Know your redemption rights!

We were contacted by a loan officer who had a friend facing foreclosure. The loan officer knew we were foreclosure specialists who helped many distressed homeowners through the foreclosure process, so she contacted Lois for advice. She told Lois, “I know there’s nothing that can be done to help save my friend’s home, but I wonder if you could take some time with his wife to help get her through this final stage?” The couple was actually in the process of packing and needed to be out in a couple of days. Initially, we were convinced that the couple had waited too long to act and had severely limited their options, but we agreed to meet with them anyway. The couple came in that same evening with the paperwork that Lois had requested —the notice of foreclosure, the mortgage, the deed, and anything else they thought would help.
In preparing for the meeting, we did our own research and discovered that this was a nice, older farmhouse that sat on about 3.3 acres of land, a seemingly minor detail that would become critical in this particular case. As Lois reviewed the documents, she immediately discovered a pleasant surprise for these worried homeowners. The foreclosure notice claimed that the redemption period was six months. In Michigan, however, the redemption period for any property on a parcel of land that is more than 3 acres is actually 12 months! As soon as Lois discovered this key piece of information, she stepped out of the room to verify with an attorney that these homeowners had a valid point for contesting the foreclosure. (You should always double-check your hunches and the information you have on hand.) Sure enough, the attorney agreed that the lender was at fault.
When we broke the good news to the homeowners, they couldn’t believe it. We advised the couple to hire an attorney who was familiar with the foreclosure process. He took up the charge to inform the lender and the lender’s attorney of their mistake. The lender had to begin the process all over again from scratch. That meant that this couple would have a total of 18 months to live in the house free — the 6 months they had already lived there, plus the 12 months they would have from the time that the bank initiated the process anew.
We now had some bargaining power. Ultimately, we were able to pay off the homeowners’ mortgage for less than what they originally, and the bank seemed pretty happy to get the money.
Remember: Knowledge is power. Don’t just assume that everything the lender and the lender’s attorney tell you is correct. If the bank makes a legal error in your favor, don’t hesitate to take advantage of it. You may just be able to save your home!

Can’t I just send the missed payments now?

Bottom line: No. As soon as the bank begins to advertise, you can no longer simply send in a missed payment or two to “catch up.” The bank is likely to refuse the payment. Why? Because if the bank were to accept the payment from you at this point, that acceptance could create the impression that your payment has cured the default, and the bank could be forced to start the process all over again if you stopped making payments again. Not surprisingly, the bank doesn’t want to have to start all over again. You may have other options for delaying or stopping the foreclosure after the bank begins to advertise, but simply sending in the missed payments is usually not a good idea. Contact your lender to learn more, or consult with an attorney to learn about your legal options.

Foreclosure advertisement by the bank

In foreclosure by advertisement, the bank generally advertises by:

• Sending a notice of default to you. A notice of default is required in some states, but most banks do this even if they aren’t required to do so by law.
• Posting a notice on or near your property.
• Publishing a notice in a local newspaper (in the county where the property is located) and/or in a legal newspaper. The advertisement will include your name, the bank’s name, the property’s legal description, the sale date, the name of the foreclosing attorney, the amount claimed due, the interest rate, the redemption period (if any), and other relevant information.

The advertisement may also be called an insertion, and depending on where the property is located, the bank may be required to publish the insertion for several consecutive weeks before it can sell the property. If the foreclosure notice contains errors, you may be able to challenge the foreclosure for failure of process, which means failing to adhere to the statutes in your area.
In some states, homeowners can redeem a property they’ve lost in foreclosure even after someone has bought the property at auction.

Ask your county’s register of deeds whether your area has a redemption period and, if it does, how many days or months you have to redeem. After the advertising, notices, and postings are completed, the bank will try to sell your property at auction as soon as possible. (Auctions are commonly referred to as sheriff’s sales, because the county sheriff usually conducts the auction.) If your property is going up for auction, here are a few key points to keep in mind:

• The person conducting the auction varies by state. In Oregon, for example, the lender’s representative conducts the auction in nonjudicial foreclosures, while the sheriff conducts sales in judicial foreclosures.
• A sale may be adjourned (delayed) and possibly canceled if you can work out something with the bank prior to the sale, or if something goes wrong.
• If you’re told that the sale will be adjourned, go to the sale and make sure it actually is adjourned.
• Keep in mind that if your state has a redemption period, the clock begins ticking from the date of sale.

