If you are not able to keep up with your mortgage payments, the prospect of foreclosure and with it losing your home can be daunting. Still, foreclosure is a rigorous legal process, and you have certain rights based on state law along with the mortgage documents you signed. Knowing your rights can help you navigate the foreclosure process as smoothly as possible, or even avoid it if your lender violated any foreclosure requirements.
What Is Foreclosure?
Foreclosure is the legal process that allows lenders to recover the balance owed on a defaulted loan by taking ownership of and selling the mortgaged property as collateral. Nonpayment is what usually triggers default, but it can also happen if a borrower does not meet certain other terms in the mortgage contract.
Loss Mitigation Rights
Your loan servicer is the company that handles your mortgage account, and it may or may not be the company that either issued or currently owns the loan. The loan servicer is required to contact you (or try to do so) by phone to talk about “loss mitigation” no later than 36 days after your first missed payment and within 36 days of any subsequent missed payments. Loss mitigation is the process by which you and your lender work together to try and avoid foreclosure. Within 45 days of a missed payment, your servicer must notify you in writing about your loss mitigation options and refer you to someone who can help you try to avoid foreclosure. In general, your servicer cannot start to foreclose until you are at least 120 days behind on your payments.
Right to a Breach Letter
Mortgage contracts typically have a clause that obligates lenders to send a written notice called a “breach letter” to tell you when you are in default. The breach letter must include:
• Details about the default and its causes
• What you need to do to cure the default and reinstate the loan
• The date by which you must cure the default (usually at least 30 days from the date you receive the notice)
• Notice that failure to cure the default on time will lead to the sale of the property
To cure the default and avoid foreclosure you must pay the full past due amount by the date shown in the breach letter, along with any back interest, late fees, and penalties. If you do not and you have not worked out some other option—foreclosure proceedings will likely begin. In general, you must be behind on payments for at least 120 days before a foreclosure can start, so your lender will likely send a breach letter close to the 90th day of the delinquency.
Notice of the Foreclosure
You are entitled to notice of a pending foreclosure no matter which state you live in. If it’s a judicial foreclosure, you’ll get a complaint and summons letting you know that a foreclosure has begun. If it’s a non-judicial foreclosure, you may receive two notices:
1. Notice of default (NOD). Depending on state law, a non-judicial foreclosure starts when a notice of default is recorded at the county office. The NOD serves as public notice that you are in default. It contains details about the borrowers, lender, trustee, property, default, action required to cure the default, and a statement that if the default is not cured by the stated deadline, the lender will sell the property at a public sale.
2. Notice of sale (NOS). The notice of sale might be mailed to you, published in a local newspaper, posted on the property, and recorded in the county land records. It includes details about the property, a statement that the property will be sold at a public auction, and information about the foreclosure sale. If you do not receive an appropriate notice under your state’s laws, you may have a defense to the foreclosure. While that does not necessarily mean you could avoid the foreclosure, it may force the servicer to issue a new notice and start the foreclosure process from scratch. That could potentially give you enough time to get caught up on payments or sort out another option.
Right to Reinstate
Depending on state law, you may be able to stop a foreclosure if you make a lump-sum payment to get up to date on your loan, including any fees and expenses. In Utah, there is no right to reinstate after the foreclosure sale is completed. After that, you resume your regular payments. In general, you must reinstate the loan by a particular deadline, such as by 5:00 p.m. on the last business day before the property sale is scheduled. Your mortgage contract may also give you the right to reinstate. Check your mortgage or deed of trust for a section known as the reinstatement clause, titled as “Borrower’s Right to Reinstate After Acceleration” (or similar language) to find out if and how you can reinstate your loan. If you do not have a right to reinstate through state law or your mortgage contract, the lender may allow you to reinstate after considering your request. If the lender refuses, you can ask a court to allow the reinstatement. In general, a judge would rather avoid foreclosure if you have the cash to get current on your loan.
