Arizona Foreclosure Law – What Happens With My Second Mortgage When The First Mortgage Forecloses

Its no secret that thousands of people around the country and in Arizona are losing their homes to foreclosure. One of the biggest issues I deal with as an Arizona real estate lawyer handling foreclosure-related cases is the question of what happens with a second mortgage or home equity line of credit after the first mortgage forecloses. The answer to this question requires an analysis of each individual’s specific situation, including the terms of their loan agreement, the circumstances of when they obtained the loan and what the funds were used for, and the distribution of funds upon the foreclosure sale of the property. Although most homeowners would be wise to speak with an Arizona foreclosure lawyer about their situation, the following article provides a general framework of the Arizona laws that affect a second mortgage lender’s ability to collect a deficiency balance owed after the first mortgage lender has foreclosed.

As an initial matter, it should be understood that this discussion only applies to loans secured by properties located in Arizona. Arizona’s laws regarding a lender’s ability to collect a deficiency balance are substantially different from the laws of other States, and if you have a loan on a property in another State, you must obtain the correct information from that jurisdiction.

One of the primary distinctions of Arizona law as it relates to a second mortgage lender’s ability to collect a deficiency balance is found in Arizona Revised Statute Section 33-729(A), which limits the lender’s ability to seek a deficiency if the money loaned “is given to secure the payment of the balance of the purchase price” provided the property is a single one-family or two-family home and consists of two and one-half acres or less. In other words, if the loan was “purchase money” used to buy the home, the lender’s only choice is to foreclose in the event of non-payment. If the lender cannot foreclose because the primary lender already has, it has no further recourse.

Of course, many Arizona homeowners facing foreclosure find themselves with second mortgages taken out after they bought their homes, with the funds used to make home improvements, pay off other debt, take vacations or purchase other items, or even used as down payments on other homes. In cases like these where the funds cannot be traced back to the original purchase of the property, the protections of Arizona law will likely not apply.

Tracing back to the original purchase is an important exercise for many lenders and homeowners, because so many second mortgages are the product of one or more refinances and/or sales and assignments by the lenders. Fortunately, Arizona Courts have made it clear that a refinanced loan retains its original character for purposes of the anti-deficiency statute, so a refinance will not affect the protection a homeowner may have under Section 33-729(A).

Because many refinances involved both purchase money and non-purchase money elements, however, homeowners should understand that some second mortgage lenders will seek to recover at least the non-purchase money portion of the loan. There are defenses available to such claims, and homeowners facing demands from lenders should seek the advice of an experienced Arizona foreclosure lawyer to discuss how to respond to such a lender’s demands.

Unfortunately, it is impossible to address every situation in a short article, and any homeowner facing foreclosure should seek additional guidance regarding tax implications, how to handle the HOA, and how your specific loans will be treated under Arizona law after a foreclosure.

Foreclosure Laws in Oklahoma

Both judicial, or in-court and non-judicial, out of court, foreclosure processes are followed in Oklahoma. The deciding factor in which process will be used is the power of sale clause. Should the mortgage or deed of trust contain power of sale clause, then the bank can pursue the foreclosure process without going before a judge. The banks will always follow this option if they have it, because it saves them both time and money to do so. Most mortgage or deeds of trust have power of sale clause written into them. So this means that most foreclosures will be conducted in the out of court way.

To follow the judicial process of foreclosure, the bank must file a lawsuit to obtain court order to foreclose, in order to move on to the auction of the house.

The auction is commonly referred to as the trustee sale.

One little interesting point of Oregon law is that the borrower has waived the right to an appraisal in the mortgage, then the property must be appraised before it can be sold at the trustee sale. The amount of this appraisal sets the bar, in how much the home can be sold for. The house cannot be sold for anything under two thirds of that appraised value.

Power of sale clauses can specify the time, place and terms of the trustees sale. If this is the case, then those instructions must be followed. Most cases are not micromanaged in this way, however. In the majority of out of court foreclosures, the process begins with a written notice of intent to foreclose being mailed to the home owner who is in default on his loan. This letter must be sent to the last known address of the home owner.

This letter must describe the defaults of the borrower. This letter also announces that this homeowner has thirty five days from the date the letter was sent to come current on the loan. If the home owner can do this the foreclosure sale will be stopped. If, however, this is the third time the homeowner has been in default, then the bank is not required to send this letter again.

Additionally, if there have been four defaults in the past twenty four months, no additional notices are needed or required to be sent.

A letter called the notice of sale must be recorded with the county in which the home is located sometime before ten days have past, since the expiration of the thirty five day time frame stated in the letter.

This notice of sale must be advertised in a local paper with circulation in the county where the home is located. This ad must be run once a week for four consecutive weeks. The first of these ads must start being placed no less than thirty days before the scheduled sale date. This ad or notice, must include the names of the bank, the homeowner and the place and time of the sale. It must also include a description of the property including the street address.

The home will be awarded to the person offering the highest bid at the auction. Anyone who is the winning bidder at the sale must have cash or certified funds equal to ten percent of the winning bid amount. If the person making the highest bid does not have those funds with them at the sale, the home will then be awarded to the next highest bidder.

