Stages of Foreclosures in Alabama
What are the three stages of a foreclosure in Alabama?
Alabama is a non judicial foreclosure state which means that a foreclosure does not have to go through the court system. This is different from judicial foreclosure states such as Florida. So when someone in Alabama is facing foreclosure this can mean different things as even though we are a non judicial state, often times a lawsuit is the final stage of foreclosure in Alabama. We have written this article to give you an overview of these three typical stages in an Alabama foreclosure.
These are three main stages to a foreclosure in Alabama:
- Before the foreclosure sale
- After the foreclosure sale
- The ejectment lawsuit
Let’s look at these stages.
Stage One – Before the Foreclosure
This is the time when the mortgage company – normally known as the mortgage servicer – notifies the consumer that the loan is being accelerated and that a foreclosure sale will occur in 30 or more days.
First, a “default letter” has to be sent which tells you:
- What you are in default of (lack of payments, lack of insurance, etc)
- What you must do to fix or “cure” the default
- How long you have to cure the default (almost always 30 days)
If you don’t fix or cure the default in the time period allowed, then you will receive the “acceleration letter” which says:
- The entire amount owed is due now — instead of being due over the next 25 years or so it is “accelerated” to be entirely due right now
- Your home will be sold at a foreclosure sale on a specific date at the front entrance to the courthouse in the county where your home is located.
The foreclosure sale must be advertised in the proper paper in the county where the property is located – normally for three consecutive weeks.
During this stage the consumer is normally trying to do one of the following:
- obtain a loan modification or other “loss mitigation” to avoid the foreclosure
- reinstate the loan,
- obtain another loan,
- seek advice from a bankruptcy lawyer on filing a chapter 13 bankruptcy to stop the foreclosure, or
- contact a consumer protection attorney to see if they can sue the mortgage or servicing company for breaking the law which will have the effect of normally stopping the foreclosure sale.
A modification is a change in the terms of the loan. Perhaps the past due interest and principal will be put at the end of the loan. Or the interest rate will be modified. Or the mortgage company will accept partial payments. This is the area in which the most rampant fraud occurs as the mortgage company or servicer will often promise to modify the loan, the consumer will rely (believe) the lie and then be damaged when the foreclosure sale happens. More broadly speaking, loss mitigation is anything that stops the foreclosure. It could be a loan modification, a deed in lieu of foreclosure, a short sale, etc.
Reinstating the loan means to bring the loan current or to pay a portion of the alleged amount owed so that normal monthly payments are resumed and the foreclosure sale is cancelled. Again, we see lots of fraud in this area as mortgage companies and servicing companies will tell Alabama consumers that a payment of, for example, $5,000 will stop the foreclosure sale and then the next month normal payments will resume. Instead of honoring its promise, the company will take and cash the $5,000 and then foreclose anyway saying the $5,000 was not enough to bring the loan current. We often see where many bogus charges and fees are put to artificially drive up the reinstatement amount. This violates state and federal law.
Often consumers will try to obtain a new loan but this is difficult given the negative credit marks that are normally on the consumer’s credit reports due to the late mortgage payments.
Many consumers look to a bankruptcy attorney to see if filing a chapter 13 bankruptcy is a good option to stop the foreclosure sale. Chapter 13 can be effective at stopping a foreclosure, at least temporarily, but one must still address the underlying issues of illegal charges, fraudulent statements, improper notification of the foreclosure, etc. that we discuss in our article here on Wrongful Foreclosures In Alabama.
Finally, some consumers who are in Stage One seek information and advice from a consumer protection lawyer that has an understanding of how foreclosures work, particularly in the context of the new federal RESPA rules.
These rules put very strict requirements on mortgage companies foreclosing — they must comply with all sorts of deadlines and offer you a number of “loss mitigation” options. They rarely comply with these new rules that went into effect on January 10, 2014.
Whether you talk with us or another experienced consumer protection attorney, you can better understand if you have a valid lawsuit to file against the mortgage company or the servicing company. Along with the lawsuit, sometimes other lawyers will file a Temporary Restraining Order (TRO) to get a judge to order the foreclosure sale to stop. We don’t. We let our lawsuits “speak for themselves” and let the mortgage company decide if it would be foolish to go forward with the sale after we have filed a lawsuit against them. At least in this regard, they have chosen wisely.
Stage Two – After the Foreclosure
When the consumer is unable to stop the foreclosure sale, then it must occur on the advertised date. This seems obvious but sometimes the mortgage company will decide to do it on a different date and unless proper notice is given of this change, the sale may be considered an illegal sale. But assuming the foreclosure sale occurs on the day it is supposed to occur, what happens at the sale and what happens next?
