Many homeowners who are struggling with paying their mortgage are fearful that on any given day the Sheriff will show up on their doorstep with a piece of paper telling them that they are in default and need to vacate their homes. They are afraid this will happen without any warning and that it could happen at any time. Nothing could be further from the truth. This article will review the foreclosure process in Maine and give you some assurances that there are viable options for homeowners who face foreclosure. Things are not as bleak as they seem.
The first step in the foreclosure process is to be served with a Notice of Right to Cure letter by the lender or the lender's representative. Depending on the terms and conditions of the mortgage, it will be served by either certified mail or regular mail. This letter must state certain items as provided by the mortgage document itself and by Maine law, more particularly 14 M.R.S.A. S6111. The notice must state that you are behind in your mortgage, the extent of the arrearage (how much you owe), and that unless you pay the outstanding amount within a specified number of days (usually 35), the lender will begin foreclosure proceedings. It must also advise that you have certain rights, that you can raise defenses in any foreclosure proceeding brought by the lender and that if the lender is ultimately successful, your house can be sold at a foreclosure auction sale. Unfortunately, few homeowners are in the position where they can write out a check representing the amount that they are behind. The lender will usually not accept anything less than the total amount due. The process of dealing with the lender can be very frustrating to the homeowner as they cannot get a straight answer from anybody on the telephone.
Homeowners often receive many letters during the months prior to commencement of a foreclosure. The official Notice of Right to Cure from the lender is usually labeled as such and it is followed shortly after with an information package from the State of Maine. The package from the State will notify you of your rights and identify the various agencies that can help you try to keep your home. You will be given a list of financial counselors who can talk to you and help you fill out financial forms which you will eventually need to provide to the court.
The actual foreclosure litigation process starts with a formal Complaint for Foreclosure. This is a court pleading that will be served upon you by a Constable or Deputy Sheriff. You will receive a Complaint for Foreclosure, a Summons, and most importantly, a blank answer and request for mediation form. It is vital that you do not ignore these documents and that you examine and read carefully the answer and request for mediation form. This is a very simple form that provides you with check boxes. You must indicate that the property being foreclosed upon is your primary residence and that you would like to have mediation. If there is even the slightest possibility that you can hang on to your home or that you may qualify for any loan modification, you must check the box requesting mediation. At the very least, this will allow you to stay in your home for many more months while the process continues. Once you fill out the form, there is usually an envelope provided so that you can file the original form with the Court and send a copy of the form back to the lender's attorney. The complaint will sometimes have attached to it a copy of the promissory note, mortgage, any assignments and the Right to Cure letter. It is important that you save these documents.
Maine law provides that after you file the answer with the Court requesting mediation, you will be notified by the Clerk of Courts to attend an "informational session". These sessions are generally held at courthouses although they might not necessarily be held at the courthouse nearest to where you live. You must attend this informational session. The goal of this informational session is to explain how the foreclosure diversion program works, what steps will be followed, what rights you have and what resources you have to help you through this process. The Maine Foreclosure Diversion Program represents an outstanding piece of legislation which was implemented at the beginning of 2010 and is designed to slow down the foreclosure process and to enable more Mainers to keep their homes. At the conclusion of the informational session, you are usually given information as to the date of your foreclosure mediation. If you have not already received the financial forms from the lender, you may receive them at this point. You should also receive a form that instructs you to file your financial information with the Court by a specific date. It is important that this form be filed with the Court on time, as failure to do so could jeopardize your right to have mediation.
The financial forms can be very difficult for homeowners to fill out. You should seek assistance from one of the free services that are identified at the informational session. Do not be shy about contacting the agencies to seek help to put your financial forms together. The more completely and accurately you can fill out these forms the better chance a lender will consider you for a home modification loan either under the HAMP program or under the lender's internal modification process.
Lenders will usually request information showing your income and your expenses. They will want proof of income and bank statements for several months. If you or your spouse are self-employed, they will want profit and loss statements from your business. Your lender will want at least one or two years of tax returns. It is important to start gathering this information as soon as possible so that you or your attorney can provide it to the lender in a timely fashion. It is not unusual to have parties go to mediation and have the lenders say that they cannot provide a modification plan because they have not received all the information they need or have not received all the information early enough to review it before mediation.
