Foreclosure can be a scary term, especially if you are irregular with your debt repayment. Foreclosure trends have drastically changed in the last decade. In the year 2020, the foreclosure rate of the U.S. stood at 0.16% compared to 2.23% in 2010. This is the lowest that has been registered in the country in the past two decades despite two major global financial crises in this duration, one of which is still ongoing.
Because foreclosure is a long, tiresome legal process, many borrowers land into trouble due to a lack of knowledge or simply missing out on details. Moreover, it is important to know your rights during the process to meet with the least inconvenience. Here is the bonus- if you discover any violations of the law and the terms from the lender’s end while exercising your rights, you can even avoid foreclosure completely.
Therefore, it is essential to be aware of rights during foreclosure as a borrower. But first, let’s begin from the basics.
What is a foreclosure?
When a borrower fails to repay the amount loaned from the lender, the latter has the right to recover it by selling the asset used as the collateral for the loan. This process is called foreclosure.
The sale of assets, which is done under the strict supervision of the federal court, is used to repay the mortgage, lien holder and mortgagee, in the sequence. However, if the amount generated from the asset sale is not enough to recover the mortgage, the mortgagee can bring in the deficiency judgment under which it has the right to sue the mortgagor for the remaining amount.
Your rights in a foreclosure as a borrower
Your lender has the right to recover his payment through foreclosure of your collateral asset if you fall behind your repayment. However, it is not the lender who enjoys the rights during a foreclosure. In addition, borrowers are often exploited during the process due to a lack of knowledge about their rights in a foreclosure.
Therefore, it is important to know what your rights are as a borrower during a foreclosure.
Let’s begin in sequence.
1. Right to Breach Letter
If you carefully read every corner of your mortgage contract, you would know that your lender is obligated to send you a breach letter. A breach letter is a written notice that informs the borrower when they are in default.
One must always check for the following details in the breach letter, which are legally required to be in the document-
- Default details and the reasons
- Point to help borrower mitigate loss by suggesting ways to cure default.
- Due date of clearing the default.
- Informing the borrower about foreclosure in case of non payment of the default.
2. Loss Mitigation Right
Did you know that your borrower is bound to help you avoid foreclosure as much as possible?
This loan service is known as loss mitigation. This is done by your loan servicer, who may or may not be the party that actually issues your loan. This loan servicer company must contact you to discuss loss mitigation within the period of 36 days from your due payment date that you have missed.
Unless you are 120 days behind your default payment, you cannot be subjected to foreclosure by your loan servicer.
The options of loss mitigation should be informed to you within 54 days by your loan servicer in writing. They should also help you by referring someone who can avoid your foreclosure.
3. Right to Notice of Foreclosure
Every borrower is entitled to notice before the foreclosure proceeds. In case of a judicial foreclosure, you will be informed through complaints and summons that your foreclosure is beginning.
In case of a non-judicial foreclosure, you receive two notices which are Notice of Default (NOD) and Notice of Sale (NOS). NOD is like a public notice that is submitted at the county office. This document affirms that you are in default and contains details about the borrower, lender, collateral asset, default, trustee, way to mitigate default, and foreclosure warning.
Notice of Sale of NOS, on the other hand, is the document that is mailed to the borrower, published in the local print, and registered in the county land records. This document contains information about the foreclosure, public auction, and details about the property.
In case you do not receive the above-mentioned document, you have the right to defend against foreclosure. It might avoid the entire process of foreclosure or at least coerce the loan servicer to restart the process from scratch.
In other words, it can buy you some extra time to clear your default payments and come out clean.
4. Right to Reinstate and Right to Redemption
One must always check the reinstatement clause in the mortgage or deed of trust. This clause is titled “Borrower’s Right to Reinstate After Acceleration,” It sheds light on how a borrower can reinstate the loan if the lender allows it.
After the foreclosure announcement, you can still save your asset by submitting a lump sum amount along with any fees and expenses applicable. This amount should be submitted by 5 P.M. on the last business day before the property auction is scheduled.
Right to Redemption is also somewhat similar. It empowers the borrower to clear the debt and redeem the asset before foreclosure. In some cases, the borrowers are even allowed to buy back their property in foreclosure.
This is done by paying the full balance due and/or reimbursing the buyer of the asset foreclosed.
5. Right to Foreclosure Mediation
This right is not available to all, only to some states, cities, and counties. According to this, the borrower has the right to discuss options like loan modification, short sales, deed instead of foreclosure, and repayment plan with the lender and a trusted and impartial mediator.
6. Right to Challenge Foreclosure
Every borrower has the right to foreclosure. You can participate in the current foreclosure lawsuit if it’s a judicial foreclosure. In case it’s not a judicial foreclosure, you can file your own lawsuit.
7. Right to Surplus
Your rights while in a foreclosure process are not limited to just the sale of the asset. It continues even after the foreclosure is done. If your asset is sold for more than the loan amount, you are entitled to that excess amount. On the contrary, if the sale of an asset does not meet the entire borrowed amount, you are subjected to a deficiency judgment.