If you default on your mortgage payments in Iowa, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. State law specifies how foreclosures work—usually, the lender files a lawsuit in court—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 Iowa, 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 Iowa 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).
For most Iowa foreclosures, the lender files a lawsuit. First, though, the lender has to mail a notice of default and right to cure at least 30 days (45 days for agricultural properties) before filing the suit. (Iowa Code § 654.2D, Iowa Code § 654.2A). Once the cure period ends, the lender will send a demand letter that gives 14 days to pay off the loan, or it can't qualify to get attorneys' fees. You'll also get a notice about counseling and mediation, if available. (Iowa Code § 654.4B).
The lender officially begins the foreclosure by filing the lawsuit (a petition) in court and then serving you a summons and a copy of the lawsuit paperwork. 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 the case's critical aspects aren't in dispute.
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. Notice of the sale is posted publicly and published twice in a newspaper, with the first publication at least four weeks before the sale happens. (Iowa Code § 626.75).
At the 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 property's new owner.
"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.
As noted earlier, for nonagricultural one-family or two-family dwellings, which are the borrowers' residence, the lender has to give 30 days to cure the default before starting the foreclosure lawsuit. For agricultural properties, it's 45 days. But Iowa law states that you don't get the right to reinstate if the lender gave you:
Your mortgage contract might also give you the right to reinstate the loan after the deadline given in the notice of the right to cure the default expires. To find out whether your mortgage gives you a more extensive right to reinstate, read your mortgage contract. Even if the mortgage doesn't provide you with a longer time to reinstate, the lender might nevertheless agree to let you reinstate.
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 allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower. Other states prohibit deficiency judgments with what are called anti-deficiency laws.
In Iowa, the foreclosing lender isn't allowed to get a deficiency judgment in some situations, like when:
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Iowa, you can redeem your home after losing it in a foreclosure, but only under certain circumstances and for a limited amount of time.
In Iowa, the redemption period after a judicial foreclosure is generally one year from the date of sale. (Iowa Code § 628.3). But if the lender forgoes a deficiency judgment, the property is less than ten acres, and the terms of the mortgage allow for it, the redemption period can be reduced to six months or three months depending on the circumstances, or 60 days if you permanently move out of (abandon) the home. (Iowa Code §§ 628.3, 628.26, 628.27).
If the foreclosure pertains to nonagricultural property and is without redemption (meaning, without a post-sale redemption period), you'll get a notice saying so along with the petition for foreclosure. (Iowa Code § 654.20). In this type of foreclosure, the sale takes place immediately after the court enters a judgment in the foreclosure case unless you file a written demand to delay the sale. In most cases, if you file a written demand, the sale will be delayed for six months (or three months if the lender waives a deficiency judgment in the foreclosure lawsuit). You can redeem during this time, before the sale happens. If you don't file a written demand to delay the sale and if the property is your residence and a one- or two-family dwelling, then the lender can't get a deficiency judgment against you. (Iowa Code § 654.20).
So, depending on the circumstances, the downside to filing a demand for delay of sale is that the lender could go after you for a deficiency judgment when it might not otherwise be able to. You might want to consider consulting with an Iowa attorney to discuss the pros and cons of asking for a delay of sale and risking a deficiency judgment if the lender doesn't waive the deficiency judgment in the petition.
To be eligible for a six-month or three-month delay of sale, the home must be:
If the property isn't your residence or is your residence but not a one-family or two-family dwelling, you can delay the sale for two months from when the court enters judgment. A deficiency judgment may be entered against you, even if you don't file a written demand to delay the sale in this situation. (Iowa Code § 654.20).
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.