreclosure or up until judgment in a judicial foreclosure.

Check your loan documents, generally for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar, to find out if you get a right to reinstate the loan and the deadline for doing so. Keep in mind that your state's statutes might provide a more generous reinstatement period that supersede this provision.

The Lender Might Allow You to Reinstate the Loan

Even if you don't have a statutory or contractual right to reinstate, the lender might, after considering the situation, let you complete a reinstatement.

If the lender refuses your request, consider asking a court to allow you to reinstate. A judge generally won't want to foreclose if you have enough money to get caught up. Sometimes merely offering to reinstate in front of a judge will embarrass the lender into accepting the reinstatement.

Servicemember Rights In Foreclosures

The Servicemembers Civil Relief Act (SCRA) protects active-duty servicemembers in various financial situations. If you're a military servicemember and took out a mortgage loan before you went on active duty, you're entitled to protections against foreclosure.

Probably the most important protection in states where foreclosures are typically nonjudicial is that the SCRA requires a court order (or a waiver from the servicemember) before a house can be sold at a foreclosure sale. If the lender forecloses without a court order or a waiver, the sale is invalid if done during the period of military service or one year after that. (50 U.S.C. § 3953).

The SCRA also generally protects servicemembers against default judgments in a judicial foreclosure, even if you took out the loan after going on active duty, subject to a few exceptions.

Right to Pay Off the Debt (Redeem the Property)

All states permit borrowers in foreclosure to redeem the property before the sale, and some states provide a redemption period after the sale. You would redeem the home by paying the full amount owed, plus fees and expenses, or by reimbursing the person or entity that bought the property at the foreclosure sale, depending on the situation.

Unfortunately, unless you can get a new loan, either kind of redemption might not be practical if you're already behind in payments.

Right to Foreclosure Mediation

Some states, counties, and cities give homeowners who are in foreclosure the right to participate in mediation. Foreclosure mediation brings the borrower and foreclosing lender to the table with the goal of working out a loss mitigation option, like a modification or a short sale.

Right to Challenge the Foreclosure In Court

You have the right to challenge the foreclosure in court. If the foreclosure is judicial, you'll likely find it easier and generally less expensive to participate in the existing foreclosure lawsuit. But if the foreclosure is nonjudicial, you'll have to file your own lawsuit to raise defenses to the foreclosure.

If the servicer made a mistake, violated the law, or you want to make the lender prove its case, you might want to fight the foreclosure in court.

The Right to File Bankruptcy

If you are facing foreclosure, bankruptcy might be right for your situation. If you want to keep your home, a Chapter 13 bankruptcy might help you accomplish this goal. But if you're simply trying to buy some time by stalling the foreclosure, a Chapter 7 bankruptcy might be right for you.

Right to Surplus Funds

After a foreclosure sale, you might get a notice telling you who bought the property and the sale price. If the sale brought in enough to repay the loan, including all foreclosure fees and costs, and any other liens on the property, as well as some extra money, you're entitled to the excess proceeds, called a "surplus."

On the other hand, depending on state law, if the foreclosure sale doesn't fully pay off the debt, you might be on the hook for a deficiency judgment, which is a personal judgment against you for the difference between the total debt and a lesser sale price.

Getting Help

This article covers many of the rights you have in a foreclosure, but others exist. Your rights in a foreclosure can vary a great deal depending on your jurisdiction and situation. State law, for example, might provide you with more foreclosure protections.

To get detailed information about your rights, consider talking to a local foreclosure lawyer. If you can't afford a lawyer, a legal aid office might be able to help you for free if you meet specific criteria.

To get information about various loss mitigation options, talk to a HUD-approved housing counselor.