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This article will provide a brief overview of Iowa Foreclosure laws and any changes made to the Iowa Foreclosure laws that new for 2022.
What is the Iowa Foreclosure Process?
In addition to state laws, Iowa must also follow federal foreclosure guidelines. Iowa laws and federal laws provide the following protections to borrowers:
- Loss mitigation
- Pre-foreclosure notices
- Military protections if you are in active military service
- Receive current past-due amounts
- Pay off the total past due amount of the loan
- Receive notice of the foreclosure case and the ability to attend court hearings; and
- Receive any surplus funds after the foreclosure sale
What happens before the foreclosure?
Once you miss a payment on your mortgage, your servicer will provide a grace period of a certain period of days. Every month you are late, the servicer can charge late fees. This amount will be in your loan documents and mortgage statements.
When you miss your mortgage payments, you are in default of the mortgage agreement.
When the mortgage is in default, many servicers will want to check on the property to make sure it in good condition and can do this by driving by the property.
Servicers can also charge the borrower for broker price opinions (BPOs) and property preservation costs.
As a borrower, you also have special rights under Federal laws regarding loss mitigation. The lender must contact by phone to discuss options like loan modification, forbearance or possible repayment plans no more than 36 days after you are in default of the mortgage agreement. The loan servicer must provide this information in writing no later than 45 days after defaulting on a payment.
Also, it is to be noted that a servicer cannot foreclose on your property while you are working on a loss mitigation application.
What starts the foreclosure process in Iowa?
Federal law permits the foreclosure process to begin more than 120 days that the borrower’s loan is in default. This provides the borrower to apply for loss mitigation with the mortgage servicer.
After that period has expired, the mortgage servicer must send by mail a notice of default and the right to cure the default. The right to cure is to reinstate the mortgage by paying back the default amount. The right to reinstate is a period for at least thirty days before a lawsuit can be filed. Once the reinstatement period has expired, the mortgage servicer will send a demand letter allowing the borrower to repay the loan in full, otherwise the mortgage servicer will not be entitled to collect attorney's fees. Under Iowa law, the borrower should receive notice about foreclosure mediation and counseling.
A judicial foreclosure starts when the mortgage servicer files a lawsuit that requests an order allowing for a judicial foreclosure sale. The borrower must be served with the lawsuit and summons so that the borrower can appear in court. If the borrower fails to appear in court, the judge will enter a default judgment which will allow the borrower’s home to proceed to judicial sale.
It is important for the borrower to appear in court and defend the lawsuit if he or she does not want to lose their home to foreclosure sale. To defend the lawsuit, the litigation process is initiated. If you are a borrower facing foreclosure, it is best to seek advice from an experienced foreclosure defense attorney. The mortgage servicer could ask the court for a motion of summary judgment. This is a dispositive motion that requests the court give judgment in favor of the mortgage servicer because there is no genuine issue of facts. If this motion is granted and a judgment is entered, there will be an order for the borrower’s home to be sold at auction. Notice of the auction will be posted publicly and posted twice in a newspaper at least four weeks before the auction.
At the auction, the mortgage servicer will make a credit bid. This bid can include the total amount owed including fees and costs of the lawsuit. The bid could also be for a lesser amount. It is important to note that in Iowa, the mortgage servicer (the lender) may be the highest bidder, but it is not sufficient to cover the debt owed by the borrower. The lender can then get a deficiency judgment against the borrower. Once the lender makes the highest bid, the property is then considered bank owned or real estate owned (“REO”) .
If the bid is for more than what the borrower owes, the borrower gets the surplus funds after all liens on the property are paid.
Is there a way to stop the foreclosure process?
The first step is to apply for loss mitigation with the mortgage servicer. A borrower might be able to obtain a loan modification or other measures.
A borrower can also reinstate the loan after thirty days after the notice of default is received from the mortgage servicer.
Another option is to redeem the property. This means you must pay off the full amount of the loan to prevent the foreclosure sale of the property. There are some states that have a redemption period, which allows the borrower to buy back the property from the bank. In Iowa, if the bank proceeds with a judicial foreclosure with redemption, the borrower has up to a year to redeem the property back from the bank. Also, the lender will waive the deficiency judgment and the right to redeem is three months if the property is not for agricultural purposes.
A foreclosure without a redemption period, that means that there is redemption period after the sale of the property. There is however the right to redeem prior to the sale. In this situation, even though the borrower cannot redeem the property after the sale, the borrower can ask the court to delay the sale for six months, but if the bank waives the deficiency judgment, the time period is for three months.
Another option to avoid foreclosure is bankruptcy. Filing for bankruptcy a few days before the sale of the property is to occur will stop the sale. There is an automatic stay that the bankruptcy court orders that prohibits creditors from doing certain things, like proceeding to sale in a foreclosure proceeding. There are different options for filing for bankruptcy, so it is best to consult with a bankruptcy attorney to decide which option is the best fit for you.
Although there were no new Iowa foreclosure laws passed for 2022, the law is constantly changing. It is best to follow the changes in the law. If you need help with an Iowa foreclosure, please contact one of our experienced Iowa foreclosure attorneys at www.oflaherty-law.com
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