Mediation is usually scheduled to be held at the local courthouse. The homeowners and their attorney usually attend, sometimes with a financial advisor. Also at the mediation is an attorney for the lender and, of course, the mediator. Sometimes the attorney for the lender is the same attorney who has been handling the foreclosure all along. Sometimes however, if the foreclosure is being handled by a large firm from out of state, they will contact a local attorney to sit in for them at the mediation. The other person involved in the mediation is a representative from the lender, or the loan servicer who has the authority to engage in discussions and perhaps even offer some sort of loan modification. In nearly all cases, this representative of the lender attends the mediation by telephone.
The mediator will usually get things started by reviewing his or her preliminary calculations that are based on the information that has been provided by the homeowner and the lender. The lender's information will contain things such as the original amount of the loan, the interest rate of the loan, the amount due, the amount outstanding, and the fair market value of the home. The mediator will take all of these calculations and put them through a program on his or her computer which is known as the Net Present Value Test. The analysis helps determine whether or not the homeowner qualifies for any sort of modification and whether it is in the best interest of the lender to pursue a modification. Often times mediators will point out to the lender that should they not offer a modification, that outstanding interest on the house will continue to accrue, fees will be paid by the lender for inspections, insurance, taxes, etc. and will calculate how much will ultimately be owed by the time they can complete the process and have a foreclosure sale. These calculations often confirm that any foreclosure sale will result in a significant shortfall to the lender. If there is any way to keep the homeowner in the house, it is usually in the best interest of the lender.
Normally the first part of the mediation will cover whether or not, based on the calculations, the homeowners will qualify for a HAMP mortgage (Home Affordable Modification Program) or loan modification. If you qualify for the HAMP program and the lender is willing to offer a HAMP loan modification, that will be discussed at mediation. In the best of circumstances a new lower payment will be proposed. If the homeowner accepts the revised payment schedule, a trial modification will be pursued. If it is determined that a HAMP loan modification is not possible, then the lender will usually consider doing a non-HAMP related, or internal, loan modification. The lender will then take the information provided by the borrower and run it through their own programs to see if anything can be offered.
There are various loan modification options that can be offered by the lender. Sometimes interest rates are lowered to as low as 2% for a certain amount of time, and then will rise perhaps another percent and then eventually rise to a higher amount and cap at a certain amount which is generally based on the prevailing market rates. Lowering the interest rates will sometimes, but not always, result in a lower monthly payment for the borrower. Whether or not a lower payment can be achieved will depend on whether the lender is willing to extend the term of the loan beyond the original term or forgive some portion of accrued interest or fees. Even if a loan modification does not result in a lower monthly payment, but simply leads to reinstatement, this may be attractive to borrowers who have had temporary disruptions in their income due to layoff or injury. A previously uncooperative lender who would not take partial payments when the homeowner first had financial problems may now embrace a loan modification that places missed payments into the outstanding debt.
Any loan modification that is offered by the lender at mediation is typically set up on a trial basis. The new loan payment amount is determined and the borrower is expected to prove themselves for a period of three to six months. Once the borrower has shown that they can make those payments on the temporary loan modification, the lender will convert that to a permanent loan modification and the parties can proceed with the new terms and conditions. At that point, the foreclosure proceeding is dismissed, the borrowers continue to pay their mortgage as if they have not been in default, and they get to stay in their homes for hopefully many more years. These types of arrangements represent the best part of the foreclosure diversion program.
While the mediation process will sometimes result in an immediate modification, this is the exception rather than the rule. Sometimes, the previously submitted financial information shows that there is no reasonable possibility of any type of loan modification because the homeowner does not have enough income to support any viable modification. If this is the case, the mediation is terminated and a report is filed with the court indicating that no modification was possible.
Court Trailing Docket
Once the mediation process has been completed and a final mediator's report is submitted to the Court, the case is placed back on the regular civil docket. It is at this point that the lender will sometimes file a motion for summary judgment. if this happens the homeowner then has only 21 days to file an answer to that motion. If the borrower has an attorney who is experienced with foreclosure defense issues, he or she can often times find deficiencies in the lender's paperwork that can defeat the motion for summary judgment. In extreme cases, the borrower's attorney can find the mistakes made by the lender that are so significant that summary judgment can be granted in favor of the homeowner. It is at the motion for summary judgment that an experienced attorney can be of great use to their clients in the foreclosure proceeding. In recent years it has become so difficult for a lender to win a motion for summary judgment that they are now not filing these motions and rather proceeding directly to trial.
