Who Pays The Remaining Balance After A Foreclosure?

Articles Tagged with: Alabama Foreclosure Lawyers

Who Pays the Remaining Balance After a Foreclosure?

For homeowners, foreclosure is a way out of debt and a path to freedom. For lenders, foreclosure is a huge financial hit and major stressor. When a homeowner forecloses on his or her home, lenders will try everything in their power to recover the loss. This includes selling the home via a short sale. Depending on the winning bid amount, the lender may or may not receive a full reimbursement of its losses. If it does not, it has a few other options, including collecting on the private mortgage insurance (PMI) or other mortgage insurance or pursuing a deficiency judgment against the homeowner.

At Cloud Willis & Ellis, our foreclosure attorneys understand how difficult it can be for lenders to collect money that is owed to them after a foreclosure. However, we also understand how important it is for them to do so. If you stand to lose a significant amount of money on a foreclosure, reach out to our lawyers today to discuss your options.

Programs That Protect Lenders’ Interests

Mortgage lenders can invest in insurance on homes to protect themselves in the event of a default. The catch, however, is that a lender must have more than 80 percent of a home’s value in order for the home to be insured. PMI does not cover hazards or losses. Rather, it reimburses lenders for losses associated with delinquency. The Veterans Administration also offers insurance to lenders in the form of a guarantee. If a buyer defaults on his or her mortgage and if the home is not sold via a foreclosure sale, the VA will take possession of it and reimburse the lender for both the property and any losses accrued as a result of the foreclosure. The FHA also offers this same guarantee.

Deficiency Judgements Against the Homeowner

In accordance with Alabama law, lenders may pursue deficiency judgements against default homeowners. Many states do not provide this type of protection, so it is fortunate for Alabama lenders that the state does. Unfortunately, deficiency judgements are difficult to pursue, and it may result in additional losses to the lender, especially when one’s efforts fail.

If successful, however, lenders can recover the remaining balance on a mortgage after the foreclosure sale. For instance, if a homeowner had $125,000 left on his or her mortgage loan when the home foreclosed, and if the home sold for $75,000 in the foreclosure sale, the lender can pursue the remaining $50,000 from the homeowner.

However, there are a number of factors that a lender must consider before pursuing a deficiency judgement, as some may impede their ability to collect on a judgement. Again, if a lender is not careful, he or she may end up losing even more money.

When to Work With a Foreclosure Attorney

You should always work with a foreclosure lawyer before pursuing any action against a homeowner, as there are several laws in place that protect homeowners’ rights. If you make one wrong move, you may lose your ability to collect the remaining balance, or worse, to foreclose on the property at all. The Alabama foreclosure lawyers at Cloud Willis & Ellis can not only advise you or your rights, but we can also save you time and money on the whole foreclosure process. For help collecting what is yours, contact our office today.

How Lenders Can Collect Money Still Owed on Foreclosed Properties

We regularly hear about borrowers’ rights but we rarely ever hear about lenders’ rights. However, lenders are people too, with mouths to feed and families to care for. When a borrower fails to pay back their loan, the loss falls to the lender, who still has to make up for the money in some way. One way they do so is through a deficiency action.

A deficiency action is used by lenders when a homeowner forecloses on their home but when the proceeds from the foreclosure are not enough to cover the cost of the mortgage still owed. The lender must first file a lawsuit; upon winning, they are granted a deficiency judgment, which gives them legal rights to pursue the remainder of their money in one of three ways: wage garnishment, judgment lien, or bank account levy.

If you are a lender and want to know more about your rights as a creditor, reach out to the foreclosure attorneys at Cloud Willis & Ellis. We can help you take the proper steps to efficiently and legally regain the money owed to you.

Wage Garnishment

Wage garnishment is one of the most common ways that creditors go about collecting money from borrowers, so it would make sense that it would be one of the first processes you try. If you know where the borrower works, you can work with their employer to collect wages via their paycheck. However, there are a few things you should keep in mind:

You cannot take more than 25 percent of a person’s disposable earnings (“disposable earnings” being those left after the employer makes the necessary deductions; this is in accordance with federal law);
If the debtor has another garnishment against them, you can only garnish whatever is remaining of that 25 percent (for instance, if the federal government is garnishing 10 percent for child support arrears, you may only garnish 15 percent);
Know that if you pull a second garnishment out on the debtor, state nor federal law will protect them from being fired, and if they are fired, you are out of luck; and
You cannot garnish the wages of those who make $1,000 or less per paycheck.

