Client concern: I missed a mortgage payment. Is my home going to be sold at foreclosure right now? I am worried about being kicked out of my home tomorrow!
Do not panic. Although you should speak to an attorney as soon as possible, if you missed some mortgage payments, the mortgage company cannot immediately foreclose/ sell the home. The foreclosure process is pretty lengthy. The following is a general timeline:
1. When you miss mortgage payment(s), the mortgage company will usually reach out to you to try to help you catch up payments before filing a foreclosure action. Here are some options the bank may talk to you about (with very brief explanations):
a. Forbearance agreement: Deferment of loan payments. Usually payments are put on hold for a certain period of time (3 or so months) and added to the end of the loan.
b. Deed in lieu of foreclosure: You give the mortgage company a deed to the home instead of going through a foreclosure.
c. Mortgage modification: Changing the mortgage terms. Usually the interest rate is reduced and loan term is extended; the arrearage is added to the end of the loan.
d. Short sale: The home is sold and the mortgage company accepts a lesser payoff.
2. Be careful and possibly seek legal counsel when pursuing any of the options above as they can lead to issues. For example:
a. Client thinks the foreclosure was delayed during the mortgage modification application or short sale process only to be denied and the foreclosure was proceeding all along; and now the property is close to foreclosure sale.
b. The deficiency (remaining mortgage balance) is supposed to be waived in a short sale but I have seen banks hold clients liable for the deficiency even though the sale was supposed to be a short sale.
c. With mortgage modifications, clients often tell me they sent supporting documents to the bank repeatedly, such as tax returns and bank statements, but the bank said they did not receive the documents; and/ or the mortgage modification request was denied for unknown reasons. [As an aside, you can do a mortgage modification in conjunction with the Chapter 13- discussed below. The application and documents are uploaded to the court so the mortgage company cannot say it did not receive documents etc.]
3. FYI Foreclosure intervention order in SC: Before any foreclosure action may proceed, the bank’s attorney must serve a foreclosure intervention notice and give you a reasonable period of time to submit documents and other information to the attorney to determine if you are eligible for a “loan modification or other means of loss mitigation”.
4. After all the above remedies/ interventions have been exhausted, the bank will start foreclosure. All banks are different when it comes to when they commence the actual foreclosure action but I would say, in general, you would have to be at least 6 or more payments behind before a foreclosure is initiated.
5. The foreclosure process:
a. A Summons and Complaint is filed with the Clerk of Court in the Court of Common Pleas in the county where the property is located.
b. You have 30 days to file an answer after being served with the Summons and Complaint; Defendants served by publication have 30 days after the third publication to file an answer. Filing an answer or extension of time to file an answer might delay the process (you should seek legal counsel in this regard).
c. Once the answering period expires, the case gets referred from the Circuit Court to the Equity Court where it’s assigned to a Master-in-Equity or Special Referee to hear the case.
d. Whether or not a defendant files an answer, there must be a hearing, attended by counsel, to prove the debt (although, again, filing an answer may delay the hearing date).
e. After the hearing, a Judgment of Foreclosure and Sale is entered. This allows the foreclosure sale of the property. The sale date is set (usually 30 days from the hearing). The Notice of Sale must be published once weekly for three weeks in a newspaper where the property is located.
f. FYI re. the deficiency: A deficiency is the balance left over after the sales price. For example, if a property is sold for $10,000.00 at foreclosure and you owe $100,000.00 on the mortgage, the deficiency balance would be $90,000.00. Sometimes the deficiency is waived. If the deficiency is waived, you should not owe a balance following the sale. The deficiency must be affirmatively demanded in the Complaint. If a deficiency is demanded, the foreclosure sale bidding remains open for an additional 30 days following the sale and then there is a second sale.
g. Note: If the home is sold at foreclosure and you still need time to move, you may want to try asking the buyer if you can have additional time to move and/ or ask if you can rent the property temporarily.
6. If you file Bankruptcy any time before the foreclosure sale date, the property is then “protected” and the foreclosure sale will be stopped by the Bankruptcy (known as a Bankruptcy stay). If a deficiency was demanded and you file bankruptcy after the first sale but before the second sale, the bankruptcy invalidates the first sale and the sale must be vacated.
a. After the Bankruptcy is filed, the mortgage company will have to file a Motion for Relief from Stay (known as 362 relief) to get the property out of the Bankruptcy protection. All banks are different when it comes to when they file for 362 stay relief but I would say, in general, it takes about 30-60 days after the Bankruptcy case is filed for banks to file for stay relief. It takes approximately 30 days to be approved. You can object to the motion for relief from stay if you have appropriate grounds which would cause the process to take longer. Once the Bankruptcy stay is lifted, the foreclosure can commence at the point where it was when the bankruptcy case was filed but it usually takes the banks a while to get the foreclosure going again (this varies from bank to bank).
As you can see, even in the ordinary course, the foreclosure process takes a pretty long time; and the delays mentioned above will give you additional time to decide what to do. You have to be up to date on payments in a Chapter 7 Bankruptcy in order to retain the home. If that is not possible, the timeline above should give you an idea of the amount of time you have to stay in the home until it sells at foreclosure; or the amount of time you have to possibly try to sell the home; or save money to move, among other options. Filing Bankruptcy will extend the timeline. If you want to catch up payments and retain the home, we will most likely advise you to file a Chapter 13 Bankruptcy if feasible to cure the arrearage over a 3-5 year plan.
If you are behind on mortgage payments, there is no need to panic but you should meet with an attorney as soon as possible to discuss your options.
Contact our office to discuss this matter with an attorney.