A Summary of Alabama State Foreclosure Law

Alabama State conducts Judicial as well as Non-judicial foreclosure, but Non-judicial foreclosure is more common.

What is the processing period for foreclosure in Alabama?

Normally it takes 50-74 days (approx 1.5 to 2 months) for processing.

What is sale publication period in Alabama for foreclosure?

Sale publication period is 21 days.

Is there any right of redemption in Alabama for foreclosure?

Yes, Redemption period is of 1 year.

Are deficiency judgments permitted in Alabama?

Yes, Deficiency judgments are permitted in Alabama.

Which law provision governs foreclosure in Alabama?

In Alabama Code (1975), foreclosure sales are covered in Title 35 (Property) Articles 1, 1A, 2, 3 ยง35-10-1 et. seq.

What happens during Judicial Foreclosure in Alabama?

It involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage/deed of trust. However, in such case lenders may choose to avoid filling a lawsuit and foreclose by selling the property, as mentioned in the “Guidelines for no power of sale foreclosure “.

Guidelines for No Power of Sale Foreclosure

If no power of sale is contained in a mortgage/deed of trust, the lender, or any assignee thereof, may either file a lawsuit to foreclose or foreclose by selling the property to the highest bidder for cash at the courthouse door of the county. Such sale can take place only after notice of the time, place, terms and purpose of the sale has been published for four (4) consecutive weeks in a newspaper published in the county wherein said lands, or a portion thereof are situated.

What happens during Non-Judicial Foreclosure in Alabama?

A “power of sale” clause is the clause in a deed of trust/mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan if they are not able to pay. In such cases, the authority is given to the lender to sell the property which may be executed by either the lender or member selected by lender. You can find more information in “Guidelines for power of sale foreclosure”.

Guidelines for power of sale foreclosure

Power of sale foreclosure must be carried out at specified time, place within the terms of sale mentioned in deed of trust/mortgage. But if it does not specify any time, place or terms of sale, then a foreclosure sale may take place at the main door of the courthouse of the county where the property located, after default of the deed of trust/mortgage, for cash to the highest bidder. The sale can only take after 30 days of the last published notice.

Sale notice must be given in publication once a week for four (4) successive weeks in a newspaper published in the county or counties in which the property is located. If the property is under mortgage in more than one county, the publication is to be made in all counties where it is located. The notice of sale should mention the time, place and terms of said sale, with details of the property. If no newspaper is published in the county where the lands are located, the notice shall be placed in a newspaper published in an adjoining county for four (4) successive weeks.

This is legal information; it should not be treated as legal advice.

Foreclosure Laws in Indiana

Indiana is a strictly judicial state, when it comes to foreclosure laws. This means that is only handled through the court system. It takes around 9 months to complete the foreclosure process.
The process of foreclosure begins when a complaint is filed against the borrower in a court of law. According to their law, a default notice does not have to be given to the borrower before this complaint can be filed.

Whichever date the mortgage began, dictates the period of time between the actual sale, and the pre-foreclosure period. Most of the time this, is around 3 months. Some older mortgages can be 6-12 months. If a property is abandoned, there is no waiting period. A lender loses his right to pursue an unpaid debt from the sale of the property, if the mortgage holder allows the sale of the property, if the mortgage holder allows the sale of the property to go through before the pre-foreclosure period is over.

A certification of the order of sale and judgment are issued by the clerk to the sheriff, once this pre-foreclosure period has expired. Once this order has been received, the sheriff goes forth with the sale.

Anytime before the sale, the judgment can be satisfied by the borrower. This includes paying the interest, the debt, and any other costs, the complaint will then be dismissed.

A publication of sale must first be placed 30 days before the sale. It is then published once a week. The sheriff chooses an auctioneer to conduct the sale. He also is in charge of posting the sale in at least 3 places, as well as the courthouse in the county which it is located. The sheriff also serves the notice of sale to the borrower.

The property ownership is immediately transferred by the sheriff, to the winning bidder. If the sale is postponed by the lender, all notices must be re-served and re-published.
There is no right of redemption in Indiana once the sale is complete.

Understanding Illinois Foreclosure Law

How to navigate Illinois Foreclosure Law
In today’s uncertain economy many families are unable or will soon be unable to make their mortgage payments. The clients that come to my law practice for counseling are mortified with thought of being thrown out of their house through foreclosure. To compound their fears homeowners who have missed a mortgage payment or a few payments are fearful that any day the sheriff with knock at their door and force them to leave their home.

Fortunately, in Illinois a homeowner who has missed a mortgage payment, or two payments, or even three payments will not immediately have to move out of their homes. In Illinois missing a mortgage payment in not the end of living in your home. It is only the beginning of the long process of foreclosure (in Illinois), A process where missing a mortgage payment will not result in immediate eviction from their home.

Certainly, missing a mortgage payment is reason for concern however, it is not the end of the world. Further, understanding Illinois foreclosure law can help homeowners have less anxiety and better make decisions about their future living accommodations.

