If you are not able to keep up with your mortgage payments, the prospect of foreclosure—and with it losing your home—can be daunting. Still, foreclosure is a rigorous legal process, and you have certain rights based on state law along with the mortgage documents you signed.
Knowing your rights can help you navigate the foreclosure process as smoothly as possible, or even avoid it if your lender violated any foreclosure requirements. Here's what you need to know.
- If you fall behind on your mortgage payments, your lender could try to take back your property through a foreclosure.
- Before initiating a foreclosure proceeding, your loan servicer must send you a notice that the loan is in default and give you a chance to get caught up and avoid foreclosure.
- You have the right to challenge a foreclosure if you think your lender made a mistake or has violated the law.
How Does a Foreclosure Work?
What Is Foreclosure?
Simply put, foreclosure is the legal process that allows lenders to recover the balance owed on a defaulted loan by taking ownership of and selling the mortgaged property as collateral. Nonpayment is what usually triggers default, but it can also happen if a borrower does not meet certain other terms in the mortgage contract.
Loss Mitigation Rights
Your loan servicer is the company that handles your mortgage account, and it may or may not be the company that either issued or currently owns the loan. The loan servicer is required to contact you (or try to do so) by phone to talk about "loss mitigation" no later than 36 days after your first missed payment—and within 36 days of any subsequent missed payments. Loss mitigation is the process by which you and your lender work together to try and avoid foreclosure.
Within 45 days of a missed payment, your servicer must notify you in writing about your loss mitigation options and refer you to someone who can help you try to avoid foreclosure. In general, your servicer cannot start to foreclose until you are at least 120 days behind on your payments.
Right to a Breach Letter
Mortgage contracts typically have a clause that obligates lenders to send a written notice called a "breach letter" to tell you when you are in default. The breach letter must include:
- Details about the default and its causes
- What you need to do to cure the default and reinstate the loan
- The date by which you must cure the default (usually at least 30 days from the date you receive the notice)
- Notice that failure to cure the default on time will lead to the sale of the property
To cure the default and avoid foreclosure you must pay the full past due amount by the date shown in the breach letter, along with any back interest, late fees, and penalties. If you do not—and you have not worked out some other option—foreclosure proceedings will likely begin.
In general, you must be behind on payments for at least 120 days before a foreclosure can start, so your lender will likely send a breach letter close to the 90th day of the delinquency.
Notice of the Foreclosure
You are entitled to notice of a pending foreclosure no matter which state you live in. If it's a judicial foreclosure, you'll get a complaint and summons letting you know that a foreclosure has begun. If it's a nonjudicial foreclosure, you may receive two notices:
- Notice of default (NOD). Depending on state law, a nonjudicial foreclosure starts when a notice of default is recorded at the county office. The NOD serves as public notice that you are in default. It contains details about the borrowers, lender, trustee, property, default, action required to cure the default, and a statement that if the default is not cured by the stated deadline, the lender will sell the property at a public sale.
- Notice of sale (NOS). The notice of sale might be mailed to you, published in a local newspaper, posted on the property, and recorded in the county land records. It includes details about the property, a statement that the property will be sold at a public auction, and information about the foreclosure sale.
Foreclosure notices are sent through the mail. If you're behind on your mortgage, read your mail carefully, and be sure to pick up any certified or registered mail.
If you do not receive an appropriate notice under your state's laws, you may have a defense to the foreclosure. While that does not necessarily mean you could avoid the foreclosure, it may force the servicer to issue a new notice and start the foreclosure process from scratch. That could potentially give you enough time to get caught up on payments or sort out another option.
Right to Reinstate
Depending on state law, you may be able to stop a foreclosure if you make a lump-sum payment to get up to date on your loan, including any fees and expenses. After that, you resume your regular payments. In general, you must reinstate the loan by a particular deadline, such as by 5:00 p.m. on the last business day before the property sale is scheduled.
Your mortgage contract may also give you the right to reinstate. Check your mortgage or deed of trust for a section known as the reinstatement clause, titled as "Borrower's Right to Reinstate After Acceleration" (or similar language) to find out if and how you can reinstate your loan.
If you do not have a right to reinstate through state law or your mortgage contract, the lender may allow you to reinstate after considering your request. If the lender refuses, you can ask a court to allow the reinstatement. In general, a judge would rather avoid foreclosure if you have the cash to get current on your loan.
Right of Redemption
All states let borrowers pay off debt (including fees and expenses) and "redeem" their property before a foreclosure sale, and some states even allow borrowers to buy back the property after the foreclosure sale. To redeem the property, you pay the full balance due before the foreclosure sale or reimburse the person or entity that bought the property at the foreclosure sale, depending on the situation.
Right to Foreclosure Mediation
Some states, counties, and cities give property owners facing foreclosure the right to partake in mediation. In foreclosure mediation, you meet with your lender (or servicer) and an impartial mediator to discuss options like a loan modification, short sale, repayment plan, or deed in lieu of foreclosure.
Right to Challenge the Foreclosure
No matter where you live, you have the right to challenge the foreclosure in court. If it's a judicial foreclosure, you can just participate in the existing foreclosure lawsuit. If it's a nonjudicial foreclosure, however, you must file your own lawsuit. In general, it may make sense to challenge the foreclosure if you think the servicer made a mistake or violated the law.
Right to a Surplus
If the property sells at a foreclosure sale for more than you owe (including any fees, expenses, and liens on the property), you are entitled to the excess proceeds—called a surplus. Of course, depending on state law, if the foreclosure sale does not cover your debt, you may be on the hook for a deficiency judgment.
Fair Debt Collection Practices Act Validation Letter
The Fair Debt Collection Practices Act (FDCPA) is a federal law that covers when, how, and how often third-party debt collectors can contact debtors. FDCPA may apply to foreclosures, but it depends on whether it's judicial or nonjudicial:
- Judicial foreclosures. In general, judicial foreclosures are viewed as being subject to FDCPA because creditors can get deficiency judgments.
- Nonjudicial foreclosures. The FDCPA does not apply to firms pursuing nonjudicial foreclosures under a unanimous decision made in the U.S. Supreme Court case of Obduskey v. McCarthy & Holthus, LLP in March 2019.
When FDCPA applies, your mortgage servicer must send you an FDCPA validation notice that includes:
- How much you owe, including interest, late charges, attorney fees, and other charges
- The name of the creditor
- A statement that explains that, unless you dispute the validity of the debt within 30 days of receiving the letter, the debt will be assumed to be valid
- A statement that, if you notify the debt collector in writing within the 30-day period to dispute the debt, the debt collector will get written verification of the debt and send you a copy
- A statement that the debt collector will provide you with the name and address of the original creditor, if it's different from the current one, if you request it within the 30-day period
An FDCPA validation letter may be combined with a breach letter.
The Bottom Line
Your legal rights in foreclosure vary depending on state law, your mortgage contract, and your situation. To learn more about your rights, consult with a local foreclosure lawyer who can help you navigate the process and ensure that your rights are protected.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).