Owning a home is still largely considered an essential component of the American Dream. It’s a liberating feeling to be able to turn the key in a lock that no landlord has access to, paint the walls any color you desire, and let your kids run around in your very own backyard. For many individuals, securing a home is a dream come true, but buying a home is only half the battle.
Failure to make mortgage payments could send your dream home into foreclosure, which means the house you’ve worked so hard for could no longer be yours. Luckily, there are ways for St. Louis residents to protect their homes from an impending foreclosure. Understanding how to avoid a foreclosure starts with first understanding the process behind foreclosures in St. Louis. How do foreclosures work? Allow us to explain.
The 120-Day Waiting Period
A mortgage is an agreement between you and a lender that contractually binds you to make payments by a particular date on a monthly basis. Missing even one mortgage payment is considered a breach of contract, but the bank can’t immediately foreclose after one missed payment. Under the Dodd-Frank Act, a loan servicer must wait 120 days from the missed payment date before starting a foreclosure proceeding.
In that 120 days, homeowners can evaluate loss mitigation options ranging from mortgage modifications, to short sales, or a deed in lieu of foreclosure. If loss mitigation makes sense, homeowners can contact their lender for a loss mitigation application. Filing a loss mitigation application can help delay the foreclosure process, because the bank can’t start a foreclosure until:
- it determines the borrower does not qualify for a loss mitigation option and the appeal period has expired,
- the loss mitigation option offered is rejected by the borrower, or
- the loss mitigation option is agreed upon, but the terms are later violated.
A loss mitigation application can be filed even after a foreclosure, but it is generally advised to complete the application before the 120 days are up. If a loss mitigation application is not filed, the lender can initiate a foreclosure 120 days after the date of the missed payment.
Nonjudicial Foreclosure In St. Louis
In certain states, a lender must obtain a court order to sell a home. However, that is not the case in Missouri. A majority of foreclosures in St. Louis are nonjudicial foreclosures; meaning the bank can initiate a foreclosure without approval from the court. There are ultimately two things the bank or trustee must do in a nonjudicial foreclosure:
- The lender or trustee must mail a notice of foreclosure to the borrower 20 days or more before the date of the sale (Mo. Rev. Stat. § 443.325).
- The lender or trustee must publish a notice of the foreclosure sale in the newspaper daily for 20 days or once per week for four weeks, depending on the circumstances (Mo. Rev. Stat. § 443.320).
Once a nonjudicial foreclosure is initiated, it’s typically completed within 45 to 60 days. Of course, the initiation of a foreclosure does not have to mean the loss of your home. There are actions homeowners can take to halt a foreclosure and keep their property.
Remedies For A St. Louis Foreclosure
There are ultimately three main options homeowners have in the event of a foreclosure. The most logical course of action largely depends on an individual’s unique financial situation.
1) Reinstating The Loan
Missouri law does not provide for the right to reinstate, but most mortgage contracts permit reinstatement in a nonjudicial foreclosure up to five days before the sale. To reinstate a loan, the borrower must pay off all of the bills in arrears. If the past-due amount is paid off in it’s entirety, the foreclosure will cease and your home will remain in your hands.
2) Redeeming The Home
If you can’t afford to pay off your past due bills, there is an opportunity to reclaim your home after the foreclosure sale. If the foreclosing bank buys the home you can redeem it by paying the full amount of debt with the addition of any costs associated to the sale. Missouri law grants you one year to redeem a home. However, redemption is not an option if someone other than the bank buys the property. In order to claim redemption you must provide written notice that you plan to redeem and post a bond in the ten days preceding the sale.
3) Filing Bankruptcy
Both reinstating a home loan and redeeming a loan require full repayments of the debt you’ve accumulated. Earning the money to repay your debt in time may not always be a possibility. In these situations, filing for bankruptcy initiates an automatic stay, which can temporarily stop your foreclosure. A bankruptcy will stall a foreclosure, but it can also help you reclaim your home.