Right of Redemption
All states let borrowers pay off debt (including fees and expenses) and “redeem” their property before a foreclosure sale, and some states even allow borrowers to buy back the property after the foreclosure sale. To redeem the property, you pay the full balance due before the foreclosure sale or reimburse the person or entity that bought the property at the foreclosure sale, depending on the situation. In Utah, the only time you have a right of redemption is during the 90-day window after the Notice of Default has been recorded with the County Recorder’s office. After that, your right is gone. Call us to discuss options at that point.
Right to Foreclosure Mediation
Some states, counties, and cities give property owners facing foreclosure the right to partake in mediation. In foreclosure mediation, you meet with your lender (or servicer) and an impartial mediator to discuss options likes a loan modification, short sale, repayment plan, or deed in lieu of foreclosure.
Right to Challenge the Foreclosure
No matter where you live, you have the right to challenge the foreclosure in court. If it’s a judicial foreclosure, you can just participate in the existing foreclosure lawsuit. If it’s a non-judicial foreclosure, however, you must file your own lawsuit. In general, it may make sense to challenge the foreclosure if you think the servicer made a mistake or violated the law.
Right to a Surplus
If the property sells at a foreclosure sale for more than you owe (including any fees, expenses, and liens on the property), you are entitled to the excess proceeds—called a surplus. Of course, depending on state law, if the foreclosure sale does not cover your debt, you may be on the hook for a deficiency judgment.7
Fair Debt Collection Practices Act Validation Letter
The Fair Debt Collection Practices Act (FDCPA) is a federal law that covers when, how, and how often third-party debt collectors can contact debtors. FDCPA may apply to foreclosures, but it depends on whether it’s judicial or non-judicial:
• Judicial foreclosures. In general, judicial foreclosures are viewed as being subject to FDCPA because creditors can get deficiency judgments.
• Non-judicial foreclosures. The FDCPA does not apply to firms pursuing non-judicial foreclosures under a unanimous decision.
• When FDCPA applies, your mortgage servicer must send you an FDCPA validation notice that includes:
• How much you owe, including interest, late charges, attorney fees, and other charges
• The name of the creditor
• A statement that explains that, unless you dispute the validity of the debt within 30 days of receiving the letter, the debt will be assumed to be valid
• A statement that, if you notify the debt collector in writing within the 30-day period to dispute the debt, the debt collector will get written verification of the debt and send you a copy
• A statement that the debt collector will provide you with the name and address of the original creditor, if it’s different from the current one, if you request it within the 30-day period
Bank account garnishment means that a debt collector has successfully sued to have money taken out of your bank account. This happens if you haven’t repaid debts such as a medical bill or unpaid taxes. Your bank isn’t required to notify you of an account garnishment unless the withdrawal overdraws your balance. Depending on where you live, you may have certain rights and protections against having your bank account garnished.
Bank account garnishment means that a collection agency is legally allowed to remove money from your account to repay an outstanding debt, and is usually a last resort that creditors turn to when debtors repeatedly ignore requests to pay back what they owe. Loan companies won’t take the costly legal steps required to garnish a debtor’s bank account unless their mailed notices and phone calls have failed to settle the debt.
According to the law, a creditor needs to win a judgment in order to garnish your account. In other words, the lender must file a lawsuit, which requires an attorney to deliver notice to both the borrower and the court. To begin withdrawing funds from a debtor’s account, the creditor needs an order or writ of garnishment, signed by a court official. The Internal Revenue Service (IRS) is the only creditor that can garnish money from bank accounts without a judgment.
Having your bank account garnished is different from having your wages garnished. A court-ordered wage garnishment requires your employer to withhold a certain amount of your paycheck and send it to your creditor. Since the deduction takes place before your paycheck is cashed, this means that your bank plays no role in a wage garnishment. In rare cases, it’s possible for creditors to garnish both your wages and your bank account at the same time.
Can Your Bank Account Be Garnished Without Notice?
