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| Source: BasicGov / License |
The
collapse of subprime, mortgage-backed securities in 2008 led to a widespread
foreclosure crisis brought on by what the media termed the “Great Recession.”
Today, the repercussions of the crisis continue to be felt in courtrooms across
the country even as the economy has largely recovered. As result, people around
the nation have received a crash course in foreclosure law. Homeowners owe it
to themselves to become familiar with their state's mortgage laws, a process
that can often be daunting.
The
History of Foreclosure
Foreclosure
law arose long after mortgages became common. Legal scholars have argued that
virtually every developed society in history has had some form of a mortgage.
In medieval England, mortgages were originally designed under what is known as
the strict title theory, which directed profit and rent to the landowner
without interest to avoid violating usury laws. It was only in the 1500s that
charging interest became socially and legally acceptable. Moreover, mortgagees
had few rights until the 1600s, when the principle of "equity of
redemption" made it possible for mortgagees who had missed payments to
regain the rights to their property by meeting their debt obligations.
Foreclosures
themselves only arose in the 1800s, as English courts began limiting equity of
redemption by imposing restrictions on the amount of time a borrower had to
repay their mortgage debt. By the mid-19th century, foreclosures were developed
as a way for lenders to ask the court to set specific dates for repayment prior
to allowing property rights to revert back to the mortgagor. However, American
independence led to American jurisprudence, and while several efforts were made
in the 20th and 21st centuries to create a federal standard for mortgage laws,
the current legal landscape is one in which each state retains its own legal
process for foreclosure.
The
Foreclosure Process
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| Source: Taber Andrew Bain / License |
While
all 50 states have different foreclosure statutes, foreclosures in the United
States can generally be grouped into three different processes. The most
common, “judicial foreclosure,” is available in all states, although some make
it the primary method. In this process, a failure to pay leads courts to take
over the property and sell it in a public auction. In several states, mortgages
may include "power of sale" clauses in which mortgagors oversee
auctions instead of the courts, a convenience that often saves considerable
time. The third type of foreclosure, “strict foreclosure,” is used in fewer
states and occurs when mortgagees owe more money than the property is worth. In
a strict foreclosure, the mortgagor sues the mortgagee to set a timeline for
repayment, with the mortgagor recovering the property rights immediately upon
failure to repay rather than requiring an auction.
Foreclosure
processes vary by state and cover aspects such as how long borrowers have
before they receive notice or become subject to eviction, as well as a variety
of other issues. In many respects, the processes look very similar. Mortgagors
can begin foreclosure proceedings between three and six months following the
last payment, after which time mortgagees receive a formal notice and a final
timeline for repayment. In many states, debt repayment remains an option until
the auction, although some states offer a limited redemption period after this
point.
How to
Avoid Foreclosure
In
many respects, the easiest way to avoid foreclosure is to avoid taking on a
mortgage that cannot be repaid. However, for many Americans, the loss of a job
or a medical emergency might turn an affordable mortgage into an enormous
financial burden. As soon as you miss your first mortgage payment, it becomes
vital to seek out assistance. Many mortgagors and lenders are eager to avoid
foreclosure, and working with them is vital. Arrangements can be made for
repayment in many circumstances. Furthermore, the U.S. Department of Housing
and Urban Development offers the assistance of housing counselors who can provide
state-specific advice and help mortgagees avoid being scammed by financial
services companies that prey on those in foreclosure.
Luckily,
mortgagees across the nation have received numerous legal benefits thanks to
legislators who have responded to the mortgage crisis of 2008. A wide variety
of new laws were enacted to prevent lender abuse, encourage mediation rather
than civil suits, and create new opportunities for loan modifications. One
federal program, the Hardest Hit Fund, or HHF, offers financial assistance to
those facing foreclosure, while other nationwide laws like the Mortgage
Assistance Relief Services (MARS) protect mortgagees from deceptive practices
through a variety of reforms and rules for companies offering foreclosure rescue
services. Many states have also introduced stringent "ability to pay"
rules to prevent lenders from entering into mortgage agreements with those who
are unable to afford payments.