in order to get a judgment of foreclosure the lender will have to convince the court that the homeowner borrowed money for their home, signed the promissory note and mortgage, and then defaulted on the note and mortgage by not making payments. The lender must also prove that it followed all of the terms and conditions of the note and mortgage, that it complied with state and federal statutes and regulations, that the homeowners were properly sent the Notice of Right to Cure and that the notice included all necessary information. The lender must prove that it has fulfilled its responsibilities by fully disclosing to the homeowners their rights. Since the Greenleaf decision by the Maine Law Court the bank must specifically prove that it owns the mortgage and possesses the promissory note. This has become difficult for banks to do since many mortgages were assigned by Mortgage Electronic Recording Services (MERS) and those assignments are usually not valid. If the lender prevails and proves all that it must prove the court will enter an order finding that the foreclosure should occur and a sale be scheduled at some date after the ninety (90) day redemption period.
in many cases that are pending the lenders are finding that they simply cannot sucessfully foreclose on the mortgage they hold because of problems with MERS assignments. In these cases they are looking dismiss complaints or are holding off on filing foreclosure complaints until they can figure out how to get around the MERS assignment issues.
It is now the law in Maine that if the lender fails to prevail in the foreclosure proceeding, or sometimes in a portion of the foreclosure proceeding, that it may be ordered to reimburse the borrower for some or all of their attorney fees. (Title 14 M.R.S.A. S1601.) This drastically impacts the bargaining positions of both parties. In the past the lender would collect its attorney fees from the homeowners based on the mortgage and note provisions that specifically authorized the lender to be reimbursed. There was nothing in either document that authorized reimbursement of homeowner's legal fees if the lender initiated a foreclosure but failed in its attempt. The new statute changes this equation and forces the lender to carefully consider whether they are likely to win a foreclosure action before starting one. The net result of the new law may be to give distressed homeowners more time to stabilize their income, negotiate a better deal with a lender, attempt to sell or short sale, or simply to consider other options.
Court decisions have also given debtors reason for hope. A recent Law Court decision has indicated that it may be difficult or impossible at times for the foreclosing Plaintiff to prove their case in cases where there has been an assignment of the mortgage from MERS. Lenders are having difficulty proving that they have the right to foreclose and how much is owed on the mortgage. In addition in their notice of right to cure they must now specify exactly how much the borrower must pay to reinstate the loan. This decision has put even more pressure on banks to reach some kind of settlement with homeowners. Lenders are continually trying to find a way around the Greenleaf decision but have yet to do so. Until they do homeowners will have some bargaining position to work out a settlement that avoids a traditional foreclosure.
A deed in lieu of foreclosure is a process whereby the borrower simply signs a deed transferring the property back to the lender without a need for a foreclosure judgment. The lender then sells the property at a later point. Lenders will accept deeds in lieu under only certain circumstances. If there are any other mortgages, tax liens, attachments, or judgment liens, lenders are not likely to accept a deed in lieu because they would then own the property subject to all the secondary encumbrances. This obviously makes it harder for the lender to subsequently resell the property. Lenders usually insist that the properties must have been actively marketed for at least three months before they consider a deed in lieu. While terms and conditions will vary, standard provisions indicate that upon sale by the lender, any shortfall between the sale price and the amount owed by the original homeowner is forgiven. This can be an attractive option for a borrower who simply wants to get rid of the property and not have to pay back the lender all the money owed.
Another option that is available to the parties is to have the homeowner agree to the foreclosure order being entered and waiving the 90 day redemption period and the lender waiving the right to pursue the borrower for a deficiency from the sale. Keep in mind that even after the foreclosure judgment is entered, the homeowner still has 90 days to "redeem" their interest in the property by paying the lender everything it is owed. During the 90 day redemption period the homeowner can sell the property, refinance it, or raise the money through family, friends or otherwise ...so long as the lender is paid in full. Because the borrower has this right, the lender cannot sell the property until at least 90 days have passed after the foreclosure judgment. Once the 90 days are over, the lender must publish a notice of intent to sell in the newspaper, typically on three separate occasions. These notices will indicate to the public the time, date, and place of the foreclosure sale.
