If you default on your mortgage payments in Delaware, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. Delaware law specifies how foreclosures work, and both federal and state laws give you rights and protections throughout the process.
If you get a loan to buy residential real estate in Delaware, 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. If you fail to make the payments, the mortgage provides the lender with the right to sell the home at a foreclosure sale to recoup the money it loaned you.
If you miss a payment, the servicer can usually 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 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 Delaware mortgages 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. But 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).
Before initiating a foreclosure lawsuit, the lender has to mail a 45-day notice of intent to foreclose if the home is an owner-occupied residential property that’s one to four units. (Del. Code Ann. tit. 10, § 5062B).
To officially start the foreclosure, the lender files a lawsuit in court and gives notice of the suit by serving you (the borrower) a summons and complaint. A separate notice is also posted on the door of the home. You get 20 days to respond to the suit. If you fail to respond, the lender will most likely get a default judgment (an automatic win), and the court will issue an order allowing the lender to sell the property. (Del. Code Ann. tit. 10, §§ 5061, 5063).
Along with the summons and complaint, the lender must give eligible homeowners a notice about Delaware’s Automatic Residential Mortgage Foreclosure Mediation Program. This requirement generally applies to owner-occupied, one- to four-family primary residential properties. (Del. Code Ann. tit. 10, § 5062C).
Under Delaware law, you’re entitled to a notice of sale ten days before the day of sale. The notice of sale must also be publicly posted, as well as published in two local newspapers for two weeks before the sale. (Del. Code Ann. tit. 10, § 4973).
The process ends with a foreclosure sale. The lender usually makes a bid on the property using what’s called a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower’s debt. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure. Delaware law doesn't provide the borrower with the right to reinstate before the sale. But the terms of your mortgage contract might permit you to reinstate the loan, or the lender could agree to a reinstatement.
Sometimes, a foreclosure 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, including Delaware, allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In Delaware, the lender may get a deficiency judgment by filing a separate lawsuit against you after the foreclosure.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Delaware law, though, doesn’t provide a post-sale redemption period. But the borrower has up until the court confirms the foreclosure sale to pay off the full amount of the outstanding debt and keep the home. (Del. Code Ann. tit. 10, §§ 5065, 5066).
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 to work out an alternative. Consider talking to a local foreclosure attorney or legal aid office 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.