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Foreclosure Laws

Losing your home to foreclosure is a daunting prospect, but that’s just all the more reason to take action. A good first step is getting to know foreclosure laws both on the state and federal levels, and how they can affect your case. Sometimes, it’s this knowledge that can make all the difference between keeping and losing your home. Below is a quick guide to the federal laws that apply to foreclosure and may affect your case.

When Does Foreclosure Happen?

Foreclosure occurs when a borrower is no longer able to make payments on a mortgage, and his lender takes ownership of the home and sells it off to recover the unpaid balance. Specific laws for foreclosure vary within each state, so the time frame can be anywhere from a few months to several years.

What If I Owe More Than The Home Is Worth?

Foreclosure law in most states allows the lender to forgive any balance that remains after a foreclosure sale. However, this amount is often considered income and therefore will be subject to taxes, leaving the borrower with another obligation. The Mortgage Forgiveness Debt Relief Act of 2007 exempts forgiven balances of up to $2 million (or $1 million each for married homeowners who file separately) from 2007 to 2012.

Do Tenants Get Evicted From Foreclosed Properties?

If an apartment or rental property is lost to foreclosure, tenants are protected under the Protecting Tenants at Foreclosure Act of 2009. Under this foreclosure law, new property owners must respect the leases of all current tenants. If he or she wants to live in the property or rent it out to other clients, the tenant must be given a notice of termination at least 90 days before the eviction date, regardless of whether or not they have an official lease.

Do Service Members Get Additional Protection?

Under the Servicemember’s Civil Relief Act, active members of the U.S. Armed Forces are relieved from both mortgage interest and foreclosure. During active duty, a service member can request to have his interest rate lowered to 6% or less. Lenders must then recalculate monthly payments to incorporate the change. Homes of active service members cannot be foreclosed unless there is a court order, which is obtained if the lender can prove that the military duties have nothing to do with the default.

How Does Bankruptcy Affect Foreclosure?

Most laws on foreclosure treat bankruptcy separately, but recent changes have been made so that filing for Chapter 7 or Chapter 13 bankruptcy automatically puts off foreclosure action, unless proceedings have already started. Mortgage lenders can ask the judge to lift the stay, but foreclosure laws still allow the borrower to stay in the home for a given period. Depending on state foreclosure law, a borrower filing for Chapter 13 bankruptcy can also arrange a debt repayment plan with the mortgage lender.