Coronavirus Update: Eligible homeowners in Montana who've experienced a financial hardship because of the COVID-19 pandemic can get a portion of the approximately $50 million allocated to the state from the federal Homeowner Assistance Fund by submitting an application to the Montana Homeowner Assistance Fund program. This program uses federal money to help eligible homeowners make mortgage payments and pay other home-related expenses, like property taxes, insurance, and utility costs. Also, while the COVID-19 national emergency continues, homeowners with a federally backed mortgage loan who're experiencing a financial hardship because of the coronavirus crisis can get a forbearance.
If you default on your home loan payments in Montana, 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. Montana 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 a home in Montana, 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 very similar to a 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.
Many deeds of trust in Montana are what's called "trust indentures" under the state's Small Tract Financing Act (STFA), which is for properties that don't exceed 40 acres. This Act provides the borrower with specific rights, including the right to reinstate the loan before the sale, and prohibits the lender from getting a deficiency judgment after the foreclosure (see below). This type of mortgage may be foreclosed nonjudicially under the STFA. (Mont. Code Ann. § 71-1-304, § 71-1-305).
To find out if the STFA will govern your foreclosure, look at the contract you signed when you took out the loan. Check for the language "Trust Indenture Under the Small Tract Financing Act of Montana." To verify that the STFA applies in your case, talk to a lawyer.
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 deeds of trust in Montana 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).
Most Montana foreclosures under the STFA are nonjudicial.
In a nonjudicial foreclosure under the STFA, the trustee has to record a notice of sale and mail a copy to the borrower at least 120 days before the sale. (Mont. Code Ann. § 71-1-313). The trustee must also:
The sale is a public sale, open to all bidders. 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 a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Under the STFA, the borrower can reinstate at any time prior to sale. (Mont. Code Ann. § 71-1-312).
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.
In Montana, a deficiency judgment isn't allowed after a nonjudicial foreclosure of a trust indenture. (Mont. Code Ann. § 71-1-317). A deficiency judgment is also not permitted in a judicial foreclosure of a trust indenture for an occupied, single-family residence. (See First State Bank of Forsyth v. Chunkapura, 226 Mont. 54, 734 P.2d 1203 (1987), Midfirst Bank v. Ranieri, 848 P.2d 1046 (1993)).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Montana, if the foreclosure is nonjudicial under the STFA, you don't get a right of redemption. (Mont. Code Ann. § 71-1-318).
Under the STFA, the purchaser at the foreclosure sale is entitled to possession of the home on the 10th day following the sale. If the foreclosed homeowner doesn't leave, the purchaser may start a lawsuit to evict the former homeowners. (Mont. Code Ann. § 71-1-319).
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 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.