Update: Eligible homeowners who've experienced a financial hardship because of the coronavirus pandemic can get a piece of the approximately $168 million allocated to the state from the federal government—up to $35,000 per household—through the Indiana Homeowner Assistance Fund program. This program uses federal money to help homeowners make mortgage payments and pay other escrowed home-related costs, like homeowners' association fees and property taxes.
Also, while the COVID-19 national emergency continues, homeowners with a federally backed mortgage loan, regardless of delinquency status, who're experiencing a financial hardship due directly or indirectly to COVID-19, can get a forbearance.
If you default on your mortgage payments in Indiana, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. Approximately half of the states, including Indiana, require the lender to file a lawsuit in court to foreclose. State 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 Indiana, 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. In most cases, 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 Indiana 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).
If the home is your primary residence, the lender must mail a preforeclosure notice not later than 30 days before filing a lawsuit to foreclose with the court. The notice has to:
Again, Indiana requires the lender to file a lawsuit in court to foreclose. The lender gives notice of the suit by serving you a summons and complaint. In most cases, you'll then get 20 days to file a written response with the court.
If the home is your primary residence, the summons must include a notice about your opportunity to participate in a foreclosure settlement conference to try to work out an alternative to foreclosure, like a loan modification. You get 30 days after service of the complaint to request a settlement conference. (Ind. Code § 32-30-10.5-8).
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. But if you respond to the lawsuit by filing an answer, 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 case's critical aspects. 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.
But before a property can be sold at a foreclose sale, the sheriff (the party that conducts the sale) must post a notice of the sale at the courthouse and advertise the sale in a newspaper for three weeks with the first advertisement occurring at least 30 days before the sale. The sheriff must also serve a copy of the notice of sale to you (the homeowner) at the time of the first advertisement. (Ind. Code § 32-29-7-3).
The process ends with a foreclosure sale. The lender usually makes a bid on the property using 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. Sometimes the lender bids the full amount of the debt, sometimes it bids less. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when the borrower brings the loan current by paying the missed payments of principal and interest, plus fees and costs. Completing a reinstatement will stop the foreclosure.
In Indiana, if you reinstate before the court enters judgment, the foreclosure must be dismissed. But if you reinstate after judgment, but before the sale, the foreclosure must be stayed (postponed). The foreclosure can proceed if you subsequently miss another payment. (Ind. Code § 32-30-10-11).
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 Indiana, allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
Generally, deficiency judgments are allowed in Indiana. But you might be able to avoid one. Indiana law usually requires a three-month waiting period between the time that the lender files the lawsuit and the order of sale. (Ind. Code § 32-29-7-3). If you waive the waiting period with the lender's consent, then the lender can't get a deficiency judgment. (Ind. Code § 32-29-7-5).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Indiana, however, the homeowner can't redeem the property after a foreclosure sale. (Ind. Code § 32-29-7-13).
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.