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Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws. Also, most people who take out a loan to buy a residential property in Iowa sign a promissory note and mortgage. These documents give homeowners some contractual rights after a mortgage default. So, don't get caught off guard if you're an Iowa homeowner behind in mortgage payments. Learn about Iowa foreclosure laws and how the foreclosure process works, from missing your first payment to a foreclosure sale.
In an Iowa foreclosure, you'll most likely get the right to:
Once you understand the Iowa foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
Here's generally what happens during the preforeclosure period:
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a couple of exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on mortgage payments for your home in Iowa, the foreclosure will probably be judicial.
The lender must mail a notice of default and right to cure (reinstate) to you at least 30 days before filing suit (or 45 days for agricultural properties). (Iowa Code § 654.2D, Iowa Code § 654.2A).
After the reinstatement period expires, the lender sends a demand letter giving you 14 days to pay off the loan; otherwise, it can't qualify for an award of attorneys' fees. You'll also get a notice about counseling and mediation, if available. (Iowa Code § 654.4B).
Look Out for Legal Changes
In this article, you'll find details on foreclosure laws in Iowa, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender gives notice of the suit by serving you a summons and petition. If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, allowing it to hold a foreclosure sale.
But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. The lender might then ask the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the critical aspects of the case. If the court grants summary judgment for the lender—or you lose at trial—the judge will enter a judgment and order your home sold at auction.
Then, notice of the sale is posted publicly and published twice in a newspaper, with the first publication at least four weeks before the sale happens. (Iowa Code § 626.75).
Is Iowa a Nonjudicial Foreclosure State?
Iowa law allows for an "alternative nonjudicial voluntary foreclosure." In this type of foreclosure, the borrower voluntarily gives up possession of the home, as well as the right to redeem the property, and the lender agrees to waive any deficiency (see below). Another type of foreclosure—nonjudicial foreclosures of nonagricultural property—are also allowed in Iowa. These foreclosures apply to properties that are neither used for an agricultural purpose nor an owner-occupied one- or two-family dwelling. The lender can't get a deficiency judgment with this type of foreclosure either. (Iowa Code § 654.18, § 655A et. seq.)
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. Sometimes, in Iowa foreclosures, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower.
If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds (money over and above what's needed to pay off all the liens on your property), you're entitled to that surplus money.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property, or filing for bankruptcy. Of course, if you can work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
Under Iowa law, you may reinstate the loan within 30 days after the notice of default if the land is nonagricultural unless the lender gave a notice of right to cure concerning a prior default that occurred within 365 days of the present default. (Or, the borrower gets the right to reinstate for 45 days after the notice of default is given, once in twelve months, if the property is agricultural. Also, if you have two previous defaults at any time for agricultural land, you don't get the right to reinstate.) (Iowa Code § 654.2A, § 654.2D).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. Under Iowa law, whether you get a post-sale redemption period depends on the type of foreclosure the lender chooses.
Judicial foreclosure with redemption. If foreclosure is judicial with redemption, the borrower can redeem the home within:
Judicial foreclosure without redemption. If the foreclosure (nonagricultural) is without redemption (that is, without a post-sale redemption period), you get the right to redeem before the sale by paying the judgment amount. But you don't get the right to redeem the property after the sale. Instead, you may ask the court to delay the sale for six months, but the delay will be three months if the lender waives a deficiency judgment in the foreclosure lawsuit, or two months if you don't live in the home or under some other conditions. (Iowa Code § 654.20).
However, if you request a delay, the lender could be able go after you for a deficiency judgment when it might not otherwise be able to (see below). (Iowa Code § 654.26). Consider talking to an Iowa foreclosure lawyer to learn about the pros and cons of asking for a delay of sale and the risk of a deficiency judgment.
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" happens. The stay functions as an injunction that prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out the options available, speak with a local bankruptcy attorney.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency."
For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
Iowa law prohibits deficiency judgments in some circumstances.
In Iowa, the lender can't get a deficiency judgment under certain circumstances, like when:
Mortgage Relief for Those Affected By COVID-19
Eligible homeowners in Iowa who've experienced a financial hardship because of COVID-19 can get a portion of the approximately $50 million allocated to the state from the federal Homeowner Assistance Fund by applying to the Iowa Homeowner Assistance Fund program. This program uses federal money to help homeowners pay delinquent mortgage payments and other housing costs.
The federal Servicemembers Civil Relief Act provides legal protections to military personnel facing foreclosure.
A foreclosure could result in serious consequences, like lower credit scores, a deficiency judgment (as mentioned) , or tax ramifications.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
To learn where to look for accurate foreclosure information on the Internet, see How to Find Foreclosure Help Online.
If you have questions about Iowa's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor about different loss mitigation options.