I often encounter this question. Prospective clients come into my office, not sure how long they have in their home. They have failed to pay their mortgage for many months and now wonder when their lender will boot them out of the house. Most think the bank still owns the house; they are just renters paying a mortgage with ownership tied up on the end when they pay off the loan. This is incorrect. If you have a mortgage, YOU own your home, NOT the bank. This confusion just indicates people’s misunderstanding of their legal rights. Something no bankruptcy petition preparer should tell you about. (They still may, they sell themselves as being able to help you cheaply around the law for which they hold disdain.) I thought a brief rundown on the foreclosure process as a bankruptcy lawyer would be beneficial! (While not necessarily part of the foreclosure process, if you can pay the mortgage but not other bills, PAY THE MORTGAGE! You cannot live in the medical bills or credit card accounts.)
So you have not paid the mortgage for a while. The lenders are calling you and you are not sure what to do. Depending on your home, its value, the loan amount and potentially who your loan originated with, the process to foreclose on you home may not begin for sometime. Foreclosure is a legal process where a lien holder (the lender) takes legal ownership of the property from you due to your failure to honor the loan. In Utah, generally the foreclosure process is a “non-judicial” process which means the lender does not need to go to court to get permission to take your home from you. This is due to two documents you sign when you get your loan, known as a “promissory note” and a “trust deed”. A promissory note is in simplified terms a contract to pay a loan.
You have probably signed many of these in differing forms over the years. Student loans, car loans, credit cards all have promissory notes. But unlike a credit card or car loan, when most of us walk into a bank and ask for a loan of $250,000 the bank is going to require something more to protect it from potential losses. So the bank more or less says what do you want to buy with the money? The question is disguised as a home loan application but that is what they are asking you when you fill out the form. You tell them I want to buy a house and they say, “Great, so long as you qualify we would love to lend you some money.” The lender then puts conditions on the loan. This is where the trust deed comes into play. The bank is really saying, “Well, we don’t just let anyone have that much money, so if you are going to spend it to buy a house we want to have a lien on the home in case you don’t pay.” So to be clear the bank understands you are buying the home, it is their money you are using and YOU actually own the house. The rub is the lender is also saying, “You are not Bill Gates, so we want collateral for the loan.” Collateral can be anything the lender finds acceptable, but to again simplify the process they tell you to use the home you are purchasing as collateral. In order to do this a trust deed is signed by you giving them a lien on the home and the promise that if you do not pay the loan, they can take the home to lessen their losses.
Now that you have a background on your relationship with the lender how do they kick you out and take YOUR home from you. The first step is they file with the county records and send you by mail (generally certified) a “Notice of Default” and “Substitution of Trustee”. This is your official notice you are delinquent on the loan and they have appointed someone to foreclose if you do not get the loan current. You have ninety (90) days after this notice is served on you to “cure” the delinquency on the mortgage. This means you must get the loan current, by paying ALL late payments, late fees and any other charges you have promised to pay due to collection of the loan. For most people this is an amount they do not have. Some people can get help from family but in the majority of cases people do not have the money to cure. If you want to keep the house, a Chapter 13 bankruptcy may well help you cure it over time through installment payments instead of coming up with it all within ninety (90) days.
Well, unless you have filed bankruptcy or come up with all the money needed to “cure” the loan after ninety (90) days the lender will set a date to sell you home. This sale will be usually on the local courthouse steps. This sale date is about a month away. The lender must publicly notice the sale. I am sure you have seen those notices in the paper about trustee’s sales. This is what they are letting you know about. The notice of sale must be for three (3) consecutive weeks and the sale can occur during the fourth week.
This means that from the time you get the Notice of Default you have about four (4) months before the home is taken by the lender. Any time during this period if you file bankruptcy the automatic stay goes into effect and the process stops. You heard me correctly; the lender can no longer pursue the foreclosure without bankruptcy court approval. In fact, should you have a sale set for noon on Tuesday, as long as you have a bankruptcy filed on 11:59 am that day, all the actions by the attorney who goes to the courthouse at noon and does the last step in the sale, have no affect on your ownership rights in the home. There it is. Now if you do not file for bankruptcy to stop the sale, the home is taken by the lender or sold to someone on the courthouse steps. Either way you no longer will own the home after the sale.
Only an experienced bankruptcy attorney can let you know what your rights regarding foreclosure are, and how bankruptcy can assist you in keeping your home.
