Facts About Foreclosure
Authored By: Iowa Legal Aid
Losing a house to foreclosure can be devastating to families who worked hard to buy a home. For many it may have been the first home they owned after living in apartments or with other family members.
Unfortunately though, foreclosure in Iowa is much too frequent. In Polk County alone, the number of homes put up for a sheriff's sale rose nearly 350% between 2000 and 2006. Recently, Iowa has consistently ranked in the top five among all states in the number of "subprime" mortgages in default. "Subprime" borrowers are people who have to pay higher interest rates due to a weak credit history or because they do not qualify for loans with better repayment terms. Iowa Legal Aid is working to provide more resources to Iowans facing foreclosure and the following "factsheet" can be useful to help homeowners understand their rights when facing the loss of their home.
Foreclosure can start when you don't make your mortgage payments. But it can't happen overnight and it can't happen without first getting notice. It's important for you to understand what happens when you can't make a monthly mortgage payment. Knowing what to do about a delinquency or foreclosure and acting quickly might save your home. Below are some questions often asked by people facing foreclosure. If your income is low you should contact Iowa Legal Aid at the phone numbers above if your home is being foreclosed. Iowa Legal Aid might be able to help or provide more advice about what you can do to keep your home.
Money is so tight it's hard to make ends meet. What can I do?
Be sure you have a realistic family budget and stick to it. Save money by cutting back on unnecessary expenses. Decide if you really need the cable or long distance phone service you have. Take advantage of ways to increase income or reduce expenses like the earned income tax credit, home weatherization programs and budget billing for utilities. If you need help preparing a financial plan and budget get assistance from a professional non profit housing counselor or county extension office.
My credit card interest rates are so high I can't make my mortgage payment. What should I do?
Always pay your mortgage before your credit cards and other unsecured debts like personal loans and medical bills. If keeping your home is a priority make it a priority in payment also. Unsecured debts like credit cards and personal loans can be discharged in a bankruptcy if they must be, but you can't discharge the mortgage loan on your home. Pay the mortgage first and then get help from a professional about handling the delinquent credit cards and other unsecured debts. Adding your unsecured debts to your home mortgage or taking out a home equity loan to pay off credit cards can also be a bad idea. Many people who think they're doing the right thing by paying off credit cards with a home equity loan end up losing their home to foreclosure. You also need to understand what happens when interest rates increase on adjustable rate mortgages. Talk to a housing counselor before taking out these kinds of loans.
I couldn't make last month's mortgage payment. What should I do?
Call the mortgage lender as soon as you know you can't make a mortgage payment. Ask about their forbearance policies and other options like a repayment plan to "cure" the default over a period of time. All lenders will have programs and policies you can use to get your mortgage loan reinstated. Whether you qualify for these programs will depend on if you can make "catch up" payments beyond your regular monthly payment.
I've made all my mortgage payments on time but the lender says I'm in default. What should I do?
Keep a record of all mortgage payments made, including the date of the check, the date it was mailed, and the check number. Never send cash and don't pay with a credit card. If you make electronic payments be sure you record the same type of information as if you had put a check in the mail. You should also request a complete payment history for your loan, including the dates and amounts of all payments made. The lender must be able to document why it believes you're delinquent. If they refuse to do so, talk with a lawyer.
I got a letter saying I had 30 days to "cure" the default on my mortgage. What does that mean?
This "right to cure notice" is the first step a lender must take to start foreclosure. The notice must be in writing and it must give a detailed statement of the default, including the amount owed and a breakdown of how that amount was arrived at, including the amount of late fees and other costs. The notice means that if you pay the amount stated in the letter within 30 days of receiving the letter, you can reinstate your loan and continue with the payments just as if you had never defaulted.
I got a notice to cure but I can't pay the full amount it says I'm behind. What happens next?
If you can't pay the full amount to cure the default, call the lender or the lender's attorney to see whether you can make a smaller payment and then pay the rest over a period of time. You'll have to make additional payments beyond your regular payment. You should always pay as much as you can even if you can't make the full payment.
The sheriff served me with foreclosure papers last week. What do I do?
You have twenty (20) days from the date you were served to file an Answer to the foreclosure lawsuit. In the Answer you can state any defenses you might have to the foreclosure such as Truth in Lending Act violations or that the lender misapplied payments you sent or that the appraisal the lender used was too high. Always consult with a lawyer before filing an Answer to the foreclosure. You may need to file an answer by yourself. Click here for an example of an answer. This is only an example of a typical answer. You will need to look at your own petition, decide if you agree or don't agree with each paragraph and then put that in the answer. You have to say what you want the court to do.
Is there a way for me to stop a sheriff's sale of my home?
Before a judgment is entered you can file a "Demand for Delay of Sale" with the court to delay a sheriff's sale of your home. This can be filed whether or not you file an Answer to the foreclosure petition. The Demand must be in writing and must request that the sheriff's sale be delayed. It must be filed before a judgment is entered so you should file it immediately after receiving the foreclosure papers, whether or not you also intend to file an Answer.
The delay of sale will give you an extra six (6) or twelve (12) months depending on whether the lender is waiving the right to get a deficiency judgment if the house sells for less than the loan. If the petition does not "waive a deficiency" judgment, you can get twelve months in the home. To get twelve months in the home, you need to file a demand to delay sale. The lender can then get a deficiency judgment. A deficiency judgment is only good for two years. If you don't file a demand for delay of sale, the lender can't get a deficiency. You need to decide what works best for you. You should talk to a lawyer about your options. Click here for an example of a "Demand for Delay of Sale."
The mortgage lender won't help me but I still want to keep my home. Will filing bankruptcy help?
A Chapter 13 bankruptcy might help you cure the delinquency on your home if your income is enough to make regular mortgage payments plus "cure" the delinquency over a period of three to five years. This is a longer period than what you would be allowed under one of the mortgage company's own programs but you'll also have attorney and trustee fees to pay in a Chapter 13 bankruptcy. But if you can't reach a good agreement to resolve the delinquency with the lender you should talk with a bankruptcy attorney about Chapter 13. It may be your last best option. And don't wait too long to discuss this option. Sometimes mortgage lenders will lead debtors along letting them think some agreement can be reached until just before a sheriff's sale. That might be too late.
I can't afford my house any longer. Can I just give it back to the lender?
Yes, under Iowa law there are alternatives to foreclosure if you don't want to keep the house. You can deed the house back to the lender voluntarily while the lender waives any right to collect a deficiency. A house can also be "surrendered" in a bankruptcy if there are other debts you need to discharge. Talk with an attorney about which of these options is best if you've decided to give up the house.
If my house sells for less than the loan amount will the lender come back against me for it?
A lender might be able to collect a "deficiency" if your house is sold for less than the loan amount but in Iowa most lenders waive their right to collect a deficiency when they foreclose. Whether they waive this deficiency will be clearly stated in the foreclosure petition. In addition, if a house is surrendered in a bankruptcy the lender can't collect anything more.