Mortgage Law

From KatrinaLegalRelief

This section addresses questions that disaster victims may have with regard to payment of mortgages. Issues related to homeowner insurance are discussed in the insurance section of the manual. The rights of an individual with a mortgage on his or her home may vary depending on whether the mortgage is with a private institution or is federally-insured or subsidized.

Contents 1 General Law 1.1 What steps should be taken by a disaster victim who is unable to make mortgage payments? 1.2 Can a lender foreclose on a Mississippi home through "power of sale" (non-judicial foreclosure) for nonpayment after a disaster? 1.3 Are there any limits on the right to foreclose through judicial foreclosure? 1.4 What relief is available to an owner of mortgaged rental property? 1.5 For how long may the foreclosure be stopped? 1.6 Other inconsistent state laws are temporarily suspended. 1.7 State law protection does not apply to federal mortgages. 1.8 Other than conventional financing, what types of loans are available to help replace personal property or rebuild a home or business damaged as a result of a disaster? 1.9 Options for relocating and refinancing. 1.10 What steps should be taken to prevent foreclosure of the home of someone who has died? 1.11 General suggestions.

General Law

Borrowers are not excused from making their regular monthly loan payments even if their homes are not habitable due to a natural disaster. When a borrower is unable to make mortgage payments, the holder of the mortgage is typically allowed to foreclose on the home, which means that the home is sold to pay the mortgage. The mortgage may also be called a "deed of trust" if the document includes a "power of sale" provision that can be exercised by the "trustee." In some states, including Mississippi, a power of sale provision allows a lender to foreclose without going to court, by advertising the sale for a certain period of time. If the home sells for less than the outstanding amount of the loan and the fees associated with sale, the borrower may be liable for a "deficiency judgment" for the amount remaining after the proceeds from the sale are deducted from the total amount owed. After an "disaster" is formally declared, however, a mortgage holder's right to an out-of-court foreclosure may be limited.

What steps should be taken by a disaster victim who is unable to make mortgage payments?

Many private mortgage lenders are offering to work out plans with individuals, depending on their circumstances. Some mortgage companies will offer relief in the form of deferment or suspension of payments, waiver of late fees and penalties, suspension of negative reporting to credit agencies, or possible modification of the terms of the existing loan. These provisions will be offered on a case by case basis at the discretion of the mortgage company. It is important for affected individuals to contact their mortgage loan company to take advantage of all relief opportunities available.

Can a lender foreclose on a Mississippi home through "power of sale" (non-judicial foreclosure) for nonpayment after a disaster?

Protection from inequitable mortgage foreclosures is provided under Miss. Code Ann. §§ 89-1-301 through 89-1-329 when a major disaster has occurred. After a state of emergency has been declared by both the President of the United States and by the Governor of Mississippi, a mortgage holder may not foreclose through an out-of-court power of sale by the trustee in the designated counties. To foreclose, the mortgage holder must go through chancery court. Out–of-court foreclosures are automatically enjoined once the affected counties have formally been declared "disaster areas." In addition, if a mortgage holder attempts to proceed with judicial foreclosure, that proceeding may also be enjoined by the court for up to two years. To obtain such relief, the homeowner must file a formal petition opposing the foreclosure proceedings.

Are there any limits on the right to foreclose through judicial foreclosure?

If mortgaged property has been damaged as a result of the disaster, an attempted foreclosure sale may be enjoined by a chancellor who has received a sworn petition asserting that the owners are not able to pay the amount due, and have been unable to refinance the mortgage, and that, because of damage to structures on the property or economic conditions caused by the disaster, the mortgaged property has depreciated in value in an amount that is more than fifteen percent of its fair market value prior to the disaster. Upon receiving a proper petition, the court "shall" issue a preliminary injunction without requiring a bond. No relief is available under this section unless a timely petition is filed by the homeowner.

What relief is available to an owner of mortgaged rental property?

The relief available under Miss. Code Ann. § 89-1-301 et seq. also applies to residential rental property leased to a third party, if the owner has sustained a loss of income in excess of fifteen percent of the average annual income from the mortgaged property for the three years immediately prior to the disaster, and if the owner is making a good faith effort to make the property habitable.

For how long may the foreclosure be stopped?

