In Kentucky, two issues are common in Kentucky foreclosures: redemption and rescission. Redemption gives a homeowner who went through a judicial foreclosure auction the ability to repurchase their house if the foreclosure auction was for less than 66% of it’s appraised value. Unlike judicial foreclosures, a non-judicial foreclosure sale does not allow for a redemption period associated with a deed of trust. Under state law KRS 426.530, if the property sold for less than two-thirds (2/3) of its appraised value, the homeowner can redeem it. You can purchase it back from the new owner. The redemption period is six (6) months from the day of sale. You must pay the purchase money plus ten percent (10%) per annum interest and reasonable costs incurred by the purchaser. This includes maintenance or repair of the foreclosure property, including but not limited to utility expenses, insurance, association fees, and taxes. It also consists of the costs to conform the foreclosure property to the minimum standards of local codes.
You may also be due a refund if your home sold for more than the debt against it. However, to get that refund, you must file a motion to recover the funds, or the funds will be sent to the state of Kentucky.
Understanding Foreclosure in Kentucky
Navigating the foreclosure landscape in Kentucky can be daunting, especially for homeowners facing financial difficulties. Foreclosure is a legal process initiated by a mortgage lender when a borrower fails to make the required mortgage payments. This process can be lengthy and complex, involving several steps that can have significant consequences for the borrower. There are two main types of foreclosures: judicial and non-judicial foreclosures. Non-judicial foreclosures occur without court involvement and are governed by state regulations and specific mortgage terms, unlike judicial foreclosures which require court proceedings. Understanding the foreclosure process in Kentucky is crucial for those struggling to keep up with their mortgage payments, as it can help them explore their options and potentially avoid losing their home. The most common failure is not to file the motions and funds with the court within the redemption period.
What is a Foreclosure?
Foreclosure is the legal mechanism through which a lender takes possession of a property when the borrower defaults on their mortgage payments. This process is typically judicial in Kentucky, meaning it goes through the court system. The foreclosure process begins when the lender files a lawsuit against the borrower, seeking to recover the outstanding mortgage balance. This process can be intricate and time-consuming, often involving multiple legal steps and potential defenses the borrower can raise. Understanding these steps is essential for any homeowner facing foreclosure, as it can provide them with the knowledge to navigate this challenging situation.
Kentucky Judicial Foreclosures Redemption and Rescission
The homeowner only needs to pay the redemption to the court clerk, and then the commissioner will immediately convey the property back by a commissioner’s deed. Redemption is why lenders often bid 70% of the mortgage when they bid at foreclosures. Unlike judicial foreclosure, non-judicial foreclosure allows creditors to initiate the foreclosure process without court intervention, which is not applicable in Kentucky. Paying over 66% cuts off the homeowner’s rights to redeem the property from foreclosure under state law. The new owner must be paid for his maintenance and any improvements.
The foreclosure process requires notice to be posted in a public place ad for two consecutive weeks in a publication.
Kentucky judicial foreclosure process, rescission, and Truth in Lending Act (TILA).
If you refinance your home within three years before the sale, TILA gives you grounds to rescind a home mortgage. In some cases, a strict foreclosure may occur, where the court transfers the property directly to the lender if the borrower fails to redeem by a specified date. One common closing mistake is the failure to provide borrowers with two copies of the notice of right to cancel, a requirement under the mortgage contract. Even if the note and mortgage are to one spouse only, the other spouse also has the right to be given notice. Under the Truth in Lending Act, the loan default is also invalid if the loan is invalid, which stops a foreclosure action. Invoking the right of rescission is just one of many rights and defenses. However, there are several defenses to help you save a home.
First, you must gather all the paperwork and documents you used to purchase or refinance your home. You must provide a copy of your taxes, pay stubs, any prior bankruptcy, and proof of citizenship. You also must explain where the down payment comes from and prove that you intend to live there, along with numerous other items. These documents all went into the loan decision. This is important because rescission is possible if the lender misrepresents facts such as the actual cost or fees.
The purpose of the truth in lending act for the mortgage lender.
