If you default on your mortgage payments in the District of Columbia, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. In past years, foreclosures in D.C. were almost always nonjudicial. But after D.C. started a foreclosure mediation program to go along with the nonjudicial process, lenders regularly began using the courts to foreclose to avoid mediation. Either way, District law specifies how foreclosure procedures work, and both federal and local laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in the District of Columbia, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust, which is similar to a mortgage, is the document that gives the lender a security interest in the property. If you fail to make the payments, the deed of trust gives the lender the ability to sell the home at a foreclosure sale 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 late fee, review the promissory note or your monthly billing statement.
If you skip a few mortgage payments, the servicer will probably send letters and call you to try to collect the overdue amounts. 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 deeds of trust in the District of Columbia have a provision that requires the lender to send a breach letter if the borrower falls behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, say by getting caught up on the missed payments, 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).
In a judicial foreclosure, the lender gives notice of the suit by serving you a summons and complaint. If you fail to answer the court action, the lender can get a default judgment from the court. The judgment will give the lender permission to hold a foreclosure sale.
If you respond to the lawsuit, however, the case will go through the litigation process. The lender might then request the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there’s no dispute about the critical aspects of the case. If the court grants summary judgment for the lender—or you lose at trial—the judge will order the home sold at a foreclosure sale.
In a nonjudicial foreclosure, the lender first mails a notice of default that includes the amount required for you to cure the default (get current on the loan). The lender must also record the notice in the land records. Recording the notice is considered the first official step in the nonjudicial process. (D.C. Code § 42-815).
Along with the notice of default, the lender must include information on the availability of mediation and housing counseling services, including an application for loss mitigation programs and a mediation election form with envelopes addressed to the lender and the mediation administrator. To participate in mediation, the borrower must return the mediation election form to the mediation administrator and the lender no later than 30 days from the date of the form’s mailing. (D.C. Code § 42-815.02).
If you don't elect mediation (or if you participate in mediation but don't work out an agreement with the lender), the mediation administrator will issue a mediation certificate. The lender must then issue and send you a notice of intention to foreclose that includes sale information, and send a copy to the mayor at least 30 days before the sale. The 30-day period starts to run on the date the mayor receives the notice. (D.C. Code § 42-815).
The terms regarding notice of the sale are usually set out in the mortgage or deed of trust. In most cases, the deed of trust requires the trustee (the third party that handles nonjudicial foreclosures) to publicly advertise the sale. The trustee usually accomplishes this by publishing notice of the sale in the newspaper.
The process ends with a foreclosure sale, which is a public auction. 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. In the District of Columbia, you can reinstate up to five business days before a nonjudicial foreclosure sale. Under D.C. law, the borrower can’t reinstate more than once in any two consecutive calendar years. (D.C. Code § 42-815.01). Also, your loan contract might give you the right to reinstate or your lender might agree to a reinstatement.
Sometimes, when a home sells at a foreclosure sale, the sale doesn’t bring in enough money to pay off the full amount owed. The difference between the sale price and the total debt is called a “deficiency balance.” Many states, and the District of Columbia, allow the lender to get a personal judgment (a “deficiency judgment”) for this amount against the borrower.
In Washington, D.C., the lender may sue the borrower for a deficiency judgment after a nonjudicial foreclosure or in the judicial foreclosure lawsuit. (D.C. Code § 42-816).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In the District of Columbia, however, the borrower doesn't get the right to redeem the home after a nonjudicial or judicial foreclosure.
If you’re facing a foreclosure in the District of Columbia, 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.