As part of an Alabama home loan transaction, a bank usually requires a borrower to sign a mortgage. This document gives the bank the right to sell the home through a process called foreclosure if the borrower does not make the loan payments. The bank uses the proceeds from the foreclosure sale to pay off the home loan. But what happens if the sale price isn’t enough to fully pay off the loan?
If your property sells at an Alabama foreclosure sale for less than you still owe on the mortgage loan, the bank could come after you for the deficiency. Read on to get an overview of Alabama foreclosure procedures and find out more about how banks collect deficiencies after a foreclosure.
Foreclosure Process in Alabama
In Alabama, a bank can foreclose through a judicial or nonjudicial process. In a judicial foreclosure, a bank files a lawsuit in court to foreclose. (Learn more about how judicial foreclosures work.) In a nonjudicial foreclosure, a bank follows a series of out-of-court steps described in the state statutes in order to foreclose. Most of the time, banks opt to use the faster, nonjudicial process in Alabama.
Steps in an Alabama nonjudicial foreclosure. In Alabama, nonjudicial foreclosures move quickly. The only procedural requirement under state law is that the bank must publish information about the foreclosure sale in a newspaper for three successive weeks. After that, the bank can hold the foreclosure sale.
Notices from the bank. Although Alabama law does not require a bank to notify the borrower before starting a foreclosure or as part of the foreclosure process, mortgage contracts in Alabama sometimes require the bank to mail the borrower a letter before the foreclosure begins. The letter usually informs the borrower that if the loan is not brought current by a certain date—typically within 30 days—a foreclosure will start. A mortgage contract in Alabama may also require the bank to provide the borrower with a copy of the newspaper notice. To find out if you’ll receive these notices as part of an Alabama foreclosure, review the mortgage you signed when you took out your home loan.
What’s a Deficiency Judgment?
If a home sells at a foreclosure sale for less than the outstanding balance owed on the mortgage, the difference is called a deficiency. For example, suppose Al owes the bank $150,000. Al fails to make the mortgage payments and the bank forecloses. At the foreclosure sale, Al’s home sells for $125,000. The deficiency is $25,000.
In some states, a bank can ask a court for a personal judgment—a deficiency judgment—against a borrower for the amount of the deficiency. Once the bank gets a deficiency judgment—in the above example, $25,000—the bank may use various collection techniques, like garnishing wages or levying a bank account, to collect the outstanding deficiency balance.
Deficiency Judgments in Alabama
If the sale following an Alabama nonjudicial foreclosure doesn’t bring in enough money to pay off the mortgage, the bank can sue the borrower afterwards for a deficiency judgment.
If you’re facing a foreclosure in Alabama, consider talking to a foreclosure attorney to get advice about your particular situation and to learn about options that might be available to prevent a foreclosure, like a modification, forbearance agreement, repayment plan, short sale, or deed in lieu of foreclosure. If you can’t afford an attorney, consider talking to a HUD-approved housing counselor.