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 and also defend the fit. The issue will proceed via the litigation process, and also, if the financial institution wins, the court will order the home offered at auction.
Nonjudicial repossession. Some states enable a lender to make use of a structured “nonjudicial” repossession procedure that includes complying with steps outlined in state legislation. In most cases, the bank will certainly be called for to give the homeowner time to bring the account current. In addition, the loan provider should inform the owner of the sale day, as well as, sometimes, publish the sale date by advertising it in a paper or uploading it in a public place. After finishing the steps, the lender is free to sell the residence at public auction without first receiving approval from the court.
Filing for insolvency will stop either kind of foreclosure procedure as long as the foreclosure sale hasn’t occurred. You can figure out even more about 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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