You don’t need to worry that the bank will foreclose on your house as soon as you miss a house payment. Federal law requires the bank to wait 120 days before starting a Vermont foreclosure (or a foreclosure in any state, for that matter). After the waiting period expires, the bank can proceed using one of the two procedures allowed under Vermont law: strict foreclosure or foreclosure by judicial sale. In this article, you’ll discover more about these two types of foreclosure, as well as about rights that might help you stay in your home.
(You can find valuable information about foreclosure in Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
Federal Law Provides a Pre-Foreclosure Waiting Period
Federal law requires the loan servicer (the company that manages the borrower’s monthly payments) to hold off on the foreclosure process until the mortgage payment is more than 120 days delinquent. This pre-foreclosure period gives homeowners a chance to reinstate the loan (get current) or apply for another way to avoid foreclosure, such as by completing a mortgage modification. If the borrower applies for a foreclosure alternative (called “loss mitigation” in the loan industry) during the 120 days, the servicer cannot start foreclosing under state law until after:
- informing the borrower of a failure to qualify for a loss mitigation alternative (and the appeal period expires)
- the borrower turns down the loss mitigation option offered, or
- the borrower fails to follow through with the terms of a loss mitigation agreement.
(You can learn more about the 120-day period that helps homeowners recover from a financial setback and stay in the home in Delaying Foreclosure: The Dodd-Frank Act 120-Day Rule.)
Vermont Foreclosure Procedures
Unlike many other states, Vermont doesn’t have an out-of-court foreclosure system. Instead, both available foreclosure methods—foreclosure by judicial sale and strict foreclosure—must proceed through the court system.
Foreclosure by Judicial Sale
The bank initiates this type of foreclosure by filing a “complaint” in the court and serving it on the borrower. If the homeowner doesn’t file a response to the action, the bank will likely receive a judgment and win the case. However, if the borrower answers the suit, the case will move into the litigation process, and each side will have an opportunity to request evidence from the other. The court will consider the evidence and determine the winner. If the bank prevails, the court will enter a judgment stating that the bank can sell the property to repay the debt if the home isn’t redeemed within a particular time (see below for further details). After receiving the judgment, the bank must mail a notice of sale to the borrower and publish the notice in a newspaper.
A strict foreclosure and foreclosure by judicial sale follow the same basic process (complaint, judgment, redemption period). However, the bank won’t sell the house at a foreclosure auction. Instead, if the foreclosed-upon homeowner fails to redeem within the time set, the court will issue a certificate that transfers the home directly to the foreclosing bank. This type of foreclosure is allowed only if the judge determines that the mortgage debt exceeds the value of the home.
(You can avoid foreclosure and keep your house. Learn how in Secured Claims in Chapter 13 Bankruptcy: Can I Catch Up on My House or Car Payment?)
In Vermont, a foreclosed-upon homeowner can redeem the home (get it back) by paying the outstanding mortgage loan plus all costs and expenses incurred as a result of the foreclosure.
Foreclosure by judicial sale. The borrower gets six months from the date of the foreclosure decree to redeem the home (unless the court shortens the time). If the borrower doesn’t redeem the house within the redemption period, the sale can proceed. The borrower can redeem before the sale takes place.
Strict foreclosure. The borrower gets six months from the date of the foreclosure decree to redeem in a strict foreclosure. However, the court can order a shorter redemption period, or the borrower and the foreclosing bank can mutually agree to shorten the time.
Mortgage Reinstatement Right
When allowed, a borrower can stop a foreclosure by getting caught up on or “reinstating” the loan. Vermont law gives the borrower the right to reinstate the mortgage after the redemption period expires, but before the sale, if both the borrower and the bank agree to it.
Deficiency Judgments in Vermont
When the bank sells a property at the foreclosure sale for less than the borrower owes, the remaining balance is called the “deficiency.” Under Vermont law, the bank can ask the court for a deficiency judgment that allows the bank to recover the outstanding amount as part of a foreclosure by judicial sale.
The bank can also get a deficiency judgment following a strict foreclosure if it files a separate lawsuit. However, in a strict foreclosure, the deficiency amount is the difference between the mortgage debt and the fair market value of the home.
Vermont’s Foreclosure Laws
Vermont’s foreclosure laws are in the Vermont Statutes (Title 12, sections 4941 through 4954).
Questions for Your Attorney
- Will the bank foreclose by judicial sale or strict foreclosure?
- What foreclosure alternatives will allow me to keep my home?
- What are the benefits of filing for bankruptcy?