Judgment Lien

Another and more efficient way in which you can get your money back is via a judgment lien. A judgment lien can be taken out against the nonpayer’s personal property, including any real estate that they own. Once a judgment lien is filed and approved, you have security interest in the property; if the debtor has equity in that property, you may foreclose on it to get your money back. You can file a judgment lien against non-real estate as well. For instance, if the debtor has a significant amount of valuable assets (vehicles, fine art, jewelry, etc.), you can claim a stake in those assets as well.

A judgment lien is more efficient in that it can be completed within a matter of months, does not require you to go through a third party (the debtor’s employer), and is not subject to as many consumers’ rights laws.

Bank Account Levies

Placing a levy on a debtor’s bank account is another efficient way to regain your money, and it is made considerably easier if the borrower ever paid you with a check drawn on that account. As with wage garnishments, you cannot take all of the funds within the account, but if there are significant funds in it, you may be able to reclaim all if not most of your money.

Work With a Alabama Foreclosure Attorney

At Cloud Willis & Ellis, we help lenders recover their money quickly, efficiently, and without violating creditors’ rights. If you still have money owed to you even after a foreclosure sale, contact our foreclosure lawyers today for advice on how to proceed. Give us a call today at 205-322-6060 for immediate assistance.

Resources:

webapps.dol.gov/elaws/elg/garnish.htm#EmplRights

alabamanews.net/2017/05/16/low-income-alabamians-protected-wage-garnishments/

Recent Supreme Court Foreclosure Ruling & the Eleventh Circuit (Including Alabama)

In early May, the U.S. Supreme Court ruled that cities have standing to sue banks over lost tax revenue on foreclosed properties under the Fair Housing Act. However, the final ruling is ultimately left up to the Eleventh Circuit, as the Court sent the case back in order for the Eleventh Circuit Court to determine whether the particular banks’ lending practices were the proximate cause of any damages experienced by the cities (i.e. the lost tax revenue).

In this particular case, the city of Miami argued that the lending practices of Bank of America Corp. and Wells Fargo & Co. led to a major shortfall in city tax revenues. Although the Court’s decision is something that lenders should take note of (as many would not have thought that cities had sufficient standing to assert claims that would arguably be more appropriately be brought by those parties more directly covered by the Fair Housing Act), it is also important to note that the bar for proving proximate causation is high, meaning that there is a good chance that the banks will not ultimately be found liable for the damages asserted in the case.

The Fair Housing Act & Zone of Interests

The main purpose of the Fair Housing Act is to protect people from discrimination when they are renting, purchasing, or securing finances for housing. In order for a party to be able to sue under such a law, that party’s interests must fall within the “zone of interests” established by the law. In this case, the city’s interests were found to be covered because the banks’ practices had arguably led to increased costs for foreclosed properties and decreases in tax revenue.

Proximate Cause: A High Bar

However, deciding whether or not a party (such as a city) is covered by a law is only the first step; this does not mean that the case is won for that party. In order for Miami to prevail and collect damages from the various lenders, the Eleventh Circuit must now find that these practices were the actual cause of any damages suffered by the city.

And the proximate cause argument is a difficult one; in fact, Law360 reported that all eight justices rejected the probable cause argument. The Court has arguably already recognized that Congress did not intend for the Fair Housing Act to address and provide a remedy for unforeseen “ripple effects” like these, which are somewhat speculative harms that may or may not result from particular lending practices. In his dissent, Justice Clarence Thomas specifically noted that nowhere in the text of the Fair Housing Act does it suggest that Congress was concerned about addressing potential strains on municipal budgets that may or may not result from lending practices.

Ultimately, the banks will not be held liable unless the Eleventh Circuit decides that their actions directly caused the foreclosures, and a decision like this could only be based in sold foreseeability.

Birmingham and Mobile Foreclosure & Real Estate Attorneys

The attorneys of Cloud Willis & Ellis assist institutional lenders, mortgage loan servicers and private lenders throughout Alabama. Our experienced foreclosure attorneys can assist you with any foreclosure process concerns. Contact us today with any questions you might have.

