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:
Judicial repossession. All states permit the lender to utilize a “judicial” repossession procedure that starts when the financial institution files a claim in court. The home owner can react to and safeguard the match. The matter will certainly continue with the lawsuits procedure, and also, if the bank wins, the court will buy the home cost auction.
Nonjudicial repossession. Some states allow a lender to utilize a structured “nonjudicial” foreclosure treatment that includes following steps outlined in state regulation. In a lot of cases, the bank will be needed to give the house owner time to bring the account existing. Furthermore, the lending institution has to inform the owner of the sale day, and also, sometimes, release the sale date by advertising it in a newspaper or posting it in a public area. After completing the actions, the loan provider is complimentary to offer the home at public auction without first receiving approval from the court.
Filing for insolvency will certainly stop either sort of repossession procedure as long as the repossession sale hasn’t occurred. You can learn even more concerning the foreclosure 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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