Just like that, the house is sold. This is why banks prefer to foreclose via advertisement — it’s quick, easy, relatively hassle-free, and inexpensive. The fact that foreclosure can happen so quickly is the very reason that we encourage you, throughout this book, to act quickly. Doing nothing always results in the loss of the home and any equity that you have in it. (Equity is the amount of cash you have in the house — the amount you can sell the house for minus what you owe on it.)

Non-judicial foreclosure (foreclosure by advertisement)

When you purchased your home, you signed a mortgage and a note. The note is your personal promise to pay back the money you borrowed. The mortgage is the security used to guarantee the promise. Your mortgage may contain a clause that gives the bank the right to foreclose if you don’t make your payments as specified in the mortgage. This grants the bank power of sale. If you live in a state that allows power of sale and your mortgage contains a power-of-sale clause, your bank can foreclose without having to file suit against you. The same may be true if you have a deed of trust instead of a mortgage. Some deeds of trust include in them the right to foreclose nonjudicially. The note and the mortgage can be enforced separately — the note is personal, and the mortgage is backed by collateral (your home). If the bank can get the money from you personally, it doesn’t have to foreclose; it can collect the money and leave your collateral alone. People who aren’t making their mortgage payments, however, rarely have much money lying around, so the bank usually goes after the collateral by foreclosing on the mortgage. Read your mortgage and note carefully to determine your rights and the rights your bank has in collecting the debt. The mortgage typically contains one or more of the following:

• Due on sale (due on transfer) clause: The due on sale clause just says that if you sell the house, the proceeds of the sale must pay off the mortgage balance in full before you get any remaining proceeds.
• Power of sale provision: If your mortgage contains power of sale language, all the bank needs to do to foreclose is publicly advertise the intent to foreclose and notify you (or at least try to notify you) prior to the sale (which happens at an auction). The number of days or weeks the advertisement must be posted prior to sale varies by state. Without a power of sale provision or a deed of trust, a judicial foreclosure is typically required, assuming your jurisdiction allows for it. With a judicial foreclosure, the bank must work through the courts to foreclose, which may provide you with additional legal options to at least delay the foreclosure proceedings. Review your mortgage carefully to determine whether it grants the bank power of sale. A short phrase like “This mortgage is granted a power of sale by advertisement” may be all that’s there — but that’s all the bank needs.
• Acceleration clause: An acceleration clause allows the bank to call in the whole balance due in the event of missed payments. Without an acceleration clause, the bank would have to declare a separate default for each missed payment as each payment is missed. An acceleration clause allows a missed payment to be considered a default of the whole and allows the bank to call the full balance due.

The Mechanics of Foreclosure in Your Area

The procedure that the bank follows to take possession of property in the event of a default on a loan varies, depending on the state and area where you live and on any special circumstances that apply.
The three types of foreclosure are

• Non-judicial: This type of foreclosure is done by advertisement.
  
• Judicial: This type of foreclosure involves a court order.
  
• Forfeiture: This type of foreclosure is used if you purchased the home using a contract for deed or land contract, instead of with a mortgage.

In some states, a deed of trust may be used instead of a mortgage and may be treated as a mortgage for most purposes. With a deed of trust, three parties are involved: the trustor (borrower), the beneficiary (lender), and the trustee (an unbiased third party). If you default on the loan, the trustee can foreclose on the home without having to go through the courts. If you have something called a contract for deed, lease option, or something other than a mortgage to prove ownership of your home, the foreclosure process in your area is actually a forfeiture process. For simplicity, we refer to the party foreclosing on your home as “the bank,” even though it may be a creditor, lender, mortgage company, bank, or assignee (someone the loan has been signed over to). When exploring various solutions with your lender, make sure you’re speaking with someone who has the power to make a decision — this is usually the party who owns the loan, not the servicer who merely collects payments.