Understanding the legal steps of the foreclosure process may help you know when it's necessary to ask an attorney for help. Typically, foreclosure takes the following steps if you do nothing to prevent it:
Your lender tries to contact you to find out why you haven't made payments
Your lender sends you a notice of default and demands payment
Your lender hires a local attorney who files a foreclosure complaint in court
The court sends you a copy of the complaint and gives you some time (usually about 30 days) to file an answer
The lender's attorney files a motion for a default judgment
The court grants the motion and issues an order of sale to the sheriff
The sheriff gets an appraisal of the value of your home
The sheriff advertises a foreclosure sale or public auction of your home. You get a notice of that sale
Your home is sold. The court enters a judgment of sale and orders a new deed for the buyer
The buyer now has a right to possess the property and can ask the sheriff to evict you
Your lender obtains a deficiency judgment against you for the difference, if any, between the foreclosure sale price and what you owed on the mortgage.
The foreclosure process, from the time of filing the foreclosure complaint to the time that a judgment of sale is entered against you, can happen within a two-month period. That doesn't give you much time, so you must be proactive to defend your home.
On January 10, 2014, the Consumer Financial Protection Bureau (CFPB) issued mortgage servicing rules designed to protect borrowers when it comes to mortgage loans.
A mortgage servicer is the company that collects monthly mortgage payments from borrowers on behalf of the owner of the loan, as well as tracks account balances, manages the escrow account, handles loss mitigation applications, and pursues foreclosure in the case of defaulted loans.
Why the Need for Rules Protecting Homeowners?
During the recent mortgage crisis, the number of homeowners in financial distress increased exponentially and mortgage servicers simply couldn’t keep up with the increased demands for information and assistance. As a result, servicing errors were common and egregious.
The Dodd-Frank Act Cracks Down on Servicers
In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which imposed requirements on servicers and gives the CFPB the authority to both implement the requirements, as well as adopt new rules. The rules are designed to protect consumers by:
providing borrowers with better information about their mortgage loans
providing borrowers with assistance if they are having difficulty making mortgage payments, and
protecting borrowers from wrongful actions by mortgage servicers.
Servicers Must Provide Borrowers With Better Information
The rules require mortgage servicers to provide borrowers with improved information about their mortgage so they are not caught off guard when an interest rate adjusts or they are charged certain fees.
Servicers Must Provide Homeowners With Assistance
Mortgage servicers are supposed to work with borrowers who are having trouble making monthly payments.
The Servicer Must Contact the Borrower - Early Intervention Requirements
If the borrower falls behind in payments, the servicer must attempt to make contact to discuss the situation no later than 36 days after the delinquency. No later than 45 days after missing a payment, the servicer must inform the borrower in writing about mortgage workout options that may be available.
The mortgage servicer must also assign personnel to help the borrower by the time he or she falls 45 days delinquent. Personnel should be accessible to the borrower by phone and able to advise the borrower about the status of any loss mitigation application and applicable timelines.
If you are having trouble making your payments, call your mortgage servicer and let it know you are interested in a loan workout. The servicer will ask you to submit an application that includes certain information. Once submitted, under the new rules the servicer has five days to tell you whether it needs more information (so long as you submit the application 45 days or more before a foreclosure sale) and, if so, what information it needs. Generally, the servicer is required to evaluate the application for all loss mitigation options within 30 days (as long as the complete application is submitted more than 37 days before a foreclosure sale).
Rules Restrict Dual Tracking
The rules restrict “dual tracking” where a servicer is simultaneously evaluating a borrower for a loan modification or other alternatives while at the same time pursuing a foreclosure on the property.
Restrictions on Starting Foreclosure
Mortgage servicers generally cannot start a foreclosure until a mortgage loan obligation is more than 120 days delinquent, which provides time for the borrower to submit a loss mitigation application. If the borrower does not submit an application, the foreclosure can begin.
Mortgage servicers are allowed to send certain early delinquency notices that may provide information related to counseling, legal help or other resources during the first 120 days a borrower is delinquent. However, the servicer cannot officially start a foreclosure -- that is, make the first notice or filing required by state law -- until you are more than 120 days delinquent on payments. (In a judicial foreclosure, this means the foreclosing party cannot file a court document to start the foreclosure until you're after you're more than 120 days behind. If the foreclosure is nonjudicial, the lender cannot begin the foreclosure by recording or publishing the first notice until you're more than 120 days late in payments.)
Even if a borrower is more than 120 days delinquent, if that borrower submits a complete loss mitigation application before the servicer has made the first notice or filing required to initiate a foreclosure process, a servicer may not start the foreclosure process unless:
the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
the borrower rejects all loss mitigation offers, or
the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.
Restrictions on Continuing Foreclosure After the Borrower Requests Help
If a complete loss mitigation application is received more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions mentioned above has been satisfied.
A borrower may appeal a loan modification denial so long as the complete loss mitigation application was received 90 or more days prior to a scheduled foreclosure sale.
Servicers Are Not Yet Complying With the Rules
Unfortunately, a CFPB report released in the summer of 2015 shows that even though these rules are in place, certain servicers continue to dual track and give borrowers the runaround when it comes to foreclosure avoidance programs. This means you should be aware of your rights and keep an eye out for violations. (If you think your servicer is not complying with the rules, you may want to speak to an attorney who can help you enforce your rights.)
More Rules to Come
On August 4, 2016, the CFPB finalized new rules on mortgage servicing. These rules include, among other things:
requiring servicers to provide certain borrowers with foreclosure protections more than once over the lifetime of a loan if a borrower becomes current after a previous delinquency (under the current rule, a mortgage servicer must give you certain foreclosure protections, including the right to be evaluated for a loss mitigation option, only once during the life of the loan)
clarifying the live contact requirements and written notice requirements for early intervention (a servicer must establish or make good faith efforts to establish live contact so long as the borrower remains delinquent and must provide multiple early intervention written notices in certain circumstances), and
ensuring that surviving family members and others who inherit or receive property have the same protections under the CFPB’s mortgage servicing rules as the original borrower.
Most of the new rules go into effect in October 2017, while others, including the successor-in-interest requirements, are effective April 19, 2018.