My Mortgage Lender has Declared My Mortgage in Default? What are my Legal Rights in Alabama?

Posted by Kevin Ryan | Oct 27, 2017 | 0 Comments

 The only real option in this situation is for the borrower to apply for a modification of the loan, which can lower the monthly payment, extend the term of the loan, and lower the interest rate.  It all depends on who owns the mortgage.  If it is a loan bought by Fannie Mae, Freddie Mac, HUD, U.S.D.A. Rural Loans, or Veterans Administration there is a good chance this can be accomplished.  A pending application for a loan modification prohibits this type of government bought loan from going to foreclosure sale, until a determination is made on the application.  

There are other types of mortgages that were divided up and sold as mortgage backed securities, especially in the mid 1990s through about 2008.   These securities were purchased in bulk by several investment trusts on Wall Street, and large financial institutions.  The problem with trying to modify these loans is that the securitization of the mortgages terminated the privity of contract between the borrower and the original lender, so that it is not clear who has authority on the lender's side to modify the loan.  Any financial institution that modifies one of these securitized mortgage loans risks being sued by the investors who purchased the securities, because modifying the loan would reduce their expectation of profit from the security, and will usually breach any trust agreement set up to pool the securities in investment vehicles.   

A borrower can find out who owns a mortgage loan at the   HUD website  (U.S. Department of Housing & Urban Development).   In summary, if the government owns the mortgage loan then the government can modify that loan since the aggrieved party is the American taxpayer, who really have no right to complain about such actions.  

Alabama is a state that permits a "power of sale" clause in a mortgage. This means the lender does not have to file a foreclosure lawsuit. They can move forward with foreclosure sale once the loan is declared in "default," which makes the entire balance due.  This severely limits what a lawyer can do for the borrower at this stage.   Most of the litigation in Alabama by borrowers relates to wrongful foreclosure claims, which arise after the home as been sold at foreclosure sale.  

Only the filing of a bankruptcy ( and receiving a Discharge Order in the case) can wipe out the liability the borrower has on the mortgage loan post foreclosure sale.  A Ch 13 bankruptcy filing operates to stop the foreclosure sale by law ( 11 U.S Code, Section 362, the "automatic stay")  In a Chapter 13, the borrower must start making the current mortgage payment direct to the lender after the case is filed, and the arrears is paid in a Chapter 13 Plan of reorganization.    

If the home is sold at foreclosure sale, then the lender can file a 1099 with the Internal Revenue Service and write off ( deduct) the costs of sale, any losses, together with fees and expenses associated with the foreclosure sale.  The borrower who receives the 1099 must report the amount as income on his or her federal income tax return.   The IRS has a Form 982  IRS FORM 982 .pdf which is a declaration of insolvency that the borrower can file with the IRS to avoid having to count the 1099 losses to the lender as personal income.

About the Author

Kevin Ryan

"I'll never be the kind of attorney your creditors want me to be. I'll always be the kind of attorney you NEED me to be. Call me. I'll BE there for you. And I'll make them go away."  -Kevin Ryan, Attorney at Law Kevin Ryan is a graduate of the College of Wooster and the Cleveland Marshall College of Law. He is admitted to practice before all Alabama State Courts, the United States District Court for the Southern District of Alabama, and the United States Bankruptcy Court for the Southern District of Alabama. The United States Bankruptcy Court is a part of the United States District Court. Since 1998, Mr. Ryan has represented thousands of individual clients in bankruptcy, criminal, divorce, probate, personal injury, and real estate matters.  Attorney Ryan is also a licensed real estate agent in Alabama.  He handles  Bank-owned properties, short sales, and conventional sales in addition to conventional real estate listings.   This wide range of experience enables Attorney Ryan to take a wider look at your legal matter. It is important to consult with an attorney who can see from experience how other legal issues may affect your situation, and advise you accordingly. Personal Info Kevin Ryan is a member of First Baptist Church in Silverhill, Alabama. He resides in Silverhill with his wife Jessica and their three children. Committed to helping our Clients achieve a fresh financial start Our practice focuses primarily on consumer bankruptcy matters under Chapter 7 and Chapter 13 of the United States Bankruptcy Code.  Our law practice also includes matters where bankruptcy litigation, appellate work, or involvement in civil lawsuits is needed by a client.     No representation is made that the quality of any of these legal services is of higher quality than another attorney or law firm.   The United States Bankruptcy Code requires the following notice:  We are a Debt Relief Agency, which means we help people get legal relief from their Debts through the bankruptcy process. Interested in learning more about our bankruptcy attorney near Mobile, Alabama? Contact Us for help with chapter 7 bankruptcy or chapter 13 bankruptcy in Mobile, Baldwin and Washington counties. Education Juris Doctor, Cleveland Marshall College of Law, 1997 Employed full time as a paralegal while attending law school in the evenings. B.A., The College of Wooster, 1994 NCAA Div.III All Conference (N.C.A.C.) Football Team : Defense 1993; Most Inspirational Senior Award 1993; Co-captain 1993; Letterman 1991-1993; Phi Sigma Alapha Fraternity 1991-1994; Athletic Director Jurisdictions Admitted to Practice Alabama


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I'll BE there for you.

I'll never be the kind of attorney your creditors want me to be. I'll always be the kind of attorney you NEED me to be. Call me. I'll BE there for you. - Kevin Ryan, Attorney at Law