Chapter 7 bankruptcies can eliminate most of your unsecured debt so you can focus applying more of your money towards your mortgage. A Chapter 13 bankruptcy can be used to modify your mortgage payments. With a Chapter 13 bankruptcy, you can make payments in arrears at a 0% interest rate without any additional fees. In certain cases, you may even be able to remove judicial liens that have attached to your home or second mortgages when the balance on your first mortgage exceeds the fair market value of your home. Either way, a bankruptcy makes your mortgage far more manageable so you can keep the property you’ve worked so hard for.
Using Bankruptcy to Stop a Home Foreclosure
The Automatic Stay
The primary way in which bankruptcy stops foreclosure is through what is known as the automatic stay. As soon as a bankruptcy lawyer files a case in court, the automatic stay goes into effect for the person named in the case.
An automatic stay prevents all creditors, including mortgage lenders, from taking any action in reference to debts owed. This means that the debts cannot be transferred and their status may not change without approval until after the bankruptcy case is complete and the court documents are signed by a judge. In addition, debt collectors may not contact debtors by any means during this time.
The automatic stay may not be able to prevent foreclosure from taking place if it is already in the final stage and the sheriff has been notified of the lawful seizure of the property. However, if this has not yet occurred, bankruptcy may buy homeowners several months or more to keep foreclosure from transpiring.
Although the automatic stay ends after the bankruptcy case is finalized, some lenders may be forced to start the foreclosure process from the beginning, which could buy homeowners additional time.
Relief from the Automatic Stay
The automatic stay provided to those filing bankruptcy is not a foolproof means to prevent foreclosure. A lender may petition the bankruptcy judge for relief from the automatic stay, but this petition is not always approved. This type of situation is where an experienced bankruptcy lawyer can make all the difference in the world.
Filing for Relief from the Automatic Stay
The process to petition for a relief from the automatic stay takes some time, and this may be just enough to stop foreclosure even if the relief is granted. After filing bankruptcy, the bankruptcy lawyer will send a copy of the filing document to the lender. Upon receipt, the lender is obliged to halt all actions for the purpose of collecting your debt, including the act of foreclosure.
To file for relief from the automatic stay, a lender must first file a proof of claim. This document provides details on the lien holder, how much is owed on the mortgage, the payment schedule and the past due amount. Proof of claim may be accompanied by supporting documentation, and if no supporting documentation is provided, extra time may be gained.
After the proof of claim is filed, the lender must then file the motion for relief of the stay. However, only the lender named on the mortgage or the entity holding the original mortgage note may file this motion. Oftentimes, mortgages are sold to other lenders or financial entities without being signed, and the original note is delivered to the new holder. A competent bankruptcy lawyer will ask that the lien holder submit the original note to the court as proof of claim. If the current holder cannot produce the original note, then there is no ground for filing the motion.
This may seem like it does not happen often, but for some time, mortgages were sold in bulk to financial companies as investment securities. These companies did not have time to individually sign all of the mortgages they bought, and some of the notes have since become lost or accidentally destroyed.
If the current holder of a mortgage cannot produce an original note, then the court may allow a continuance in the case. However, bankruptcy judges do not like for cases to be held up in their courts. If the document cannot be produced in a timely manner, then the judge may simply dismiss the petition for relief of the automatic stay.
Bankruptcy May Be Able to Get Rid of Your Second Mortgage
Another benefit of filing bankruptcy with a pending foreclosure is that, in certain instances, a bankruptcy lawyer may be able to get the court to discharge any second mortgages or home equity lines of credit secured by the home. If the available equity securing the loan is less than what is owed on the loan, a bankruptcy court judge may declare the loan to be unsecured. This means that the loan instantly becomes eligible for discharge under Chapter 7 bankruptcy law. When this occurs, it may be possible for homeowners with steady income to make their regular mortgage payments.
No matter the direction you decide to take, a foreclosure is not a matter to be taken lightly. Consult an experienced bankruptcy attorney to weigh your options and decide the best course of action given your financial situation. A Bankruptcy Law Firm, LLC has helped numerous St. Louis individuals stop foreclosure and reclaim their homes. Schedule a free initial consultation today to start working on halting your home foreclosure.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.