I am three months behind on my mortgage payments and my lender is threatening foreclosure. What exactly does this mean?
Foreclosure is a process by which the lender terminates your ownership of your real property. The lender will do this through a public foreclosure sale that will take place at a published place and time (usually at the local courthouse). Once the foreclosure sale has taken place, you no longer own the real property and you will have to vacate the property within 10 days.
If your lender is threatening foreclosure, that means that you are in significant default on your mortgage payments and you are in danger of losing your house. There are two different methods of foreclosure: judicial and non-judicial. In a judicial foreclosure, the foreclosure process occurs in a lawsuit filed by the lender in state court or, in some cases, federal court. Once a judicial foreclosure has been commenced by the filing of the complaint, the lender will serve the borrower with a summons and a copy of the complaint. If you have been served with a summons in connection with a judicial foreclosure, you need to see an attorney as soon as possible, as there is a limited time to appear to defend. The process of non-judicial foreclosure is discussed in the next question.
How is a non-judicial foreclosure started?
Many lenders use trust deeds, rather than mortgages, because a trust deed can be foreclosed non-judicially or without the involvement of a court. A non-judicial foreclosure of a trust deed is much cheaper and easier than a foreclosure lawsuit, and an advantage to the lender in a non-judicial foreclosure is that there is no right of redemption. Once the non-judicial sale is held, the buyer has no right to get it back. A non-judicial foreclosure is initiated when the lender records a Notice of Default and Election to Sell in the real property records in the county where the real property is located. The Notice will be served upon the borrower and the occupants of the real property by certified mail and US first class mail. The Notice will state the specifics of the loan default and the total amount owing. More importantly, the Notice will list the date, time, and location of the foreclosure sale. Once the lender formally starts the foreclosure process by filing a notice of default, you typically will have no more than 120 days to resolve the problem or you will lose your house. Filing a bankruptcy can stop foreclosure. There are steps you must take to become eligible to file bankruptcy, such as take a consumer credit counseling session from an approved credit counseling agency. To be on the safe side you should meet with a bankruptcy attorney at Vanden Bos & Chapman, LLP as far in advance of the foreclosure as possible. Even if there is not much time prior to the foreclosure, there may still be things that can be done to prevent the foreclosure from occurring. You should never hesitate to call an attorney at Vanden Bos and Chapman, LLP to see if it is not too late to stop the foreclosure.
Who is the Trustee listed on the notice?
The Trustee is typically an attorney or other professional specializing in foreclosure sales. The Trustee is hired by the lender to act as the lender’s legal agent. When you signed your loan documents, you signed the trust deed, in which you granted the lender (the "beneficiary" under the trust deed) the right to foreclose the real property if you were delinquent on your payments. The Trustee will conduct the foreclosure sale on behalf of, and for the benefit of, the lender.
How long does a Trust Deed foreclosure take?
The foreclosure sale must be a date that is at least 120 days from the date the lender recorded the Notice of Default and Election to Sell.
How is the sale conducted?
At the date, time, and location of the sale, the Trustee will announce the property being sold. Anyone can appear and bid on the property. There is a catch, however. The winning bidder must pay cash at the time of the sale.
The Trustee is usually authorized by the lender to enter a bid equal to the amount owed to the lender. The lender buys the property for the amount of money the lender is owed on the property. This is called a “credit bid," and it is the most common result at foreclosure sales.
How do I stop a foreclosure sale?
There are only 4 ways to stop a foreclosure sale: (1) cure the default, also called "reinstating" the loan, (2) pay off the loan in full, (3) negotiate an extension with the lender, or (4) file for bankruptcy.
No person is eligible to file bankruptcy unless that person has first attended a credit counseling session and obtained a certificate of completion within 180 days prior to the bankruptcy petition date. If you procrastinate, you may not be able to use bankruptcy to stop your foreclosure sale because you might not be able to get your counseling certificate in time.
Despite advertisements you may see from some attorneys, filing a bankruptcy is not something that should be done in a few minutes or hours before the foreclosure sale. Filing for bankruptcy is a comprehensive process that must include a listing of all of your assets and liabilities. Failure to properly prepare the bankruptcy petition may result in the loss of other assets that you would normally be entitled to keep.
