The Foreclosure Process
When you buy a home, as a part of the mortgage contract you agree that if you fall behind on your monthly payment (default on the loan), the lender can sell the home at auction and apply the proceeds to your loan balance. Before the house goes to auction, the lender must follow the procedures found in federal and state law in a process called foreclosure.
After the expiration of federal and state waiting periods given to allow the homeowner time to catch up on arrearages or apply for a loss mitigation program (such as a mortgage modification), the lender can move forward with foreclosure by complying with state foreclosure laws.
A lender can use one of two types of foreclosure, depending on state law:
The house owner can react to as well as defend the suit. The matter will proceed through the litigation process, and, if the financial institution wins, the court will get the residence sold at public auction.
Nonjudicial foreclosure. Some states enable a lending institution to utilize a streamlined “nonjudicial” foreclosure procedure that consists of following steps described in state regulation. In most cases, the financial institution will certainly be required to give the house owner time to bring the account existing. Furthermore, the lending institution must inform the proprietor of the sale date, and, sometimes, release the sale day by advertising it in a paper or posting it in a public location. After finishing the steps, the lender is cost-free to sell the residence at public auction without initial receiving approval from the court.
Declare personal bankruptcy will certainly stop either kind of foreclosure procedure as long as the foreclosure sale hasn’t took place. You can figure out more concerning the repossession process in your state in State Foreclosure Laws.
When the Automatic Stay Doesn’t Apply
Filing for Chapter 7 or 13 bankruptcy automatically triggers the stay. No additional action is required for the automatic stay to go into effect. (Learn more in Bankruptcy’s Automatic Stay.)
However, two exceptions to the automatic stay exist to prevent debtors from interfering with a creditor’s right to foreclose by filing and dismissing successive bankruptcy cases. Here are the rules.
Debtors who fall within the exceptions to the automatic stay can file a motion asking the bankruptcy court to impose the automatic stay and stop the foreclosure. To prevail, the debtor would need to prove by clear and convincing evidence (a relatively high standard) that the previous bankruptcy cases weren’t filed in bad faith.
The exceptions to the automatic stay for repeat or serial filers won’t apply if you initially filed under Chapter 7 bankruptcy but then moved to a Chapter 13 because the means test showed that your income was too high to qualify for Chapter 7.
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