Are you delinquent on your home mortgage payments? Do you fear your lender may be getting ready to foreclose on your home?
Because the foreclosure process, especially in Alabama, moves quickly, you should understand the process and your rights.
When Can the Foreclosure Process Start in Alabama?
According to federal laws, a lender cannot start foreclosure proceedings until the borrower is over 120 days delinquent on their payments. Once the loan is delinquent for 120 days, the lender can start the foreclosure using the process allowed by state foreclosure laws.
In Alabama, a lender can choose between judicial or non-judicial foreclosure. Under judicial foreclosure, the mortgage lender files a lawsuit in the borrower in the local state court. With a non-judicial foreclosure, the lender does not seek court authority to foreclose. Instead, the mortgage holder publishes a public notice of foreclosure sale in a local newspaper at least once a week for three consecutive weeks. After that, the mortgage holder can conduct a foreclosure sale of the property. In Alabama, most lenders foreclose utilizing the non-judicial process. Mortgage holders typically resort to non-judicial foreclosure because it is so much quicker.
Alabama law does not require the lender to notify the debtor before starting either foreclosure process.
Many mortgage contracts in Alabama require the lender to send a letter notifying the borrower about foreclosure proceedings. Also, for mortgage contracts dated after January 1, 2016 lenders must send a notification to borrowers about their right to redeem the property at least 30 days before the foreclosure sale.
Right to Reinstate the Loan before Foreclosure Sale
Many state laws allow borrowers to stop the non-judicial foreclosure sale by “reinstating” the loan. To reinstate a loan the borrower must pay all delinquent payments, fees, and other costs in one lump sum before the foreclosure sale.
Alabama law does not specify when a borrower may reinstate the loan before foreclosure. But, many mortgage contracts give the borrower the right to reinstate the loan up to five days before the foreclosure sale.
Redeeming Property after a Foreclosure Sale in Alabama
Alabama law allows a borrower to “redeem” (buy back) their property after the foreclosure sale. The borrower redeems the property by paying the full balance of the loan plus interest, taxes, and insurance premiums.
Generally, the borrower has up to one year from the foreclosure sale date to redeem the property. But, if the mortgage contract originated on or after January 1, 2016, the borrower may have less time to redeem the property. If the property is considered a homestead property (a homestead exemption was claimed in the tax year during which the sale occurred) and the lender sent notice of the right to redeem at least 30 days before the foreclosure sale, then the borrower only has 180 days after the sale to redeem the property. If the lender did not provide timely notification, the redemption period will not start until they provide it. But, if the lender does not provide it within one year of the sale the property cannot be redeemed.
A borrower can give up the right to redeem if they do not vacate the foreclosed property within 10 days of receiving a written request to do so from the party who purchased the property at the foreclosure sale.
Deficiency Judgments After Foreclosure in Alabama
The amount a property sells for in a foreclosure sale rarely equals the total amount of mortgage owed. The difference in the amounts is called a “deficiency”. Unlike some states, Alabama law allows the lender to sue a borrower if a foreclosure sale ends in a deficiency.
If a court decides in favor of the lender, a deficiency judgment will be entered against the borrower for the deficient amount. This allows the lender to use collection actions such as wage garnishment or bank levy against the borrower until the deficiency is paid.
How Bankruptcy Can Help with Foreclosure
Because a mortgage is considered a secured debt, it cannot be simply eliminated through bankruptcy. But, bankruptcy can often temporarily delay foreclosure. A delay could provide opportunities for the borrower to stop the foreclosure process permanently.
This delay is made possible through bankruptcy’s automatic stay. The automatic stay is a legal injunction placed against creditors as soon as someone files for bankruptcy. Under an automatic stay, the law forbids the mortgage creditor from continuing the foreclosure process.
Because the foreclosure process in Alabama moves quickly, a bankruptcy automatic stay may provide valuable time to explore all options.
How bankruptcy can help stop foreclosure depends on each person’s financial situation and the type of bankruptcy they file.
Generally, the key benefit of Chapter 7 bankruptcy for the debtor is more time to:
- gather money to catch up on mortgage payments
- try to negotiate a loan modification with the lender
- sell the property themselves
- make other living arrangements
Chapter 13 bankruptcy may offer the best solution to those facing foreclosure. Under Chapter 13 bankruptcy, the mortgage arrears (past-due balance) of a mortgage could get added to a restructuring plan which would spread out repayment over several years. In certain circumstances, chapter 13 bankruptcy might allow for the “stripping” of second mortgages.
Upon successful completion of a Chapter 13 bankruptcy repayment plan, as long as regular mortgage payments have continued, the threat of foreclosure on the property should stop.
Getting Help to Stop Foreclosure
If you believe you could face foreclosure, you may want to seek the help of an experienced bankruptcy lawyer. Foreclosure in Alabama can happen fast and be complex. An experienced bankruptcy attorney would know what options are best for your financial situation.
Brock & Stout’s bankruptcy lawyers have been helping homeowners fight against foreclosure for over 20 years. We are dedicated to helping all our clients through the bankruptcy process so they can get a financial fresh start. Contact us for a free evaluation of your financial situation to see if we can help you.