If you’re struggling to make your house payment in Alabama, you’d be smart to stay vigilant—your lender might sell the home before you realize you’re in foreclosure. Although most homeowners are entitled to the 120-day waiting period required by federal law, once it expires, all the bank must do is publish the foreclosure sale date in the newspaper for three consecutive weeks before selling the house. Also, if the transaction fails to bring enough money to pay off the mortgage, the lender can pursue the homeowner for the difference (and likely drive the owner to bankruptcy). Although Alabama’s foreclosure law might seem harsh, a homeowner can reclaim the home by paying the purchase price, plus certain costs and interest, to the new owner.
(You can learn more about foreclosure by reading Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
When Can the Lender Start Foreclosing?
If you fall behind on your monthly mortgage payments, the lender (the owner of your loan) or mortgage servicer (the company that collects your monthly payment) cannot simply take your home. Before selling the property and using the proceeds to pay off your home loan, the lender must follow certain legal steps in a process called foreclosure. Even so, foreclosure can come with devastating consequences. A federal law which gives homeowners extra time to get back on track after a financial setback went into effect in 2014 to help minimize these problems. Today, a servicer generally must wait until a mortgage loan is more than 120 days delinquent before starting the foreclosure process. After a loan is delinquent for 120 days, the bank can foreclose on the property using the procedure allowed by state law.
(You can learn more about the federal law that slows down foreclosures in Delaying Foreclosure: The Dodd-Frank Act 120-Day Rule.)
Understanding the Foreclosure Process
In Alabama, a bank can choose between one of two foreclosure procedures: judicial or nonjudicial foreclosure. Most foreclosing lenders use the streamlined, less expensive nonjudicial process. Here are brief explanations of both types.
Judicial foreclosure process. A judicial foreclosure proceeding starts when the lender files a lawsuit in the court. If the homeowner fails to respond to the lawsuit, the bank automatically wins and receives a “default judgment.” If the owner decides to fight the action, the case moves into the “discovery” phase, and each side can request evidence from the other participant. The court will decide the case after hearing a summary judgment motion (a motion that asks the judge to find that the other side lacks a triable issue of fact) or trial. If the court agrees with the lender, it will enter a judgment against the homeowner. The judgment gives the lender the right to sell the home at a foreclosure sale.
Nonjudicial foreclosure process. With a nonjudicial foreclosure, the lender does not need to get a judgment from the court before selling the home. Instead, the bank follows procedural steps outlined in state law, and, after completing the steps, sells the property at a foreclosure sale.
(Find out more about the two types of foreclosures by reading What Are the Differences Between Judicial and Nonjudicial Foreclosures?)
Alabama’s Nonjudicial Foreclosure Procedure
Under Alabama law, the lender does not need to notify the homeowner before starting the foreclosure process. The lender must publish the foreclosure sale date in the newspaper for three consecutive weeks, and, after the posting period elapses, the bank is free to sell the home.
Some Alabama mortgage contracts soften state law by requiring the lender to take one additional step—although it’s not much. Before foreclosing, the lender must send a letter advising the homeowner to bring the loan current. The bank can send the notice during the 120-day waiting period required by federal law.
Reinstating the Loan Before the Foreclosure Sale
Alabama law doesn’t allow homeowners to stop the nonjudicial foreclosure sale by paying all missed payments, fees, and costs in one lump sum (called “reinstating” the loan). But, homeowners with the ability to do so should check the mortgage contract (or call the lender). Many contracts give the owner the right to reinstate the loan up to five days before the nonjudicial foreclosure sale.
What Is a Deficiency Judgment?
The amount a home sells for at auction isn’t always enough to cover the outstanding mortgage, and the difference is known as a deficiency balance. In Alabama, the lender can sue the foreclosed owner in a separate lawsuit, obtain a deficiency judgment for the remaining amount, and use common collection techniques—such as taking money out of your bank account (bank levy) or your paycheck (wage garnishment)—to collect the outstanding balance.
Redeeming the Property After the Foreclosure Sale
Alabama allows the foreclosed homeowner to “redeem” the property (get it back) by paying the new purchaser the full sale price plus interest, property taxes, or any insurance premiums paid by the purchaser. How much time the foreclosed owner has to do so depends on whether it’s a homestead property. To qualify as a homestead property, the owner of a residential property must file a homestead exemption in the local county during the tax year that the sale occurred.
(If you’d like to find out about filing a homestead on your property, visit the Alabama Department of Revenue.)
Redeeming a homestead property. If the lender provided the homeowner with a notice of the right to redeem the property at least 30 days before the foreclosure sale, the foreclosed homeowner would have up to 180 days after the foreclosure sale to redeem the property. (This is applicable to mortgages taken out after January 1, 2016.) If the lender failed to provide timely notice, the redemption period would expire 180 days after providing notice. If the bank didn’t provide notice, the foreclosed owner could redeem up to two years from the date of the foreclosure sale.
Mortgages taken out before January 1, 2016. For mortgages taken out before January 1, 2016, the redemption period is one year.
Redeeming a non-homestead property. Homeowners redeeming non-homestead properties have one year from the date of the foreclosure sale to do so.
Forfeiting the right to redeem. If the person who bought the home at the foreclosure sale gives written notice to vacate the property, the foreclosed owner will have ten days to do so or lose the right to redeem the house.
If you are unclear whether your lender correctly followed Alabama’s foreclosure laws, you should contact a local attorney. You’ll find Alabama’s foreclosure laws in the Code of Alabama (sections 35-10-1 to 35-10-30 and 6-5-247 to 6-5-257).
Questions for Your Attorney
- Did the lender properly follow Alabama’s foreclosure law?
- Do I have grounds to fight the foreclosure?
- How much time will I have to move out after the foreclosure sale?