Resources:

themreport.com/daily-dose/05-01-2017/cities-may-sue-banks-revenue-lost-foreclosure

law360.com/banking/articles/875229/breaking-high-court-says-cities-can-sue-banks-over-foreclosure-costs?nl_pk=cf834ba7-6973-45a1-8b9d-892053b5dbd3&utm_source=newsletter&utm_medium=email&utm_campaign=banking

Hard Financial Times Lead To Foreclosures

In uncertain economic times, it is not uncommon for homeowners to have trouble keeping up with their bills, in particular their mortgage payments. An unexpected layoff or medical bills can easily turn into financial stress and upheaval for even the most conscientious of bill payers. Despite the reasons for why this could happen to begin with, lenders cannot be expected to wait forever for the money owed to them and, unfortunately, foreclosures are the way lenders must choose to proceed to protect their own interests. In general, lenders are aware that sometimes short-term financial issues arise, but most do start the foreclosure process within three to six months of the initial missed payment.

Types Of Foreclosure

All foreclosures are not the same. In fact, there are different types: judicial and power of sale. Each of these different types of foreclosures have specific requirements and processes that must be followed. In Alabama, the most common type of foreclosure is a non-judicial foreclosure. The mortgage instrument itself typically contains a power of sale clause; this clause allows for foreclosure on the property upon default. The property is then auctioned in order for the lender to recoup its money. For lenders to be able to use this method of foreclosure, the legal documents must have the power of sale language and specific notice requirements must be met prior to the auction. Judicial foreclosure is also allowed in Alabama; in this type of foreclosure the lender files a lawsuit in court and the borrower has thirty days after receipt of the mailed notice of the suit to make payment. If payment is not made, the property is auctioned.

Can The Borrower Reclaim The Property?

Alabama law provides for the right of redemption, which allows someone to reclaim their foreclosed property with a payment that covers the full amount of the unpaid loan plus any costs within a year of the sale. In addition to this option, there are other options that may be better for both the lender and borrower, including renegotiating the loan or short sales.

What If The Auction Price Does Not Cover The Unpaid Amount?

In cases where a foreclosed property is auctioned for less than the amount owed to the lender, the lender can obtain a deficiency judgment against the borrower for the remaining amount owed. Due to the complexity of this process, a lender is wise to enlist the assistance of an experienced attorney.

Cloud Willis & Ellis – Your Foreclosure Attorneys

When you are facing the task of initiating a foreclosure, the office of Cloud Willis & Ellis is here to help. As with any legal issue, there are a variety of options for how to proceed; speaking with an experienced attorney prior to taking any action is the best way to ensure you take the course of action that is most beneficial to you. Our Birmingham foreclosure attorneys will explain your options to you and ensure you have all the information you need to make the right choice. Contact Cloud Willis & Ellis to set up a meeting to discuss your options.

Resource:

portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure/foreclosureprocess

Deficiency Judgments: When a Foreclosure Sale is Not Sufficient to Wipe Out Mortgage Debt

When a borrower is not able to keep up with their mortgage payments their lender has the option of initiating foreclosure proceedings and eventually selling the mortgaged property at a foreclosure sale. But what happens if the property is worth less at the foreclosure sale than the total amount owed by the borrower? Unfortunately this happens frequently, and what results is a “deficiency” in the amount of the difference between the foreclosure sale price and the borrower’s outstanding debt. For example, if a house with a remaining mortgage balance of $100,000 is sold at a foreclosure sale for $75,000 then there is a deficiency in the amount of $25,000. In order to recoup the deficiency that they are owed, lenders in Alabama can seek a “deficiency judgment”.

What is a Deficiency Judgment?

A deficiency judgment is a court order issued against a borrower indicating that a foreclosure sale did not cover the borrower’s outstanding mortgage in full. The judgment operates as a lien on the borrower for the amount of the deficiency and allows the lender to come after the borrower’s personal property, wages, real estate holdings, or other assets in order to satisfy the debt. Courts in Alabama do not automatically issue deficiency judgments and, therefore, lenders who wish to obtain such a judgment must file a lawsuit with the court. If a lender does not ask the court for a deficiency judgment then the money obtained from the property’s foreclosure sale is considered to be legally sufficient to satisfy the borrower’s outstanding mortgage.

Deficiency Judgments in Alabama

Most foreclosures in Alabama are nonjudicial, which means that lenders can foreclose on a property without going to court. This differs from judicial foreclosure states which require lenders to involve the court in all foreclosure proceedings. According to the Alabama Code §35-10-1 et. seq., after a mortgaged property is sold at a foreclosure sale in Alabama the lender can, if there is a deficiency, file a deficiency lawsuit against the borrower. Some states place limits on the amount that a lender can obtain via a deficiency judgment, but there is no such limit in Alabama.

