If you get a loan to buy residential real estate in Ohio, 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.
Ohio law specifies how foreclosures work, and both federal and state laws give you rights and protections throughout the process.
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 monthly 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 bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many Ohio 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).
Approximately half of the states, including Ohio, require the lender to file a lawsuit in court to foreclose. The lender files the suit and gives notice by serving you a summons and complaint. You usually get 28 days to respond by serving a written answer to the lender's attorney and filing the answer with the court within three days of serving it. (Ohio Civil Rule 12(A), 5(D)).
In an Ohio foreclosure, you can request foreclosure mediation, if available. Many county courts offer foreclosure mediation. The mediator helps the homeowner and lender develop a plan that will allow the owner to avoid foreclosure. Potential options include completing a loan modification, short sale, or deed in lieu of foreclosure.
If you don’t file an answer, the lender will ask the court for, and probably receive, a default judgment. 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.
After the judgment, the property is appraised because, in Ohio, the home can’t be sold for less than two-thirds of its appraised value at the foreclosure sale. (Ohio Rev. Code § 2329.17, § 2329.20).
The process ends with a foreclosure sale. Notice of the date, time, and place of sale is published for three consecutive weeks in a newspaper. (Ohio Rev. Code § 2329.27). The sale is an auction, sometimes online, where the public and lender may bid on the property. 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.
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 Ohio, allow the lender to get a personal judgment, called a “deficiency judgment,” for this amount against the borrower.
In Ohio, the lender can get a deficiency judgment against you for the remaining balance as part of the foreclosure lawsuit. But the potential deficiency amount is limited because the home can’t sell at the foreclosure sale for less than two-thirds of its appraised value. (Ohio Rev. Code § 2329.20, § 2329.17).
In most cases, the lender has two years following sale confirmation to collect the judgment. (Ohio Rev. Code § 2329.08).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Ohio, you can redeem the home up until the court confirms the sale. (Ohio Rev. Code § 2329.33).
This article contains details on foreclosure laws in Ohio with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consult with an attorney if you’re facing a foreclosure.
Also, 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 tell you about different ways to avoid foreclosure, too. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.