If you’re struggling to make your house payments in Alabama, you’d be smart to stay vigilant—a foreclosure sale might happen before you realize you’re even in foreclosure. Although homeowners are generally entitled to the 120-day waiting period required by federal law, once it expires, all the foreclosing party (the "bank") typically must do is publish the foreclosure sale date in the newspaper for three consecutive weeks before selling the house.
Also, if the transaction fails to bring enough money to pay off the mortgage, the bank can pursue you for the difference (and perhaps drive you to file for bankruptcy). Although Alabama’s foreclosure law might seem harsh, a homeowner can reclaim the home after a foreclosure by paying the purchase price, plus certain costs and interest, to the new owner. (You can learn more about foreclosure in general by reading Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
If you fall behind on your monthly mortgage payments, the servicer (on behalf of the bank) can't simply take your home, like in a repossession. Before selling the property and using the proceeds to pay off your home loan, the bank must follow certain legal steps in a process called foreclosure. (Learn the difference between a foreclosure and repossession.)
Even so, foreclosure can come with devastating consequences. A federal law that gives most homeowners extra time to get back on track after a financial setback went into effect in 2014 to help minimize these problems. Today, a servicer generally must wait until a mortgage loan is more than 120 days delinquent before starting the foreclosure process. After a loan is delinquent for 120 days, the foreclosure can go forward using the procedure allowed by state law.
In Alabama, a bank can choose between one of two foreclosure procedures: judicial or nonjudicial foreclosure. Most foreclosing banks use the streamlined, less-expensive nonjudicial process. Here are brief explanations of both types.
Judicial foreclosure process. A judicial foreclosure proceeding starts when the bank files a lawsuit in the court. If the homeowner fails to respond to the lawsuit, the bank automatically wins and receives a default judgment. If the owner decides to fight the action, the court will decide the case after hearing a summary judgment motion (a motion that asks the judge to find that the other side lacks a triable issue of fact) or trial. If the court agrees with the bank, it will enter a judgment against the homeowner. The judgment gives the bank the right to sell the home at a foreclosure sale.
Nonjudicial foreclosure process. With a nonjudicial foreclosure, the bank does not need to get a judgment from the court before selling the home. Instead, the bank follows procedural steps outlined in state law, and, after completing the steps, sells the property at a foreclosure sale.
(Find out more about the two types of foreclosures by reading What Are the Differences Between Judicial and Nonjudicial Foreclosures?)
Under Alabama law, the bank generally doesn't need to notify the homeowner before starting the foreclosure process. But some Alabama mortgage contracts require the bank to send a letter advising the homeowner about foreclosure proceedings.
To complete the foreclosure, the bank must publish the foreclosure sale date in the newspaper for three consecutive weeks, and, after the posting period elapses, the bank is free to sell the home. Though if your mortgage is dated on or after January 1, 2016, you'll likely receive a notice about your right to redeem (see below) at least 30 days before the foreclosure sale.
Alabama law doesn’t allow homeowners to stop the nonjudicial foreclosure sale by paying all missed payments, fees, and costs in one lump sum (called “reinstating” the loan). But, homeowners with the ability to do so should check the mortgage contract (or call the bank). Many contracts give the owner the right to reinstate the loan up to five days before the nonjudicial foreclosure sale.
The amount a home sells for at auction isn’t always enough to cover the outstanding mortgage, and the difference is known as a deficiency balance. In Alabama, the bank can sue the foreclosed owner in a separate lawsuit, obtain a deficiency judgment for the remaining amount, and use common collection techniques—such as taking money out of your bank account (bank levy) or your paycheck (wage garnishment)—to collect the outstanding balance.
Alabama allows the foreclosed homeowner to “redeem” the property (get it back) by paying the new purchaser the full sale price plus interest, property taxes, or any insurance premiums paid by the purchaser. How much time the foreclosed owner has to do so depends generally on whether it’s a homestead property. To qualify as a homestead property, the owner of a residential property must file a homestead exemption in the local county during the tax year that the sale occurred. (If you’d like to find out about filing a homestead on your property, visit the Alabama Department of Revenue.)
Redeeming a homestead property if the mortgage is dated January 1, 2016 or after. If the bank provided the homeowner with a notice of the right to redeem the property at least 30 days before the foreclosure sale, the redemption period is 180 days after the sale. (This is applicable to mortgages taken out on or after January 1, 2016, for residential properties on which a homestead exemption was claimed in the tax year during which the sale occurred.) If the bank failed to provide timely notice before the sale, the redemption period would expire 180 days after providing notice. But homeowners can’t redeem, under any circumstances, more than one year after the foreclosure sale.
Mortgages taken out before January 1, 2016. For mortgages taken out before January 1, 2016, the redemption period is one year.
Redeeming a non-homestead property. Homeowners redeeming non-homestead properties have one year from the date of the foreclosure sale to do so.
Forfeiting the right to redeem. If the person who bought the home at the foreclosure sale gives written notice to vacate the property, the foreclosed owner will have ten days to do so or lose the right to redeem the house.
If you're unclear whether your bank correctly followed Alabama’s foreclosure laws, you should contact a local attorney. You’ll find Alabama’s foreclosure laws in the Code of Alabama (sections 35-10-1 to 35-10-30 and 6-5-247 to 6-5-257).
