When Your Home Ownership is Threatened

Foreclosure is a legal process that follows a specific schedule and must be addressed as soon as possible for the best outcome.

A mortgage is a loan for a home in which the home itself is the collateral. When a homeowner stops making payments, foreclosure is the method the bank or mortgage holder uses to take the home, auction it and apply the money to the loan. But that’s not the entire story.

In Maine home mortgage foreclosure is a type of lawsuit. It starts when a deputy sheriff serves papers on the homeowners and it ends with an auction. It can take as long as 10 months and possibly longer.

The papers served on the homeowner are the summons and complaint. The homeowner has 20 days to respond to the complaint by filing an “answer” with the clerk of the court. The answer is a chance to dispute the foreclosure. Because there is seldom much basis for dispute, an answer is usually not helpful. But thanks to a recent change in Maine law, the answer is now an opportunity to force the bank into mediation. Because foreclosure mediation is new in Maine, we do not know yet how much it will help. But similar programs in other states have been good for homeowners.

If the homeowner does not file an answer or demand mediation, the bank’s lawyer files papers asking the judge to issue an order allowing it to hold an auction. This is called a “motion for summary judgment and order of sale.” Usually the judge grants the motion and the order is issued. But Maine law makes the bank wait 90 days after this point, a pause called the “redemption period.” The purpose is to give the homeowner one last chance to pay the loan in full and stop foreclosure. Few homeowners are able to do this, of course, so the bank usually goes ahead, runs the legal notices and holds the auction.

Most people assume the bank hires an auctioneer who hangs out a red flag and draws a crowd. Not so. In most cases the bank’s lawyer does the auction in his or her office. People who see the legal notice in the newspaper come and bid. They are looking for a bargain and tend to bid low. Seldom does the auction yield enough money to pay what is due, and the result is the homeowners owe a balance: the remaining principal, interest, the bank’s legal fees and costs such as filing fees and legal notices. This is called a “deficiency,” and it can run to tens of thousands of dollars.

Many people want to know if they have to move out at the beginning of the foreclosure. In most cases the homeowners will not have to move until it is almost complete. Most people will stay on as long as possible and save as much money as they can to pay for moving.

Foreclosure is a very daunting thing for most people and often not the end of the problem. It is important to remember that mediation or bankruptcy can sometimes make a bad situation better. It is always a wise idea to consult an attorney as soon as you think the bank may be coming after your house.

Legal Terms Related to Foreclosure

Mortgage – an agreement that makes your home collateral for the loan. All kinds of real estate can be mortgaged – apartment buildings, shopping malls, even undeveloped land

Serving papers – also called sheriff’s service or service of process, it is the opening shot of a lawsuit. Once the deputy has served the papers on you, you are in the lawsuit and you cannot get out. If you ignore it or miss a deadline, the judge will default you and the other side will win. In other words, if you snooze, you lose.

Summons – the notice that tells the defendant that a lawsuit is being started, that he must defend himself and that if he does not, the plaintiff will win

Complaint – the document that spells out the reasons for the lawsuit and what the plaintiff wants the court to do. In the case of foreclosure, the complaint says John and Jane got a mortgage from Bob’s Bank; they did not pay it; now they owe so much money, and please, judge, allow us to hold an auction to sell the house.

Answer – your opportunity to tell the court why you think the bank is wrong or if you believe the mortgage is somehow illegal or fraudulent. When you file an answer, the court must consider it.

Summary Judgment – what the mortgage holder usually asks for, allowing the judge to decide the case without further delay. The bank’s lawyer files a motion for summary judgment. In it he says the bank believes there is no real dispute about what happened and the only issue is whether the bank is legally entitled to foreclose. The court will have a hearing. This is a chance for the homeowner to dispute the bank’s assumption that there is no real issue. You have to dispute the motion in writing and at the hearing.

Mediation – a way to resolve a dispute without going to court. In foreclosure cases, you and the bank’s representative sit down with a person called a mediator and try to make a deal that will keep you in your house and the bank getting payments. This could be a temporary suspension of payments in which the skipped payments are added to the loan and you get more time to pay. Or it could be a temporary lowering of the payment amount. It might even be a permanent lowering of the payment. What you get depends on how flexible you and the bank can be.

Chapter 11 Bankruptcy – in a foreclosure case, the kind of bankruptcy that can force the bank to let you pay the missed payments over time. For example, $7,500 in missed payments could be paid over 36 months at about $208 per month. But you must have regular income that is enough to pay the regular mortgage payment plus other living expenses and the costs of the bankruptcy case.

Legal Notice – required by Maine law, an announcement of the auction that must run three times in the local newspaper. The purpose is to draw people to the action in hopes they will bid against each other. The higher the winning bid, the less you will owe the bank. The sad reality is that the winning bid is often less than what you owe, or even less than the value of the house.

Deficiency – example: you owe $175,000 (this includes principal, interest, legal fees and costs) but the winning bid is only $125,000. The deficiency is what you still owe. However if the bank was the winning bidder, you would owe the difference between the value of the house and the total debt. If the house is worth $150,000, the deficiency is $25,000. If someone else gets the house, you would owe the full $50,000 difference. Bankruptcy would eliminate the deficiency.

Surplus – when in rare cases the auction yields more money than is owed, and that money is paid to the homeowners

Eviction – the legal action of forcing homeowners from the home. If the foreclosure action gives the bank the right to evict, the bank usually waits until the auction is a few weeks away. If the foreclosure did not give the bank the right to evict, they must file a separate eviction lawsuit.

F.E.D. – the abbreviation for “Forcible Entry and Detainer,” what the bank files with the court to force the homeowner to move

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This is for general information only. It is not intended as legal advice.