How to stop a foreclosure in Alabama

How to stop a foreclosure in AlabamaIt is possible to stop a foreclosure in Alabama — here are the ways:

  1. Sue your mortgage company as you have the right to do under your mortgage
  2. Reinstate the loan
  3. File bankruptcy (usually chapter 13)
  4. Obtain loss mitigation (usually a loan modification)

Let’s look at each one of these in depth.

Sue your mortgage company as you have the right to do under your mortgage

Alabama foreclosures are “non-judicial” which means no judge is involved.  But you have the right, under almost every mortgage, to bring a lawsuit before a foreclosure to have a judge look at your claims and defenses.

Are you really in default on your loan?  We see situations all the time where payments were misapplied, insurance money is being held by the mortgage company that would pay off the loan, etc.

Does your mortgage company really have the right to foreclose?  Is it trying to foreclose before the 120-day rule of RESPA?  Have you made a loss mitigation application more than 37 days before the foreclosure but your mortgage company is still threatening to foreclose?

Are all the supposed “assignments” and “transfers” proper and legal?  It is common to see the transfers and assignments “out of order” — so mortgage company X transfers to mortgage company Y.  But this is all done before Mortgage company X even receives the mortgage.  We marvel at the amazing “time traveling” abilities some of these companies have…

Is the foreclosure being done properly under Alabama law?  We see where mortgage companies don’t advertise the foreclosure properly.  Or try to foreclose in the wrong county.  Mortgage companies must “strictly comply” with all the rules and laws if they want to do a non-judicial foreclosure.

There are many other reasons that would give you the right to have the court look at your situation to decide if a foreclosure is proper or illegal.

Normally you will find the right to do this under paragraph 22 (sometimes 19) of your mortgage.  Read your mortgage carefully to see your options.  Remember, this suit needs to happen before any foreclosure.

Reinstate the loan

Your mortgage company tells you that you are $17,000 behind.  Normally your mortgage gives you the right to “reinstate” up to 5 days from the foreclosure.

So if your foreclosure is January 15, you can reinstate up to about January 10.

Ask in writing and by phone for a reinstatement amount.

Make sure the numbers are accurate.

Pay the reinstatement amount and the foreclosure should be stopped and you get back to paying on your loan.  (Occasionally mortgage companies ignore this and still foreclose — the solution is to sue them to undo the foreclosure and force them to pay you money damages).

Now, this option of paying all the back amount is not for everyone but if you can get the money, it is an option to look at to stop the foreclosure.

File bankruptcy (usually chapter 13)

This is what you are probably hearing about all the time — file bankruptcy.  You are getting letters saying you can use this little known federal law called bankruptcy.  I’m not sure how this is a “little known” law but let’s look at it.

If you file properly and meet all the rules, then the foreclosure will be stopped.

This is because of what is known as the “automatic stay” which tells all creditors to take no action against you.  In essence, the court wants a “time out” to figure out what to do in your case.

In a chapter 7 — “straight bankruptcy” — normally your debts are wiped out if you qualify.  But you may face the loss of your home, especially if you have any equity in it.  You may be able to get your mortgage company to let you make payments (if you are current) and then “re-affirm” the loan.

But if you are behind, then your mortgage company may refuse and instead will ask the bankruptcy court for permission to foreclose on you.

In a chapter 13 — “debtor’s court” — you will need to make your current monthly payment.  And an additional amount each month for past payments.

If you fail in this — and the overwhelming majority do — then your mortgage company will ask for permission to foreclose on you.  This is known as a “motion for relief from stay”.

It is our view that for most people filing bankruptcy to stop a foreclosure is not very smart — you can go a different route.  What we see happen so often is people file bankruptcy — which destroys their credit — and then they get foreclosed anyway.  So it is a double negative.

Which is so unnecessary as you can stop the foreclosure without bankruptcy.

Obtain loss mitigation (usually a loan modification)

We briefly discussed loss mitigation in the first section but let me focus on it a bit more here.

Loss mitigation is the general concept of anything that will stop the foreclosure.  Here is a list of typical loss mitigation options:

  1. Loan modification
  2. Forbearance
  3. Short sale
  4. Deed in lieu of foreclosure

If you are successful in obtaining loss mitigation, then there should be no foreclosure.  That’s the whole point — avoid the foreclosure.

But what about before you get an answer — “yes” or “no” — on your loss mitigation?

If you have not been previously denied by your current mortgage servicer, and if you make the loss mitigation application more than 37 days before the foreclosure — then the foreclosure is to stop until you get a “yes” or “no” on your loss mitigation application.

Let’s unpack this a bit.

First time with your current mortgage servicer. 

So if you have been denied, you can apply again, but this rule of forbidding a foreclosure is for the first time you apply.

Make your loss mitigation application.

There is a debate on how complete your package must be — I suggest you make it 100% complete as possible.  Give them everything they want even if it is silly or if they have previously lost it.  If you are missing anything, they should tell you ASAP.  Then you fix that error by giving them whatever they claim you are missing.

More than 37 days before the foreclosure.

So you find the foreclosure date.  Go back in time 38 days.  That’s the latest you want to apply for loss mitigation.  It is better to do so even earlier but if you do it this time period, then normally the foreclosure will stop while your mortgage company considers your application.

You are entitled to a “yes” or “no” answer before a foreclosure.

If the answer is “yes” then the foreclosure should stop as that’s the whole point of loss mitigation.  If the answer is “no” then you will be told why you do not qualify.  You may then want to appeal or challenge that decision.  But while you are waiting on a “yes” or “no” decision, the foreclosure should be stopped.

[Obvious disclaimer — there are exceptions and exceptions to the exceptions — the information in this article and this website is general information to get you started.  You do your own due diligence by getting with a foreclosure defense attorney to explain your specific rights and options.]

Now if you do all of this and the foreclosure is going forward, that leads us back to option one — file suit before the foreclosure.

OK, so what do you do now?

You have a simple choice.

First, you can figure this out on your own.  Decide if your mortgage and the law give you the right to sue your mortgage company.  Or if you can reinstate or file bankruptcy.  Decide if you are eligible for loss mitigation.

Or you can get help from folks who have successfully stopped many foreclosures in Alabama for many years.  If you are in Alabama (this article and this website are only for Alabama folks) then you are welcome to call us at 205-879-2447 and ask for my paralegal Randi Curb.  She and I will help you understand your options.  We will give you the good and bad of each choice so you can make the best decision for you and your family.  All of this is done before you owe us any money — we’ll help you understand the cost and benefits of each option.

So “do it yourself” or get a trusted guide — the choice is yours.

If you are interested in talking with us, call us at 205-879-2447 or fill out the form below.  Make sure and put the foreclosure date if you have one and if you have requested any loss mitigation.

Look forward to chatting with you soon!

John Watts

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