If you default on your mortgage payments in Alabama, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed. Alabama law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in Alabama, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the monthly late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many mortgages in Alabama have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most Alabama foreclosures are nonjudicial.
In Alabama, the lender has to publish notice of the foreclosure sale in a newspaper for three consecutive weeks before the sale. (Ala. Code § 35-10-13).
While Alabama law doesn't require the lender to notify you in person or by mail about the foreclosure, many mortgages contractually require the lender to send a breach letter, as noted above. Also, if you took out your mortgage on or after January 1, 2016, you'll likely receive a notice about your right to redeem (see below) at least 30 days before the foreclosure sale.
Homeowners facing a foreclosure typically qualify to take part in a statewide foreclosure mediation program. Under Alabama's mediation program, trained mediators help the homeowner and lender work together to try to find a way to avoid foreclosure, often with a modification. To learn more about foreclosure mediation, go to the Alabama Center for Dispute Resolution's website.
The sale is a public auction.
Sometimes, when a home sells at a foreclosure sale, the sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states, like Alabama, allow the lender to get a personal judgment, which is called a “deficiency judgment,” for this amount against the borrower.
If you lose your home to foreclosure in Alabama, the lender might sue you after the foreclosure to get a deficiency judgment. Once the lender gets a deficiency judgment, it may try to collect on it by, for example, going after your paycheck through a wage garnishment or your bank account with a levy.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Alabama law generally gives homeowners one year to redeem the home after a foreclosure sale.
But if you took out the mortgage on or after January 1, 2016, Alabama law provides a 180-day redemption period after the foreclosure sale. This law applies to residential properties on which a homestead exemption was claimed in the tax year during which the sale occurred. (Ala. Code § 6-5-248(b)). (To learn about filing a homestead on your property, go to the Alabama Department of Revenue website.) The lender must mail you a notice about the right to redeem the home at least 30 days before the foreclosure sale. If the lender doesn't provide the notice before the sale, you get 180 days to redeem the homestead property from the date the notice is provided. But under no circumstances may a right of redemption be exercised later than one year after the date of foreclosure. (Ala. Code § 6-5-248(h)).
The redemption period is one year from the foreclosure sale date for non-homestead properties.
If you don't move out of the house within ten days after the purchaser gives you a written demand for possession, you'll lose the right to redeem. (Ala. Code § 6-5-251).
After an Alabama foreclosure sale, the purchaser must give you ten days' notice to leave before starting eviction proceedings.
This article contains details on foreclosure laws in Alabama with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea. You can find the state's foreclosure laws in the Alabama Code in Sections 35-10-1 to 35-10-30, and Sections 6-5-247 to 6-5-257.
How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consult with an attorney if you're facing a foreclosure.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure, or you might have leverage in working out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.