Foreclosure is a scary word.
The prospect of losing your home and having to find somewhere else to live can create a lot of stress.
Foreclosure doesn’t have to be as frightening as it sounds if you understand how it works and how Chapter 13 bankruptcy can be used to stop the foreclosure and put you back on the road to keeping your home.
Foreclosure Without Redemption
The most common method of foreclosure in Iowa is called “foreclosure without redemption.”
That sounds more ominous than it really is.
A creditor (usually by the county sheriff) serves notice of the foreclosure following a 30 day notice to the borrower of their right to cure a default in payments.
In large bold print on the foreclosure petition, the creditor will say it has chosen to foreclose without redemption.
This means that once the house has been sold the homeowner cannot “redeem” the property after it’s been sold by the sheriff.
In other words, once the house has been sold at a sheriff’s sale, the borrower and former owner can’t pay anything to get the house back unless the lender allows it voluntarily.
The borrower can’t demand that the lender return the house, even if it’s paid the loan balance. The sheriff’s sale is final.
What Can Be Done?
A homeowner can request though that there be a delay of the sheriff’s sale.
This delay in the sale of the house can give borrowers a chance to explore their options, like filing bankruptcy or finding a different home.
The delay will be twelve months unless the creditor has waived its right to a “deficiency” judgment.
A deficiency is the loan amount that’s greater than what the house has sold for.
If the lender has chosen to waive its right to a deficiency judgment if the house doesn’t sell for the loan amount, the delay of the sheriff’s sale will be six months.
This delay of the sheriff’s sale has to be requested before a decree of foreclosure is entered though, so waiting until late in the foreclosure process won’t delay the sale.
In most cases in Iowa a lender waives its right to a deficiency, so all they’re really wanting through a foreclosure is the house back.
Rarely does a lender in Iowa seek to get paid for the balance owed.
The exception is in the case of a second or third mortgage.
If a lender is not the first mortgage holder, the chances of a lawsuit to collect the debt owed after a foreclosure is much greater.
There are some variations on the foreclosure process that a mortgage lender might choose in Iowa so it’s important to contact me immediately if you get served with a foreclosure petition.
We can talk about how a Chapter 13 bankruptcy can stop the foreclosure and cure the default.