10th Circuit Refuses To Void Foreclosure Sale Under Truth In Lending Act

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10th Circuit Refuses To Void Foreclosure Sale under Truth in Lending Act

The U.S. Court of Appeals for the Tenth Circuit recently made an important ruling under the federal Truth in Lending Act with respect to borrowers attempting to void foreclosure sales based upon prior demands to cancel loans under the federal law. Specifically, the court held that claim preclusion can bar such claims if borrowers fail to raise such issues prior to taking action in court.

The Truth in Lending Act

The Truth in Lending Act (TILA) grants borrowers rights to rescind certain consumer credit transactions involving security interests in the borrower’s primary residence by creating two rescission periods: conditional and unconditional. While borrowers have an unconditional right to rescind until midnight of the third business day following the consummation of the transaction, they also retain the (conditional) right to rescind until the creditor delivers the material disclosures, information, and rescission forms required under the Act.

In order for a borrower to exercise their right to rescind, they must notify the creditor of their intention to do so. The Supreme Court has held that rescission is effected when the borrower notifies the creditor within three years after the transaction is consummated. When they do so, the borrower is no longer liable for any finance or other charge, or any security interest. The creditor must then return any money or property within 20 calendar days after receipt of the notice of rescission.

Where things can get complicated is when a borrower rescinds after the unconditional three-day rescission period, when the creditor has already disbursed funds and perfected its lien. This is typically when the courts are called upon to resolve rescission claims.

The Case

In this case, the borrowers believed that their lender had failed to make the TILA-required disclosures, and delivered a notice of intent to rescind the loan several years after refinancing the loan on their home. The lender responded that it afforded their notice no significance, as this was outside the acceptable window of rescission under TILA. Their property was sold in a foreclosure sale several years later.

When the borrowers sought to rescind the foreclosure in light of their notice of intent to rescind the loan transaction, the district court denied their motion, concluding, under claim preclusion, that the borrowers could have raised their contention that the deed of trust was void due to the previous notice of rescission earlier but failed to. The U.S. Court of Appeals for the Tenth Circuit recently affirmed the district court’s decision.

Birmingham & Mobile Foreclosure Attorneys

The experienced real estate and foreclosure attorneys of Cloud Willis & Ellis can assist lenders with taking proactive steps to protect their legal and economic rights in secured financing situations involving property. This includes renegotiations of loan and mortgage modifications, short sales, deeds in lieu of foreclosure, deficiency judgments, and more. Our attorneys can save you time and money during any of these challenging processes. We are available throughout the state of Alabama to assist you with the foreclosure process for both commercial and residential properties. Contact us today to find out more.

Resource:

ca10.uscourts.gov/opinions/16/16-1144.pdf

Foreclosures in Alabama

Alabama has no shortages of foreclosures, especially in cities like Birmingham, Mobile, Montgomery, Bessemer, Huntsville, Anniston, Auburn, and Gulf Shores. If you are a lender dealing with renegotiation of loans or mortgages, short sales, deeds in lieu of foreclosure, or other related transactions, you want to ensure that you work with a local attorney who understands how the legal processes work surrounding these actions.

In Alabama, lenders can foreclose on both mortgages and deeds of trusts that are in default by using either non-judicial or judicial foreclosure processes. You want to be familiar with these, as you have a few options, depending upon the mortgage or deed of trust.

Power of Sale Clause

A power of sale clause is written into a mortgage and authorizes the lender to sell the property in the event of default; in other words, it is equivalent to building in circumstances warranting foreclosure into the deed of trust or mortgage.

Some deeds of trust or mortgages contain very detailed specifications as to when exactly this can occur, and if so, these requirements need to be followed. However, if the mortgage or deed does not specify the time, place, or terms of the sale, a foreclosure sale can take place at the county courthouse where the property is located to the highest bidder after the last notice of sale has been published. This notice must have been published in a newspaper of the county in which the property is located (or counties, if the property is in more than one county) once a week for three successive weeks, and must contain sufficient details including the time, location, and terms of the sale, as well as a description of the property involved.

Judicial and Nonjudicial Foreclosure

If the mortgage or deed is lacking any power of sale clause, then the lender can either file a lawsuit in order to obtain a court order to foreclosure, or forego filing a lawsuit and instead simply sell the property.

Right of Redemption Laws

There is what’s known as a “Right to Redeem after Foreclosure” in Alabama, which means that the property owner may redeem the property within 180 days or one year after the foreclosure sale. In this sense, the law provides borrowers with a redemption period within which they can recover their property.

Deficiency after Foreclosure

If you go through foreclosure but the sale price does not cover the balance of our mortgage, the lender can go after the borrower for the difference (or the “deficiency”).

Experienced Foreclosure Attorneys Serving Birmingham and Mobile

Cloud Willis & Ellis assists institutional lenders, mortgage loan servicers and private lenders throughout Alabama in the foreclosure process for all types of both residential and commercial properties. Contact us today to obtain foreclosure assistance of any type in Alabama—we are eager to help.

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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