Q. I hear about home foreclosures happening everywhere, but I don’t really understand how it works. Can you give me some basic information?
A. A mortgage is a loan for a home in which the home itself is the collateral. When a homeowner stops making payments, foreclosure is the method the bank or mortgage holder uses to take the home, auction it and apply the money to the loan. But that’s not all of the story. Read on.
In Maine, home mortgage foreclosure is a type of lawsuit. It starts when a deputy sheriff serves papers on the homeowners and it ends with an auction. It can take as long as 10 months and possibly longer.
The papers served on the homeowner are the summons and complaint. The homeowner gets 20 days to respond to the complaint by filing an “answer” with the clerk of the court. The answer is a chance to dispute the foreclosure. Because there is seldom much basis for dispute, an answer is usually not helpful. But thanks to a recent change in Maine law, the answer is now an opportunity to force the bank into mediation. Because foreclosure mediation is new in Maine, we do not know yet how much it will help. But similar programs in other states have been good for homeowners.
If the homeowner does not file an answer or demand mediation, the bank’s lawyer files papers asking the judge to issue an order allowing it to hold an auction. This is called a “motion for summary judgment and order of sale.” Usually the judge grants the motion and the order is issued. But Maine law makes the bank wait 90 days after this point, a pause called the “redemption period.” The purpose is to give the homeowner one last chance to pay the loan in full and stop foreclosure. Few homeowners are able to do this, of course, so the bank usually goes ahead, runs the legal notices and holds the auction.
Most people assume the bank hires an auctioneer who hangs out a red flag and draws a crowd. Not so. In most cases the bank’s lawyer does the auction in his or her office. People who see the legal notice in the newspaper come and bid. They are looking for a bargain and tend to bid low. Seldom does the auction yield enough money to pay what is due, and the result is the homeowners owe a balance: the remaining principal, interest, the bank’s legal fees and costs such as filing fees and legal notices. This is called a “deficiency,” and it can run to tens of thousands of dollars.
Many people want to know if they have to move out at the beginning of the foreclosure. In most cases the homeowners will not have to move until it is almost complete. Most people will stay on as long as possible and save as much money as they can to pay for moving.
Foreclosure is a very daunting thing for most people and often not the end of the problem. It is important to remember that mediation or bankruptcy can sometimes make a bad situation better. It is always a wise idea to consult a lawyer as soon as you think the bank may be coming after your house.
This column is a service of the Lawyer Referral and Information Service of the Maine State Bar Association. Its contents are a general response to the question and do not constitute legal advice. Questions are welcome. E-mail AAL@mainebar.org, describe your question and note you are a BDN reader. Written questions mailed to “Ask a Lawyer,” Bangor Daily News, P.O. Box 1329, Bangor 04402-1329 will be forwarded to the LRIS.