While the notion of deficiency judgments may seem fairly straightforward there are several other related details that lenders must be aware of. For example, lenders in Alabama owe borrowers a duty of fairness and good faith when bidding at a foreclosure sale on one of their borrower’s properties. In other words, a lender is legally allowed to purchase a property that they themselves have foreclosed on, however, the duty of fairness and good faith prohibits them from making an offer that is unreasonably far below the property’s market value.

Need Legal Advice?

If you are a lender located in Alabama and would like to obtain a deficiency judgment contact Cloud Willis & Ellis, LLC today. Pursing a deficiency judgment can be a time-consuming endeavor, however, employing a competent foreclosure attorney to do the leg work for you can make the process much more streamline. To discuss your legal options contact our offices in either Birmingham (205-322-6060) or Mobile (251-545-4844) today.

The Right Of Redemption Before and After Foreclosure In Alabama

While many foreclosure laws are notoriously complicated, the notion of a ‘right of redemption’ often leaves then those well versed in the area scratching their heads in confusion. But do not fear; this article explains the need to know basics regarding the right of redemption in Alabama, and an experienced foreclosure attorney can explain the remaining details as they relate to your specific case. Essentially, the right of redemption is the right of a homeowner who is in danger of losing their home to foreclosure to redeem, or buy back, their home by paying a certain amount of money within a specified timeframe. While the right of redemption varies from state to state, in Alabama homeowners actually have two separate rights of redemption: an equitable right of redemption that exists before the foreclosure sale, and a statutory right of redemption that exists for a limited period of time after the property has been foreclosed on.

The Equitable Right of Redemption Before Foreclosure

In every state, borrowers have the equitable right to redeem their home before their property is sold at a foreclosure sale. In order to redeem their home and stop the foreclosure the owner generally must pay off the total amount that they owe on their home, plus additional costs and interest. The equitable right of redemption acts as a second chance for borrowers to save their home from foreclosure after they have fallen behind on their mortgage payments.

The Statutory Right of Redemption After Foreclosure

While every state affords homeowners the equitable right to redeem their home before the foreclosure sale, not all states allow redemption to occur after the foreclosure sale has taken place. States that do provide a right of redemption after foreclosure, such as Alabama, each have a statute on their books that affords homeowners within the state this right. This right allows a person to buy back their home after it has been sold at a foreclosure sale by paying the price that the new owner paid for the property, plus additional costs.

How long an owner’s statutory right of redemption exists varies greatly between states. In some states the right lasts for only one month while in other states the right lasts for a couple of years. Alabama’s statutory right of redemption, contained in the Code of Alabama §§ 6-5-247 to 6-5-257, is generally available for 180 days after the foreclosure sale for residential properties that qualify as a homestead, and for one year for non-homestead residential properties and commercial properties. Here, it is important to note that this 180-day window is provided for mortgages executed after January 1st, 2016, pursuant to a change in law; all others executed before that date are granted one year. Be warned that these timeframes can change given the circumstances of the foreclosure. For example, if a property in Alabama is sold at a foreclosure sale and the original owner fails to vacate the premises within 10 days of receiving a written demand to do so from the new owner, the original owner may lose their statutory right of redemption. Other actions can also cause the right of redemption period to change so it is always advisable to consult with a competent foreclosure attorney to discuss your legal rights and options.

What If I Buy A Foreclosed Property And Then The Previous Owner Exercises Their Right Of Redemption?

If you are considering purchasing a foreclosed property in Alabama it is very important to remember that the original owner may choose to exercise their statutory right of redemption after you buy the property. While this isn’t terribly common, if it does happen then you will be reimbursed the amount of money that you paid at the foreclosure sale, plus various other costs such as interest, taxes that you have paid on the property, and the value of any improvements that you made to the property. You will then be forced to convey the property back to the party who exercised their right of redemption.

Need Legal Advice?

Cloud Willis & Ellis, LLC helps lenders throughout Alabama and Georgia comply with all applicable laws and procedures while foreclosing on both residential and commercial properties. Our experienced foreclosure attorneys are happy to help and can be reached at either our Birmingham office (205-322-6060) or our Mobile office (251-545-4844).

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