In this article, we discuss the Iowa foreclosure process and answer the following questions:
Facing foreclosure is never easy, but entering the process blindly can make it that much more stressful. If you’re a homeowner in Iowa and having trouble making your mortgage payments, it’s a good idea to familiarize yourself with the foreclosure process before making any decisions. Furthermore, an experienced home foreclosure attorney can help guide you through the process and let you know what option might be the best for your situation.
Federal law requires that a borrower be delinquent on their loan for at least 120 days before the foreclosure process is initiated. For example, if a borrower were to miss two mortgage payments, but then pay the costs of those two months, plus any other late fees, and continue to be up to date on their payments, the borrower would avoid foreclosure.
At least 30 days before filing suit, the lender must mail the homeowner a notice of default and the right to cure the mortgage. The homeowner is not in foreclosure at this point, but if notices from the lender continue unheaded for 120 days, then the lender can legally move forward with the foreclosure. If the reinstatement period has passed, the lender will send the homeowner owner a notice that they have 14 days to pay off the loan. The lender should also send the homeowner information on counseling and possible mediation options to avoid foreclosure. If the homeowner ignores all the notices or simply can’t make their mortgage payment within 120 days, then the lender can officially begin the foreclosure process.
The majority of foreclosures in Iowa are judicial foreclosures, which means the foreclosure process must proceed through the court system. The lender files a lawsuit (a foreclosure petition) with the court that is served to the homeowner. The homeowner can respond (give an answer) or do nothing. If the homeowner declines to answer, the lender wins by default judgment and can move forward with selling the home.
If the homeowner responds, then the home will go through the litigation process for foreclosures. In most cases, if the homeowner is unable to find a way to reinstate the mortgage and the lender is not willing to provide an extended forbearance, the lender will eventually win the foreclosure proceedings, and the home will go up for sale or auction. Notice of the sale will be published in the local newspaper and marketed online. The notice must be given four weeks before the auction of the home.
Some foreclosures in Iowa are nonjudicial. These do not go through court proceedings and usually proceed much quicker than a judicial foreclosure. The borrower must review the mortgage contract to be sure whether it allows for a nonjudicial foreclosure,
Starting after the bank sends the initial default notice, the homeowner enters the “reinstatement period.” During this time, the homeowner can bring the loan current by paying the past-due payments and any late fees. The reinstatement period lasts 30 days from the delivery of the notice, 45 days for agricultural property. Homeowners with one default in the last year and agricultural landowners with two defaults in the last are ineligible for reinstatement. These reinstatement periods are not set in stone. A contract might list an extended reinstatement period, or the bank may agree to let the homeowner bring the loan current after the 30 day period has passed.
Other options to stop the foreclosure process include paying the loan in full, selling the home in a short sale, or filing for bankruptcy. The homeowner should discuss all these options with their lawyer to determine which is best for their situation.
After the reinstate period has passed, there may be options to redeem the home before or after the sale. When a foreclosed home can be repurchased after foreclosure, this is known as the “redemption period.” Judicial foreclosures in Iowa usually come with a redemption period of one year, unless the bank forgoes a deficiency judgment, which would decrease the redemption period to 6 months or 3 months depending on certain circumstances. The redemption period is shortened to 60 days if the homeowner has abandoned the home and other criteria are met.
For homes foreclosed without redemption, the bank must provide a written notice to the delinquent homeowner. In these types of foreclosures, the lender moves to sell the house as soon as the court enters a judgment. The judgment will usually come with an auction date. This period can be extended six months (or 3 without a deficiency judgment) by filing a written demand to delay the sale. However, filing a demand to delay the sale gives the bank the authority to pursue a deficiency judgment against the homeowner. If the homeowner doesn’t file a demand to delay the sale and the property is nonagricultural, a one- or two-family dwelling, and the primary residence the lender cannot pursue a deficiency judgment.
If the lender is awarded a deficiency judgment against the homeowner, and the foreclosure sale price exceeds the borrower’s mortgage debt, then the homeowner will be on the hook for some or all of the remaining balance. Iowa prohibits banks from pursuing a deficiency judgment under certain circumstances, such as when:
When faced with foreclosure your options may seem limited, but even if bringing the loan current in 30 to 60 days is impossible, you still have many avenues that can save your home or at least lessen the overall burden of foreclosure. The critical first step is speaking to a foreclosure attorney.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: