FORECLOSURE IN VERMONT

The Good, the Bad, and the Ugly

Judicial Foreclosure Process

In Vermont, Bank CANNOT take away a primary residence without going through court process

The average length of a foreclosure case is about 8 months Homeowners have options to save their home until the home is sold at foreclosure auction

Basic Procedure
I.

II.
III. IV.

V.

VI.
VII.

Summons & Complaint Defendants Answer Default/Summary Judgment Motion Judgment Order & Decree of Foreclosure Redemption Period Certificate of Non-redemption Foreclosure Sale

Summons & Complaint

Must be served (usually by Sheriff) on the homeowner or by leaving with another resident New rule requires Notice to Homeowner with information about free resources

Vermont Homeownership Centers Vermont Department of Banking, Insurance, and Health Care Administrations (BISHCA) Mortgage Assistance Project

Defendants Answer

Defendants (Homeowner) must file an Answer with the Court within twenty (20) days of receiving Summons & Complaint

Verified Answer is required by rule:

Signed by Defendant Notarized by notary public (e.g., Court clerk)

Answer is opportunity for Homeowner to respond to allegations in the Banks Complaint

Default/Summary Judgment Motion

Default Judgment Motion Summary Judgment Motion

The Plaintiff (Bank) will file for Default Judgment if:

Homeowner does not file Answer within 20 days; Homeowner files Answer but does not allege a defense to foreclosure; OR

Homeowner files un-notarized Answer with defenses

The Plaintiff (Bank) will file for Summary Judgment only if: The homeowner files a Verified Answer alleging valid defenses to foreclosure

Default Judgment
Court will most likely grant motion for default judgment if:
Homeowner

admits to not paying or does not file anything with the Court; AND is entitled to foreclose on the homeowners property under the mortgage documents

Bank

Summary Judgment

Court can only grant it if there is no factual issue that Homeowner failed to make payments and the Bank is entitled by law to foreclose Homeowner has thirty days to respond to the Banks Summary Judgment motion If Homeowner has viable defenses that s/he raises in the Answer s/he can challenge the Summary Judgment motion

Judgment Order & Decree of Foreclosure

If the Court grants Default/Summary Judgment, it will issue a final Judgment Order & Decree of Foreclosure

The Order will include:

The amount owed for principal, interest, court fees, attorneys fees, etc. A date by which the Homeowner must Redeem the property or lose her/his interest in the property

Redemption Period

Usually a six month period after foreclosure judgment is entered during which the homeowner still has full right to the home Homeowner can Redeem their interest in the property during that time Homeowner should ask for the full six month Redemption Period in the Answer

During Redemption Period the Homeowner can:

Stay in the home; Refinance; Get workout agreement; Sell the property; File Bankruptcy; Save money to move.

Certificate of Non-Redemption

If Homeowner has not Redeemed the property by the end of the Redemption Period, Court will issue a Certificate of NonRedemption Bank can now proceed with foreclosure sale

Homeowner can be evicted by 10-day writ at any time after Redemption Period expires

Foreclosure Sale/Auction

Bank can schedule foreclosure sale after the end of the Redemption period Homeowner must be given sixty (60) days notice of the sale Must be advertised in newspaper for three weeks before public sale Property is sold to highest bidder

Deficiency or Surplus

If property is sold at auction for less than Homeowner owes on the mortgage, Bank can ask the Court for a deficiency judgment

If property is sold for more than is owed on the mortgage, Bank must give homeowner the surplus
If Bank seeks a deficiency judgment, Homeowner may be able to wipe out the debt through bankruptcy

Effect of Foreclosure on Tenants

State and Federal Law

Vermont Law
State

law requires Plaintiff (Bank) to give all tenants notice of a foreclosure action against a landlord can serve Summons & Complaint on tenant by mail

Bank

Tenants

should send a Notice of Appearance to the Court that:

Includes the Court and case information on the Summons & Complaint

Asks the Court to notify the tenant of anything that happens in the case;
Gives the Court the tenants address to send all documents

Federal Law: Protecting Tenants at

Foreclosure Act
Applies Tenants

to all foreclosures after May 20, 2009

cannot be evicted just because foreclosure case has begun against the landlord

After

foreclosure sale, tenant must be given at least 90-day notice to vacate before the Bank or new owner can evict the tenant, unless it has other cause to evict the tenant (e.g. nonpayment)
or new owner takes on responsibilities of landlord under the lease

Bank

Referrals to Vermont Legal Aid

Program Eligibility and Issue Spotting

Basic Eligibility for Services

Vermont resident 200% of poverty or below Primary residence in foreclosure

Cases for Full Representation

Homeowner already served Summons & Complaint Plus Red Flags:

Plaintiff is National Bank or Trustee Predatory Lending Issues

Subprime

Loans (high interest rate, Adjustable Rate Mortgages (2/28s, 3/27s, pay option ARMs, etc.) Shady Closings (lack of disclosures, high closing costs, broker involvement, etc.) Unaffordability of Loan (income inflation, insufficient income to support payments, etc.) Servicer Abuses (charging excessive fees,

Home Affordable Modification Program (HAMP)

The Obama Plan

Basic Eligibility Criteria

(www.makinghomeaffordable.gov)

Primary Residence Mortgage equal to or less than $729,750 Trouble making payments Mortgage originated before January 1, 2009 Monthly mortgage payment greater than 31% of current gross income

How HAMP Modification Works

Accrued interest, past due taxes & insurance, and other fees besides late fees are capitazlied (added to principal amount) Interest rate reduced as low as 2%, term extended to as much as 40 years, or principal reduced to reach a debt-to-income ratio of 31% Net Present Value Test applied to determine if loan modification provides better financial outcome for investors than foreclosure Trial Plan offered at new payment amount for 3 mo.s

Mortgage Servicer Participation

Servicers must review all Fannie Mae and Freddie Mac loans that they service for HAMP eligibility

Mortgage servicers that contract with the US Treasury to participate in the program must review all eligible borrowers for HAMP
Some exceptions apply (e.g., investor agreement does not allow loan modification)

How HAMP Affects Foreclosure

If Homeowner requests HAMP review/loan modification:

Servicer must stop any foreclosure activities while evaluating Homeowners eligibility When 3 trial period payments made and final loan modification agreement signed, foreclosure case should be dismissed If Servicer fails to comply, Homeowner can request judicial intervention

Alternatives to HAMP

Non-HAMP loan modification Repayment plan/restructure Chapter 13 bankruptcy Forbearance Deed-in-Lieu of Foreclosure Short Sale