7 min read Feb 01, 2024

How to Stop Foreclosure in Alabama: 8 Effective Ways

Foreclosure in any aspect is a negative situation. No homeowner will ever want to foreclose their home because of any financial crisis. Facing foreclosure is an awful situation. There are two ways through which the foreclosure takes place: Judicial and Non-Judicial. Alabama allows a non-judicial foreclosure. The foreclosure process has to follow state law. There are ways to stop foreclosure, through which you can save your home.

What Does Foreclosure Means?

Taking a loan from a bank or a lender to buy a house or property is common everywhere. Paying back the borrowed amount in the given time duration is also very important. If someone fails to pay back the loan amount, The foreclosure situation is very likely to come into existence. Foreclosure begins after the very first missed payment.

Foreclosure can also happen if the homeowner fails to pay the property tax levied upon them. There are various reasons for falling behind in payments like financial crisis, medical emergencies, and sudden loss of job.

Introduction to Foreclosure in Alabama

The foreclosure crisis peaked in 2010. The foreclosure process and mortgage services are heavily supported by state and federal laws after that. The non-judicial foreclosure may take some time but you may better chances if you quickly act upon it. In Alabama, people must sign a promissory note and mortgage when they take a loan to buy property. These documents give people some contractual rights as well.

Alabama foreclosures most likely give you the right to give you many benefits. They are:

  • Receive notice in the form of a breach letter before foreclosure.
  • You can apply for loan mitigation.
  • If you are in the military, you will get special protection.
  • Get notified about the foreclosure and chance to respond legally.
  • Pay off your debt to prevent a foreclosure sale.
  • Get any access money after a foreclosure sale.

Key Points About Alabama Foreclosure

  • Primary Security Instrument- Deed of Trust and Mortgage
  • Judicial Foreclosure- Yes
  • Non-Judicial Foreclosure- Yes
  • Right of Redemption- Yes (12 Months)
  • Timeline- Varies by Process, Typically 90 Days
  • Deficiency Judgements Allowed- Yes

Ways to Stop Foreclosure in Alabama

There are ways of stopping foreclosure in Alabama that you need to know. Let’s cover them all:

Declare Bankruptcy

Yes, bankruptcy is a way through which foreclosure can be stopped. But you need to understand the concept of chapter 7 and chapter 13 of bankruptcy.

Chapter 13 bankruptcy in Alabama: It is a common option to go for to stop foreclosure. According to chapter 13 bankruptcy, you are given a payment plan of 3 or 5 years to catch up with the payment in arrears. The lenders will be given orders to stop going forward with the foreclosure process. They will have to give you time to get back to your payment arrangements.

Chapter 7 bankruptcy in Alabama: It is a liquidation form of bankruptcy. Unless you want the Kansas bankruptcy trustee to sell your house, it may be a less common option to pursue. Even though it is the lower-cost bankruptcy option, you still may not want to opt this option.

You need to understand what your payment plan is. Is your payment plan regarding chapter 13 bankruptcy worth pursuing? For instance: you have $150,000 in arrears on your house and your payment plan is for 5 years / 60 months. Will you be able to pay an additional $2,500 every month to cover your arrears?

Applying for Loan Modification

It has become difficult to fully pay off the mortgage payments. There are many reasons why you can miss out on payments or get late in paying the mortgage. Before this unwanted thing happens, you may go to your lender and find out if they consider a loan modification option.

Reinstating Your Loan

Do you have enough cash to pay off all the loan amount? Approach your lender with cash. See if they accept the payment and permit you to continue paying your loan amount without any legal interference. Lenders only want to recover the loan amount and so they will accept your offer.

» Direct Mortgage Lenders in Alabama: Click to know about the best mortgage lenders in Alabama.

Plan for Repayment

Great! You can make payments again after missing out on some payments. Find out what your lender thinks regarding your repayment plan. In the repayment plan, you are allowed to pay the missed payments slowly along with the current mortgage payments. You can come up with an agreement on the repayment plan to stop foreclosure. According to this, you agree to pay your missed payments along with the normal payments.

Refinancing

Refinancing may be a difficult option to consider. Interest rates are going up only making it difficult to think of loans. You can start with a new lender which means a whole new agreement. There may be one drawback. It might become difficult to qualify for refinancing if your credit score is negatively affected.

Sell Out Your Home

It’s really sad even to think of selling your house. But it is actually a good option to consider selling your home to avoid foreclosure. You may receive an amount more than the actual price of your home. Perhaps you could even buy a house worth more than the one you sold. You can stop something drastic from happening and your credit report will also not get spoilt.

» How to Sell a House in Alabama: Read the blog to know about how you can sell a house in Alabama.

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Short Sale

A short sale means that you can sell your home for an amount that is less than the amount you owe. The reason behind this is that sometimes your home is sold for a lesser amount in the auction. The bank/lender is sometimes not able to recover the whole amount they are hoping for. Home staging companies in Alabama can help you get more than the asking price.

Deed In Lieu of Foreclosure

A deed in lieu of foreclosure takes place when the homeowner transfers the property to the lender. The homeowner hand over the property to the lender, clearing all the debts they owe. The property is then owned by the lender. You have to vacate the property as soon as possible. This way you can easily save yourself from any damage.

Frequently Asked Questions

How do I get rid of foreclosure in Alabama?

Alabama law allows a borrower to “redeem” (buy back) their property after the foreclosure sale. The borrower redeems the property by paying the full balance of the loan plus interest, taxes, and insurance premiums. Generally, the borrower has up to one year from the foreclosure sale date to redeem the property.

How long does a foreclosure take in Alabama?

In most cases, the foreclosure sale can occur 30 days after the default letter is served. If the default isn't cured by the time limit on the default letter, an acceleration letter is sent. This letter states that the balance of the loan, not just the past due balance, is due immediately.

Who can redeem a foreclosed property in Alabama?

In Alabama, the homeowner, as well as any other party that has an interest in the property (think second mortgage, ex-wife, contractor with a lien on the property) may redeem the property for a period of either 180 days or one year, depending on when the foreclosed mortgage was executed.

What is the Alabama 1 year right of redemption?

The right of redemption allows the original owner to redeem the property by paying off back taxes and/or liens against the property within one year of the date of the foreclosure sale. The redemption period for homestead property is 180 days.

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