From the lender's perspective, this approach offers many advantages. The process is much faster. There is no risk of losing at the motion for summary judgment or the trial level. Legal fees are substantially less. The 90 day redemption period is waived by the homeowner. The rights of secondary lien holders (home equity lines, tax liens, attachments, etc.) are essentially cut off and the property can be sold at the foreclosure auction without concern about these potential claims. A homeowner who enters into an agreed upon judgment gets some benefits as well. While they must get out of their home sooner, they reduce their potential legal fees, remove uncertainty and relieve themselves from the stress of the litigation process. The lender saves substantial time and money, and therefore most lenders are more open to waiving any shortfall which might occur from the auction sale of the property. Remember, however, that forgiveness of debt whether in a deed in lieu or agreed judgment may have tax consequences for the borrower. We recommend that individuals contemplating any agreement involving forgiveness of debt consult with a tax expert.
In another variation on the theme, some lenders are now willing to consider a "cash for keys" option. This usually amounts to lenders paying money to homeowners to get their cooperation. No matter how the payment is characterized (relocation expenses, moving fees, etc.) the homeowner gets money in exchange for a deed in lieu or an agreed upon foreclosure judgment. At the very least, it is ironic that the lender gives money to a homeowner who has not paid his mortgage in years.
The lender is essentially betting on a sure thing, avoiding the time and expense of litigation, getting the homeowner out quicker, selling the property sooner and cutting their losses. The payment of $1,000.00 to $5,000.00 (or sometimes more) is viewed by the lender as a smart business investment. From the homeowner's perspective, the benefits are obvious. They get money to help them relocate. They move on from a house they can no longer afford. They can deal with their own attorney's fees. They get a fresh start. Again, please keep in mind that there may be tax consequences to your receipt of "cash for keys" and you should therefore speak to a tax professional.
For many people the most important question has little to do with strategies and legal arguments, but rather has to do with the most simple of questions: How long will I be able to stay in my house? There are no hard and fast rules. Every lender handles matters differently. Even individuals within a particular mortgage company move at different speeds.
Once you are behind in your mortgage, you will probably be receiving telephone calls and letters on a regular basis. The notice of right to cure will usually be forwarded to you when you are 60 to 90 days behind on your monthly payments. You automatically receive at least a 35-day period in which to cure the arrearage. If you fail to cure the arrearage, the next step is being served with the foreclosure complaint and summons. Unlike the initial notice, which is usually generated by the lender, the complaint and summons must come from a lawyer. You may be served as soon as 35 days after the end of the right to cure period, but it may take as long as six (6) months before the complaint and summons reach you. Usually service is accomplished within the first three (3) months after the notice of right to cure has been given to you.
The homeowner has twenty-one (21) days to file their answer to the complaint. If you request mediation the court is required to schedule an "information session" prior to the mediation being conducted. You will usually receive notice of that within thirty (30) days of the filing of your answer. The information session is generally going to occur within the next 30 to 60 days. After the information session the mediation will be scheduled usually within 60 days. . While in some cases a single mediation will be sufficient, in other cases more information is needed from one side or the other. Some cases need 3 or more mediation sessions and can drag out for many months.
After the mediation, if no agreement has been reached, the case will be returned to the court docket. The court will issue a scheduling order which will establish time limits for parties to file discovery requests and other pleadings. the court will usually allow at least 6 months for the filing of discovery or motions. Once that period has expired the court will conduct a pretrial/status conference to see if the case is ready to be scheduled for trial. Assuming it is ready a trial will not take place for anywhere from two to six months, depending on how busy that court is. If a trial is conducted and the lender wins the borrower still has another three months to pay the amount owed before a foreclosure sale can be scheduled. Once that three month period has expired it will still take another month or more to actually schedule the sale.
The bottom line is that this process will usually take at least a year and a half and oftentimes longer if you have an attorney fighting for you. There are a lot of steps along the way and there are a lot of mistakes that can be made. We therefore recommend that you hire an experienced lawyer to help you through this process.
There are a lot of cases out there and a lot of attorneys representing borrowers in distress. Like in any other area of law these attorneys possess varying degrees of skill and knowledge. To truly get the best representation you need to hire an experience attorney who understands the system and all options available to you. Attorney RobertGuillory has been representing borrowers in these types of cases for many years and has been at the forefront of developing new defenses which are proving successful. He is a member of the Maine Attorneys Saving Homes (MASH) group who work together and exchange ideas and strategies to give their clients the best representation available. Give us a call at (207) 470-0230 for a free consultation or send us an email at firstname.lastname@example.org with your questions and we will get back to you with some answers.
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