Once a garnishment is approved in court, the creditor will notify you before contacting your bank to begin the actual garnishment. However, the bank itself has no legal obligation to inform you when money is withdrawn due to an account garnishment. However, you may receive an automated overdraft notification if the garnished amount is greater than your available account balance. The notification of garnishment should come from your creditor and not your bank. After your bank is notified, it will need to follow the court order before honoring any other transactions you have scheduled. Federal law states that individuals who receive federal benefits will have their last two months’ worth of deposits reviewed to see which ones are exempt. If you believe that your bank account may be garnished, notify your bank of these transactions to ensure those funds are properly exempted. When a creditor garnishes your bank account, money that isn’t exempt from garnishment will be frozen and seized. Some banks may also charge non-sufficient fund (NSF) fees if the creditor attempts to withdraw more money than you have. Even if you have overdraft protection, the bank may be legally obligated to fulfill the transaction until the garnishment is satisfied. Some banks also charge a separate additional garnishment. Depending on where you live, account garnishment doesn’t necessarily mean the loss of your entire balance. State laws on bank garnishment vary, but most states impose a garnishment limit based on a percentage of your disposable income. This ensures that debtors will keep enough money to meet their living expenses. Certain types of income are specifically protected against garnishment. For example, direct deposits from federal benefits such as Social Security—are protected to some degree in every state.
To lift the garnishment, you can try to contact the collection agency to negotiate alternative payment options. You may be able to lower interest payments, reduce the amount you owe, or make partial payments for a certain amount of time. However, you’ll have more bargaining power if you reach out to your creditor before a judgment is made. It’s in your best interest to prevent an account garnishment from happening in the first place. You can challenge the judgment in cases where the garnishment is made in error, is improperly executed, or presents a serious financial threat to you. If you decide to challenge the garnishment, seek help from an attorney and act quickly since you may only have up to five business days. If you can’t afford an attorney, search for legal aid offices that offer services for free or at a reduced rate.
Filing for bankruptcy can stop a garnishment, but this should be considered as a last resort. When you declare bankruptcy, an injunction goes into effect that stops most collectors from calling, sending letters, or filing lawsuits and garnishments. The creditor filing the suit against you can ask the court to lift the injunction, but only under very special circumstances, but this doesn’t mean discharging your debt. You may still owe money after a bankruptcy.
What Is Repossession?
In repossession, a bank or leasing company takes a vehicle away from a borrower who is behind on payments, often without warning. Lenders might send a driver to collect the car, or they may take it away with a tow truck. In some cases, lenders can disable your car by remote control so you can’t drive it until you clear things up. Borrowers typically receive notification that they’re behind on payments, and lenders must inform borrowers about the consequences. But lenders might not tell you exactly when they’re coming for the vehicle.
When Is Repossession Allowed?
To borrow money or lease a car, you have to agree to specific terms. For example, you agree to make monthly payments on time and keep adequate insurance on the vehicle. If you don’t meet those requirements, the bank (or leasing company) has the right to take the car.
In addition to losing the car, your credit will suffer, and you’ll probably owe significant fees. Repossession, whether you eventually get the car back or not, shows up on your credit reports for seven years and can lead to lower credit scores. We’ll discuss those problems in more detail below.
Your lender might have the right to take your car, but you also have rights.
Lenders can repossess a vehicle that is parked on private property, but state laws generally restrict them from “breaching the peace” while doing so. For example, repossession agents cannot damage your property to get access to a vehicle. They typically cannot destroy locks to get into your garage, nor can they use (or threaten to use) physical force when taking your car.
If your car is taken and sold, the lender needs to sell it for a “commercially reasonable” price.3 It doesn’t need to be the highest price possible, but the lender must make an effort to get fair market value out of the car. Why? The sales proceeds will go toward paying off your debt, so it would be unfair to repossess the vehicle and “give it away” to somebody else.
Things don’t necessarily end after repossession. If your lender sells your car, the sales proceeds go toward your loan balance. In many cases, the car sells for less than you owe, so your loan is still not paid off. The amount you owe after the vehicle sells is called a deficiency. In addition to your loan balance, you also have to pay for costs related to repossession. Charges can include expenses for sending a repossession agent, storing the vehicle, preparing the vehicle for sale, and more. Those costs are all added to your deficiency balance. If you can’t pay the balance, expect your lender to send your account to a collection agency. At that point, you can negotiate a settlement, pay nothing, or set up a repayment plan. In some cases, your debt will be forgiven or charged off (possibly resulting in tax liability for forgiven debt).
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506