Illinois Law: Mortgages in default can be reinstated
Good news, under Illinois law if a mortgage goes into default a homeowner can reinstate their mortgage. Reinstatement is effected by curing all the defaulted payments (paying the missed payments) and; paying all costs and expenses associated with the default (usually back interest, late payment penalties, and attorney’s fees). The reinstatement payments must e made within 90 days from the notice of default.

If the missed payments along with the interest, penalties, and attorney fees are paid in the 90 days prior to the notice of default the mortgage document shall remain in force as if no acceleration or default had occurred. See 735 ILCS 5/15-1602.

Illinois Law: Mortgages in foreclosure can be redeemed
More good news, under Illinois law if a home goes into foreclosure the homeowner can redeem their mortgage from foreclosure process. When the mortgage on residential real estate is foreclosed on the homeowner is granted a redemption period in which to stop the lawsuit for foreclosure and retain their home.

In Illinois the homeowner has 7 months to redeem their home from the date the homeowner is served with a summons for foreclosure or served by publication. See 735 ILCS 5/15-1603.
To redeem their home from foreclosure the homeowner must pay the following:

The amount specified in the in the judgment of foreclosure which shall consist of
a) all principal and accrued interest secured by the mortgage and due as of the date of judgment.
b) all costs allowed by law, this would include late payment penalties, additional interest from the date of judgment to the date of redemption, attorney and other administrative fees.

In my bankruptcy practice I often counsel with clients who have missed one or two mortgage payments. They are fearful the sheriff will be knocking on their door to evict them from their home.

Fortunately, Illinois foreclosure laws allow homeowners (through reinstatement or redemption) the ability to retain their home and gives the homeowner who has missed mortgage payments ample time to “save” their home.

What to expect you miss a mortgage payment (do not worry)
Generally, the mortgage lenders, large banks and corporations that do mortgage lending are bureaucracies and are generally unable able to foreclose if you have missed a only a single mortgage payment. This systemic inability to take action is frustrating, but is actually beneficial if you have not made a mortgage payment lately.

At my law firm Thinking Outside the Box Inc. our experience has been that the mortgage company probably will not even notice you until you until you have missed three or four payments, (generally). We often have clients who have missed three to five payments and have had no contact with the lender regarding the missing payments. We have observed that if you miss three or four payments and you will get a letter of default stating you have thirty days before the mortgage company will file a suit for foreclosure.

Next, your mortgage company will task a local law firm to file a lawsuit to foreclose on your home in the state courts.

DO NOT WORRY. You have 90 days to reinstate your mortgage if you are in default or 7 months to redeem your mortgage if you go into foreclosure.

Even if you ultimately lose your home in foreclosure generally you will not have to leave your home for 9 to 12 months from the time you stopped making mortgage payments.

What should I do if I cannot make my mortgage payments or in the near future cannot make my mortgage payments?

Step One: Make the decision
The most important decision to make is “can I afford the home I am living in?” Some of our clients have paid thousands of dollard to their mortgage company only to later lose their home. Be honest with yourself do not throw away your money on a house that you will ultimately lose.

If long term, you will be able to make up the missed payments and keep current on the subsequent payments then you can keep the home… if long term you cannot make up the missed payments and at the same time continue to make the normally scheduled payments then you cannot keep the home.

Step Two: Pick your optimal strategy
KEEP YOUR HOME: If you decide you can keep the home call your lender and make a plan to cure the arrearages. If you need time, you can file a Chapter 13 bankruptcy. Under Chapter 13 bankruptcy the Court forces your mortgage company to let you to make up the missed payments over time (3 or 5 years). Filing a Chapter 13 bankruptcy will also stop the foreclosure process.

GIVE YOUR HOME BACK TO LENDER: If you come to the decision that long term you cannot afford your home, you will have to let it go back to the lender. Since you have already missed some payments the foreclosure process will take its natural course. After you miss three or four payment the lender will file a lawsuit for foreclosure, from the point you are served with the lawsuit Illinois law allows you to continue to live in the home for 7 more months (without having to make a payment). This grace period gives you the time to save money in anticipation of moving.

UNDECIDED WHETHER TO KEEP HOME: If you are undecided whether you can afford to keep your home here is the optimal strategy. It does not make sense to continue mortgage payments if your financial situation is uncertain making you unable to pick one of the previous two strategies. Immediately stop making mortgage payments, but do not stop making payments and spend the money. Stop making payments and put your normally scheduled payments into a savings or checking account. Then if your finances improve take the savings pay off the missed payments and fees and keep your home. If it ultimately turns out that your finances do not improve, allowing you to keep the home, you will have some money to help fund your move and make a deposit on a more affordable rental.

If you are having trouble making your mortgage payments do not be overly concerned. If you miss a payment or a few payments you will not lose your home immediately. Illinois foreclosure law will allow you to reinstate or redeem you home and give you a fair amount of time to do it.

Finally, this article is general foreclosure information based on Illinois Law, however it cannot replace the advice of an experienced bankruptcy attorney who practices law in the state where you live.

Thinking Outside the Box, Inc.
Jon Dowat Attorney at Law
4320 Winfield Road Suite 200
Warrenville, IL 60555
630-225-9840 or 630-780-8474