After a preliminary injunction is issued, the mortgage holder may file a petition to dissolve the injunction so that the foreclosure can proceed. A hearing on that petition must be held within thirty days. At the hearing, the court may enjoin the foreclosure sale for up to two years. However, the court may establish a reasonable monthly value to be paid by the owner to maintain the property and to pay any taxes, insurance and interest on the mortgage debt during this period. At the end of two years, if any past due principal, interest or taxes remain unpaid, the foreclosure sale may proceed. At that time, the mortgage holder may also pursue any deficiency judgment against the owner that may be appropriate.

Other inconsistent state laws are temporarily suspended.

Miss. Code Ann. § 89-1-319 provides that any laws that are inconsistent with the relief available under Miss. Code Ann. § 89-1-301 et seq. are "suspended" for two years after the disaster is declared. This includes a tolling of any applicable statutes of limitation. However, this section also provides that if a mortgage obligation is "renewed" or "extended" by agreement for more than one year after the disaster declaration, or if there is an agreement to pay monthly installments for a period of more than three years, the protections available under these statutes do not apply.

State law protection does not apply to federal mortgages.

Miss. Code Ann. § 89-1-323 provides that the protection afforded under Miss. Code Ann. § 89-1-301 et seq. does not apply to any mortgages held by the United States or any agency thereof. Federal agencies, such as Rural Housing Authority (formerly Farmers Home Administration) typically have procedures through which homeowners may ask for forebearance, a moratorium, or other accomodation on their mortgage payments. The Federal Housing Administration and the Veteran's Administration have asked lenders holding FHA and VA guaranteed loans to establish a ninety day moratorium on foreclosures for those whose property or income earning ability was affected by the disaster. Homeowners should contact their lenders directly to determine what relief is available.

Other than conventional financing, what types of loans are available to help replace personal property or rebuild a home or business damaged as a result of a disaster?

Affected individuals may be eligible for assistance in the form of a low interest loan from FEMA, or a Disaster Assistance loan from the Small Business Administration or Farm Service Agency. The availability of this assistance may be based on factors such as the cost to repair the damage, availability of conventional credit, ability to repay, and any insurance benefits available to you. [See FEMA SECTION.] The deadline for loan applications to the SBA relating to damage to homes, personal property and businesses caused by Hurricane Katrina is October 28, 2005. Timely applying with FEMA for assistance may be a prerequisite to participating in the various disaster relief programs offered by the federal government.

Options for relocating and refinancing.

FEMA, in conjunction with the U.S. Department of Housing and Urban Development, is providing various types of emergency housing for disaster victims. Reconstruction loans are also available for those in the disater areas. Mortgage Insurance for disaster victims is offered by the Federal Housing Administration through Section 203(h), to help disaster victims recover by making it easier for them to get mortgages. This program, which resembles the conventional FHA mortgage insurance program, provides mortgage insurance to protect lenders against the risk of default on mortgages made to qualified disaster victims. No downpayment is required, and borrowers are eligible for 100 percent financing. Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a six percent limitation on seller concessions. HUD also offers the 203(k) program which may include funds in a new mortgage to both refinance an existing mortgage and repair the dwelling.

What steps should be taken to prevent foreclosure of the home of someone who has died?

Federal privacy laws make it difficult for persons other than the borrower to obtain information on a loan. However, if all borrowers on the loan are deceased, most mortgage companies will work with surviving family members. Some items that the mortgage company may require are a death certificate, a copy of a will (if applicable), contact information of the responsible parties, the social security number of the person(s) who will now be responsible for the loan and insurance in the name of the estate or the new borrower(s). Some companies may require that an estate be opened before any changes can be made. Family members should contact the mortgage company immediately to determine their guidelines and requirements.

General suggestions.

Contact Your Mortgage Company as soon as possible regarding your loss. You are not excused from making your regular monthly loan payments even if your home is not habitable. You should discuss forbearance or possible extension or modification of your loan obligations if you are unable to make your payments on time. Contact Your Insurance Company or Agent and file a loss claim as soon as possible. However, do not make a hasty settlement on insurance. If the property appears damaged but repairable, attempt to get a professional engineer or licensed contractor to make an inspection for structural damage. You should also have your lender explain procedures regarding hanndling insurance loss checks for repairs to the property and payment to contractors.