If you default on your home loan payments in Washington, 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.
Because most foreclosures in Washington are nonjudicial, this article focuses on that process. Washington 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 Washington, 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.
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 deeds of trust in Washington 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).
Again, most foreclosures in Washington are nonjudicial. Here's how the process works.
Before the foreclosure can start, Washington law requires the lender to send most borrowers what's commonly called a "meet and confer" notice. This notice explains your right to meet with the lender or its agent to discuss foreclosure alternatives. If you ask for a meeting, the lender can't issue a notice of default for 90 days from the date of the letter. But if you don't ask for a meeting, the lender can proceed with the foreclosure 30 days after satisfying certain requirements, like trying to contact you by phone. (Wash. Rev. Code § 61.24.031).
The lender or trustee (the third party that handles nonjudicial foreclosures) mails a notice of default to the borrower 30 days before recording or serving a notice of sale. The lender also has to post the notice in a conspicuous place on the property or personally serve the notice of default on the borrower. (Wash. Rev. Code § 61.24.030).
At least 120 days or, in some cases 90 days, before the sale, the trustee will:
The notice of sale must also be published in a newspaper. (Wash. Rev. Code § 61.24.040).
Foreclosure mediation is an alternative dispute resolution process where the borrower, the lender, and an impartial mediator meet to discuss ways to avoid foreclosure. Borrowers become eligible for mediation after the notice of default is issued, and can take advantage of the program up until 20 days after the notice of sale is recorded. (Wash. Rev. Code § 61.24.030). If you fail to elect mediation within this time frame, you and the lender may (but are not obligated to) agree in writing to enter the mediation program. (Wash. Rev. Code § § 61.24.163).
As a prerequisite to participate in mediation, you have to get a referral from a housing counselor or attorney. (Wash. Rev. Code § 61.24.163).
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. 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. Usually, the lender is the high bidder at the foreclosure sale and becomes the property's new owner.
"Reinstating" is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Under Washington law, you get the right to reinstate the loan at any time prior to the 11th day before the sale. (Wash. Rev. Code §§ 61.24.040, 61.24.090).
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. But deficiency judgments aren't allowed following nonjudicial foreclosures in Washington. (Wash. Rev. Code § 61.24.100).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Washington, however, foreclosed homeowners don't get a redemption period after a nonjuducial foreclosure. (Wash. Rev. Code § 61.24.050). (To learn more, see Nolo's article If I Lose My Home to Foreclosure in Washington, Can I Get It Back?)
In Washington, the purchaser is entitled to possession of the home on the 20th day after the foreclosure sale. If you don't leave, the purchaser may file a lawsuit to evict you from the home. The purchaser has a right to summary proceedings to get possession of the property. (Wash. Rev. Code § 61.24.060).
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.