So, even if you believe you will cure the default or sell your home before the date of the foreclosure, it may be in your best interest to consult with a lawyer well in advance of the sale so that you are fully aware of all of your options. Vanden Bos & Chapman, LLP can work with you to try to cure the default or help you sell your home. At the same time, we can get everything ready for you to file a bankruptcy just prior to foreclosure, just in case you are unable to cure the default, get an extension, or close a sale prior to the foreclosure sale. You can, and should, consider bankruptcy your "last-chance, ace-in-the-hole" if all other options fail.
a. How do I cure/reinstate the default?
Under Oregon law, the Trustee has to stop the foreclosure sale if you pay the loan current at any time prior to the fifth day before the foreclosure sale. You would have to pay all missed payments, late charges, foreclosure fees and costs, and the lender's attorney's fees. You can request the exact cure amount from the Trustee. If you do attempt to reinstate the loan, please be aware that the Trustee will only accept certified funds.
b. Can I negotiate with the Trustee/lender?
Most major lenders have special departments with the authority and the ability to stop a foreclosure sale, provided you can reach an agreement with them. Each lender has its own unique programs and methods for negotiating and settling, but you should be prepared that any settlement will usually require a lump sum payment at the outset and installment payment arrangements to cure the remaining arrears. Do not rely on an oral or verbal promise by a lender or trustee – be sure to get any agreement with the lender in writing! Agreements with a lender are not enforceable in Oregon unless they are in writing and signed by the lender.
c. Can bankruptcy save my house?
A provision of the Bankruptcy Code called the "automatic stay" will stop a foreclosure immediately upon the filing of a bankruptcy. The "automatic stay" applies in both Chapter 7 and Chapter 13 cases but may not apply if you previously filed bankruptcy. If you have prior bankruptcies, you need to see a lawyer right away to determine if a bankruptcy stay will arise in your case or not. A Chapter 7 will only provide temporary relief from a foreclosure, while a Chapter 13 will allow you to force the lender to accept a 3 to 5 year plan to cure the arrearage. You should consult with an attorney from Vanden Bos & Chapman, LLP to determine whether a Chapter 7 or a Chapter 13 is best for your situation. Bankruptcy can be that last minute reprieve that saves your house when all other options have failed.
If I can't afford my monthly payments, why should I file bankruptcy to save my house?
A good reason to file bankruptcy to stop a foreclosure is to protect your equity in your house. Let's assume that you owe Big Bank $125,000 on your mortgage, but you can no longer afford the monthly payment, and you aren't eligible for a refinance. Let's also assume that, if you had time to adequately prepare and market your house, you could sell it for $180,000. If you let the house go to foreclosure, you will get nothing from the foreclosure sale. However, a Chapter 13 bankruptcy will grant you the necessary time to prepare and market your house for sale, potentially allowing you to realize the equity of $55,000 in the house in this example.
If you have more than one mortgage against your house, a foreclosure by the first lender will not relieve you of your obligations to a second mortgage and the second lender may still seek to collect payment from you. Even if you are going to let your property go to foreclosure, a bankruptcy may be necessary to discharge all debts associated with the house. Again, you should consult a Vanden Bos & Chapman, LLP attorney to discuss the specific benefits of a bankruptcy for you.
The lender just held a foreclosure sale on my house. What do I do now?
Unfortunately, if the lender has already held the foreclosure sale, you have run out of options. Ownership and title of the real property transferred from you to the new owner at the foreclosure sale. Under Oregon law, you have 10 days after the date of the foreclosure sale to move out of the property.
Why should I meet with a Vanden Bos & Chapman, LLP attorney?
There are many myths and misconceptions about bankruptcy. If you have financial problems, bankruptcy is an option that is available to you. In order to make the decision that is best for your situation, you should know as much as possible about bankruptcy so that you can make an informed decision. The lawyers at Vanden Bos and Chapman, LLP have the expertise and many years of experience to assist you in identifying your best options, which may or may not include filing bankruptcy.