If you default on your home loan payments in Rhode Island, 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.
Rhode Island 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 Rhode Island, 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 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.
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 mortgages in Rhode Island 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).
Again, most Rhode Island foreclosures are nonjudicial.
Before starting a foreclosure, Rhode Island law requires the lender to provide written notice that it may not foreclose on the mortgaged property without first participating in a mediation conference. This requirement applies to a first-lien mortgage on any owner-occupied, one-to-four unit residential property that serves as the borrower's primary residence. The mediation conference will take place in person or over the phone no later than 60 days following the notice's mailing. You don't have to pay to participate in a mediation conference. (R.I. Gen. Laws § 34-27-3.2).
If after two attempts, you don't respond to the request to appear for the mediation conference, or you fail to cooperate in any respect with the requirements of the program, or if a conference happens and the lender makes a good faith effort, but you can't come to a foreclosure avoidance agreement, the lender may proceed with the foreclosure action after getting a certificate from the mediation coordinator. (R.I. Gen. Laws § 34-27-3.2).
The lender has to publish a notice of sale in a newspaper weekly for three weeks and mail the notice to you at least 30 days before the first publication. (R.I. Gen. Laws § 34-27-4).
The sale is an auction, open to all bidders. The lender bids 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. 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. Rhode Island law doesn't give you the right to reinstate to stop the foreclosure. But many mortgage contracts permit reinstatement of the loan under certain circumstances. Check your loan documents.
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 Rhode Island, a deficiency judgment is allowed following a nonjudicial foreclosure if the lender files a lawsuit.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Rhode Island, however, you don't get the right to redeem the home after a nonjudicial foreclosure.
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.