Navigating the Pitfalls of Foreclosure

In this tumultuous economic climate where it seems one minute the experts are saying “We are on the way to recovery!” and the next minute “We haven’t seen the end of this and it could get worse”, much more caution and thought seems to be going into making any kind of decision these days, whether its “Do I buy the generic or the name brand” or “Do we sell the company or wait it out”.  Well, at least in my experience, that seems to be the case these days, and I am not saying it is a bad thing. 

With all the renewed caution in your personal and business life and since foreclosure is still such a hot topic, I thought a blog about the pitfalls and issues in foreclosures might be something of interest.  I will try not to bore you with the mundane, tiny details but keep in mind that every situation is different and very sensitive to the particular facts and that this blog should just be seen as a general informative piece and not legal advice.  

So you have a loan secured by a mortgage on real property located in Alabama and there is no real option or no hope or desire to negotiate a work out.  Maybe you have passed this stage and have been threatening foreclosure for months.  No matter where you are in the process and no matter when the loan gets dropped in your lap, always assume that the person that had it before you (or someone else in the chain before you) screwed it up some how; they forgot to do something, they forgot to file something, they forgot to check something; something wasn’t executed properly.  With that assumption in mind, first you have to check all your documents for correct documentation, execution and recording.  Assuming your documents are in order, order a title search. Well, even if your documents aren’t in order, you still want to order a title search.

Some things on the title that can slow you down?  Junior liens, tax liens and superior liens, to mention a few. Some others? Transfers of the property, transfers of the mortgage, legal descriptions that don’t match your documents.  I have seen a host of different issues recently, including most of these. 

Another thing to look for – is the property in a subdivision or a condominium development?  If so, there will likely be association dues that have gone unpaid for sometime and the association will have a lien (most likely) on the property for the amount of the dues.  Fortunately, there are statutory limitations to the amount of such dues a mortgagee will be required to pay.  Owner’s associations have been taking a hard stance lately regarding their dues, and playing hardball with mortgagees.  Some associations have even found it beneficial to foreclose their liens, which had been a rare phenomenon previously.

Some silver lining to the storm clouds - Alabama is a non-judicial foreclosure state.  So if the title is clean and the foreclosure is “vanilla”, you can have the property in 60 to 90 days. 

Don’t forget about the right of redemption after the foreclosure sale, though.  Alabama has one of the longest redemption periods in the United States – one year from the date of the sale.  A host of parties can redeem the property from the buyer at a foreclosure sale – the borrower, guarantor, spouses, junior lien holders, judgment creditor, etc.  They do have to pay the purchase price paid at the foreclosure sale, plus interest, and “all other lawful charges”.  What is a “lawful charge”?  Let’s just say you shouldn’t add a pool or addition within the redemption period and expect to get the cost of that paid back to you as part of the redemption.

There are a whole host of other issues to consider - multiple mortgages on the same property held by the same mortgagee, deficiencies and appraisals, multiple parcels under the same mortgage, selling the property in lots versus as a whole, and the list goes on and on.  So remember, each situation has its own unique set of facts (I seriously have yet to see any two foreclosures that were exactly alike), and I highly encourage you to seek competent legal counsel before beginning any legal process.