The reason for TILA is to protect borrowers from hidden fees and fraudulent or deceitful practices. It prevents the sloppy paperwork you commonly find in early mortgage loans. The Truth in Lending Act gives borrowers the benefit of the doubt. The TILA right of rescission will temporarily stop foreclosure actions and may allow a borrower to walk away from the foreclosure if proper written notice was not provided. Although damages under the statute are often minor, a lender may offer a modification or workout as a response.
You went through all that paperwork when buying the home to ensure compliance with laws like the Truth in Lending Act (TILA). When defending a foreclosure, it’s time to confirm that the lender complies with these laws. The Truth in Lending Act requires the mortgage lender to obtain specific information and documents and disclose them to the homeowner. For instance, TILA requires mortgage companies and banks to provide two copies of the right to cancel—one copy for each spouse or co-debtor. If two copies are not provided at closing, a homeowner or borrower has three years to rescind the transaction. Plus, the borrower may recover damages.
Notice of Default and Preforeclosure
The foreclosure process in Kentucky starts with the lender sending a Notice of Default to the borrower after several missed mortgage payments. This notice, usually sent via certified mail and sometimes posted on the property, is a formal warning that the borrower is in default and that foreclosure proceedings may begin if the default is not cured. The borrower typically has 30 to 60 days to bring their mortgage payments up to date and avoid further foreclosure action. This period is known as preforeclosure, and it offers the borrower a critical window to negotiate with the lender, seek a loan modification, or explore other options to prevent foreclosure.
Foreclosure Sale
If the borrower fails to rectify the default during the preforeclosure period, the lender will proceed with the foreclosure sale. In Kentucky, foreclosure sales are conducted through public auctions, where the property is sold to the highest bidder. These sales are advertised in local newspapers and posted on the property, ensuring potential buyers know about the auction. The borrower will receive a Notice of Sale detailing the foreclosure auction’s date, time, and location. If the borrower cannot stop the foreclosure sale, the property will be sold, and the borrower will be required to vacate the premises. Understanding the foreclosure sale process is crucial for borrowers, as it represents the final step in losing their homes.
Redemption Period and Cost
In Kentucky, borrowers have a redemption period during which they can reclaim their property after a foreclosure sale. This period allows the borrower to pay the outstanding mortgage balance, plus any additional fees, interest, and costs associated with the foreclosure process, to regain ownership of their home. The redemption period varies depending on the specifics of the foreclosure case. Notably, if the property was sold for less than two-thirds of its appraised value, the borrower has up to one year to redeem the property by paying the purchase price plus 10% per annum interest and reasonable costs incurred by the purchaser. These costs can include maintenance, utility expenses, insurance, association fees, taxes, and any necessary repairs to meet local code standards.
The Truth in Lending Act (TILA) also provides homeowners with grounds to rescind a home mortgage if they refinanced their home within three years before the foreclosure sale. TILA requires lenders to give borrowers with two copies of the notice of the right to cancel at closing. The loan may be deemed invalid if this requirement is not met, halting the foreclosure action. Understanding these redemption rights and the associated costs is vital for borrowers seeking to reclaim their property and protect their financial interests.
In summary, understanding foreclosure in Kentucky involves comprehending the foreclosure process, including the Notice of Default, preforeclosure, foreclosure sale, and redemption period. Borrowers facing financial difficulties should seek the advice of a qualified attorney to explore their options and safeguard their rights throughout this challenging process.
Consequences of Foreclosure
Effects on Credit Score and Finances
Foreclosure can have severe and long-lasting consequences on a borrower’s credit score and overall financial health. When a foreclosure is recorded on your credit report, it can remain there for up to seven years, significantly impacting your ability to obtain new credit or loans. This black mark can lead to a substantial decrease in your credit score, making it challenging to qualify for future financial products, such as mortgages, car loans, or even credit cards.
In addition to the hit on your credit score, foreclosure can also result in a deficiency judgment. This occurs when the property sold at the foreclosure auction does not cover the outstanding mortgage balance. In such cases, the borrower may be held liable for the difference, adding another layer of financial burden.