The sale normally occurs at the courthouse or the more precisely on the courthouse steps outside the front entrance to the courthouse during specific hours. Whoever is the high bidder will be able to buy the property. Sometimes this can be investors but more often it is the company that claims to own your note right now.
The new owner will then record a foreclosure deed in the probate court of the county where your home is located.
Normally the day after the foreclosure sale a letter will be mailed to you (certified and regular) from the lawyer representing the new owner informing you of the sale and advising you to leave or vacate your home within 10 days. If you don’t leave within 10 days, you can lose your right of redemption (which means your right to buy back your property.
You will have a decision to make. Do you leave your home and preserve your right of redemption or do you stay in your home and force the new owner (normally your mortgage company) to sue you in what is known as an ejectment lawsuit (Stage Three below)?
This area (and all of the areas we mention in this article) should be evaluated with a lawyer you trust but here are some general considerations:
- Do you want to stay in your home?
- Do you have a legitimate lawsuit that you could file either directly or as a counterclaim to the ejectment suit that will be filed against you?
- Who bought your home – the mortgage company or an independent person or company?
- Are you prepared to fight or do you want this matter to end with you losing your home?
There are many other considerations based upon your unique circumstances that we can discuss but these will give you a sense of what you might should think about as you decide whether to leave your home or not. Also understand that whether you leave your home or not does not impact whether you owe a deficiency on the mortgage. A deficiency is where you owe more than what was recovered at the foreclosure sale.
Stage Three – The Ejectment Lawsuit
If your home was sold at the foreclosure sale and if you do not move out in ten days, you will often be sued by the alleged new owner of the property to evict you (or eject you) from the property. Often a request for any deficiency is made in the lawsuit as well as a request that the judge “declare” that you have lost your right of redemption.
As we have discussed in the context of a debt buyer lawsuit, you need to make sure you answer the complaint. Normally you will have 30 days to answer the lawsuit. Most people don’t answer and therefore a default judgment is entered against them which includes being ordered out of your home.
So answer the lawsuit. Some people feel comfortable doing this on their own – if you are in this category then the advantage is you will save money on legal fees but the disadvantage is you will not have the expertise of a litigation attorney. Keep in mind that judges will expect you to know the law if you are acting as your own attorney.
Others want to hire a lawyer. Keep in mind that some lawyers have never been in a courtroom. There is nothing wrong with this but you need to understand if the lawyer you are looking at has tried cases, taken depositions, handled appeals, etc in the civil context.
Regardless of how you respond to the suit, along with your answer you may want to consider filing counterclaims against the company suing you if it is the original mortgage company that foreclosed on you. We will often add, in our counterclaim, the servicing company and other companies that were involved in any fraud, breach of contract, negligence, etc. in handling the loan payments, inspection fees, etc.
There is power in being the defendant and filing a counterclaim. Think of it this way. The mortgage companies/servicers have lied to you. Broken the contract. Probably don’t even have the right to do anything with the loan as they don’t know who owns the loan. On top of this they threatened to foreclose. Not only did they threaten to foreclose but they actually had the audacity to sell your home on the courthouse steps to themselves. Then, to kick you while you are down, they threaten you with eviction. Then to top everything else, they sue you. Now you sue them. This gets rid of all of the bogus arguments that you are “sue happy” or looking for a reason to sue these guys. They have done all of this to you and now they sue? If you ever want a chance at justice and you have legitimate claims, you have to make those claims now in most cases.
Few other points – since the mortgage company sued you in Alabama, most judges will make their “corporate representative” come to Alabama to give a deposition. After all they chose to sue you here so they should have to come here. Being the defendant you can often keep the case in state court (where you were sued) rather than go to federal court. There are advantages and disadvantages of both courts but you do have some options as the defendant.
No matter what stage of foreclosure you are in you have options if the mortgage company or servicing company has violated the law. As we discuss on this website, you must do things:
- Gain knowledge of your rights; and
- Take action!
You are gaining the knowledge – now make sure you take action. You can meet with us (or any reputable consumer protection lawyer who litigates cases) for a consultation to learn how the law applies to your unique situation and what options you have.
We are here to help you if your home is in Alabama. You can contact us through our website form or you can call us directly at 205-879-2447. We have a receptionist standing by from 8 am to 8 pm to answer your call and transfer you to Carolyn. She will gather information from you and then we can meet at our office in Birmingham, our office in Madison (Huntsville), or we can the conference by phone or by video.
Best wishes and we look forward to helping you continue to gain understanding about your rights with respect to foreclosures in Alabama.