Financially, foreclosure often means a significant loss of equity in the property. Homeowners who have invested years of payments and improvements into their homes may see all that equity vanish. Moreover, there can be tax implications for the forgiven debt, as the IRS may consider it taxable income. This can lead to unexpected tax liabilities, further complicating the borrower’s financial situation.
Overall, the financial aftermath of foreclosure can be daunting, affecting not only your immediate financial stability but also your long-term financial goals, including the ability to purchase a new home in the future.
Avoiding Foreclosure
Options for Borrowers
Facing foreclosure can be overwhelming, but there are several options available to borrowers that can help them avoid losing their homes. One of the most effective strategies is to work directly with the mortgage lender to modify the mortgage contract. This can involve reducing the monthly payments, extending the loan term, or even lowering the interest rate to make the payments more manageable.
Another viable option is to negotiate a payment plan with the lender. This arrangement allows the borrower to make reduced payments for a specified period, providing temporary relief while they work to stabilize their financial situation. It’s crucial to communicate openly with the lender and demonstrate a genuine effort to meet the modified terms.
For some borrowers, a short sale might be a suitable alternative. In a short sale, the property is sold for less than the outstanding mortgage balance, with the lender’s approval. While this option can still impact the borrower’s credit score, it is generally less damaging than a foreclosure and can help avoid the severe consequences associated with it.
Filing for bankruptcy is another option that can temporarily halt the foreclosure process. Bankruptcy provides an opportunity to reorganize finances and potentially keep the home. However, this option should be considered carefully and discussed with a qualified attorney, as it has its own set of implications and requirements.
Exploring these options and seeking professional advice can help borrowers find the best solution to avoid foreclosure and protect their financial future.
Seeking Professional Help
Role of a Foreclosure Attorney
When facing the daunting prospect of foreclosure, seeking the assistance of a foreclosure attorney can be invaluable. A foreclosure attorney specializes in navigating the complex foreclosure process and can provide critical guidance to borrowers. They help homeowners understand their rights and explore all available options to avoid losing their homes.
A foreclosure attorney can represent borrowers in court, ensuring that their interests are protected throughout the legal proceedings. They can also negotiate with lenders on behalf of the borrower, working to reach a settlement that may include loan modifications, payment plans, or other alternatives to foreclosure.
Understanding the intricate laws and regulations surrounding foreclosure is another area where a foreclosure attorney’s expertise is crucial. They can help borrowers navigate state-specific laws, such as Kentucky’s right of redemption and the Truth in Lending Act (TILA). These laws can provide additional protections and opportunities for borrowers, but they require a thorough understanding to be effectively utilized.
Additionally, a foreclosure attorney can assist with filing for bankruptcy if it becomes a necessary step to halt the foreclosure process. They can guide borrowers through the bankruptcy process, helping them reorganize their finances and potentially keep their homes.
In summary, a foreclosure attorney plays a vital role in helping borrowers navigate the foreclosure process, understand their rights, and explore all possible options to avoid foreclosure. Their expertise and support can make a significant difference in the outcome for homeowners facing financial difficulties.
Nick Thompson, Foreclosure Attorney.
Kentucky foreclosures redemption and rescission are two methods to help stop a sale and prevent a deficiency or tax debt. We are well-versed in state law governing foreclosures and can help you navigate the complexities of your case. We are recognized in Avvo (who ranks us 10 out of 10) and in Google (who ranks us 5 out of 5) as one of the highest-ranked bankruptcy and foreclosure attorney in Kentucky for 2012 through 2024 based on the ratings from other attorneys and clients. Threebestrated.com ranks us as one of the top 3 offices for bankruptcy and foreclosure in Louisville and obtaining consistently favorable results for clients. We represent distressed homeowners in Kentucky and southern Indiana.
Resources for Bankruptcy
Louisville Kentucky Bankruptcy Forms
Kentucky Foreclosure Defenses TILA RESPA
Bankruptcy Motion 722 Redemption
Chapter 7 Bankruptcy Auto Loan Redemption
Louisville Kentucky Foreclosure Defense
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
