If you’re facing foreclosure, it’s important to know your rights as a borrower. This article will take you through when mortgage companies can and can’t change the locks and what options you may have to avoid foreclosure altogether.
Written by Todd Carney, J.D. Harvard Law 2021.
Updated October 12, 2021
When you are facing financial difficulties, one of the worst things that can happen is getting home and finding that the bank has changed the locks because you haven’t been making mortgage payments. Now on top of your financial difficulties, you don’t have access to your home, let alone your personal belongings. When this happens, the mortgage company is committing an illegal act, so you should fight back. If you’re facing foreclosure, it’s important to know your rights as a borrower. This article will take you through when mortgage companies can and can’t change the locks and what options you may have to avoid foreclosure altogether.
When Lenders Are (and Aren’t) Permitted To Change the Locks
When you get behind on your monthly mortgage payments, you risk going through a foreclosure process for your home. Whether you’re behind on your payments or you’re in the foreclosure process, your lender can’t legally change the locks on your house if you still live in the home. You have the legal right to live in the home through the entire foreclosure process. Even when the property gets sold through a foreclosure sale, if you continue to occupy the home, the bank is required to take you through the formal eviction process before they are allowed to change the locks and foreclose on the property.
This is important because the foreclosure process can take a while. This is especially true for judicial foreclosures, which require your lender or mortgage servicer to provide you with a notice of default and get a court order to foreclose. That said, sometimes lenders don’t need to go through the courts. If you have a deed of trust, the lender can do a nonjudicial foreclosure, which happens without a court order and is often a quicker process. Either way, you still have a right to live in the property until the process is complete.
Exceptions for Abandoned Properties
The lender can change locks on abandoned properties that are sitting vacant. In this scenario, the loan servicer doesn’t need to complete the entire foreclosure process to change the locks. Most mortgage loan documents have a clause that gives the mortgage company the right to do things to defend their interest in property if the borrower abandons the property.
The mortgage company has the legal right to secure an abandoned property by:
Changing the locks or padlocking the door
Making any necessary repairs
Getting rid of the borrower’s personal property, trash, and debris
Making the property ready for the winter (such as draining waterlines)
The mortgage company can take these minor steps to prevent more serious and costly problems from occurring on abandoned properties prior to their foreclosure sale of the property.
When Do Loan Servicers Treat Houses as Abandoned?
If you are behind on monthly mortgage payments and you don’t reach out to your loan servicer, they may not know if you’re still living in the home. Vacant or abandoned properties are at risk of break-ins, vandalism, and property damage. The mortgage company wants to keep the property’s value from decreasing under any circumstance since they have a security interest in the home. With a mortgage, the home acts as collateral for the loan, so if the borrower defaults on the loan, the lender can take it back to recoup their losses. They’ll want to get the most money they can when they do this, which means they want to keep the home in good shape.
The lender usually hires a field service company to go to the actual property and figure out if the property is really abandoned. If the property appears abandoned, the field service company will determine what needs to be done to protect the property. Sometimes these inspections aren’t very thorough. The inspector may see evidence that suggests you don’t live in the home, even if you still do. For example, if the lawn hasn’t been cut for a bit or some structures on the property need to be repaired.
This is one reason it’s important to keep the property in good shape, even while you’re going through foreclosure. It will reduce the chances that the lender will mistakenly believe that you don’t live there anymore.
There are times when a field service company decides that a property is vacant even though there is evidence that someone is living there. For example, the inspector may see a car in the driveway or hear a dog in the house. This can happen for several reasons. It could be a simple mistake or poor reasoning on the inspector’s end. Other times, the field service company agents might intentionally make a wrong decision because they have a financial interest, like getting paid if they change the locks.
If You're a Homeowner and Your Locks Have Been Changed…
When you’re a homeowner and you’re still living in your home, the mortgage company can’t legally lock you out. This is true even if the company starts to foreclose on the real estate or sells it in a foreclosure sale. Until the foreclosure proceedings are complete, you still own the home and have the legal right to live there.
Since you still own the home, you can legally take certain actions. For instance, you can remove the mortgage servicer’s padlock and replace it with your own lock. That said, if you’re a tenant rather than the homeowner, you may not have the right to do this, depending on your state’s laws. It’s best to reach out to your landlord instead of cutting the locks.
You also can reach out to the servicer and tell them that you haven’t abandoned the property, so they need to treat it as an occupied home. If a field services company leaves their contact information, reach out to them as well. You also have a right to contact a foreclosure attorney.
How To Prevent Foreclosure and Keep Your Home
There are some actions you can take to prevent a foreclosure all together, so you don’t have to worry about your locks being changed. If you want to keep your house, contact your lender as soon as possible to ask about loss mitigation options. These options may include:
A loan modification program, which allows you to negotiate a change in the loan terms;
A forbearance period where you don’t have to make payments for a few months; or
Refinancing to get a new loan to pay off the current mortgage. Typically this loan will be lower and have a better interest rate.
You can also try negotiating a repayment plan. Under such a plan, your lender may temporarily increase your mortgage payments so you can make up the past payments that you’re behind on. You might also consider filing Chapter 13 bankruptcy, which gives you 3-5 years to make back payments on loans.
How To Prevent Foreclosure Even if You Lose the Home
If you can’t find an option that will work to help you keep your home, you can still avoid some of the damaging effects of foreclosure. It’s best to avoid foreclosure at all costs because it will hurt your credit. To decrease the hit to your credit score, first see if the bank will do a deed in lieu of foreclosure. In this arrangement, you give the deed to your home to the bank and they agree not to do a traditional foreclosure in exchange. While this will still hurt your credit score, it will have less of an impact than a regular foreclosure. There may also be tax consequences if the lender forgives any portion of your debt.
You could also try to do a short sale, where you sell your home for less than what you owe on the mortgage. Sometimes banks will even forgive the outstanding balance. Like a deed in lieu, this may come with tax consequences. Your lender will need to approve the short sale process though. Similarly, you may be able to just do a regular sale, where you sell your home and the money you get pays off the mortgage completely.
If you’re behind on your mortgage payments and your lender has started the foreclosure process, you’re probably under a lot of stress. The last thing you’d want at this point is to come home to see the locks have been changed. Luckily, this is not legal if you are still living in the home, no matter how far behind on your payments you are. That’s the case until the foreclosure process is complete and the lender moves to evict you.
The only exception to this is if you abandon your home. Then the bank can change the locks. That’s why it’s important to make it clear to the bank that you’re still living in the home and your property isn’t abandoned. Using the resources and strategies from this piece will ensure you are not pushed around by a bank seeking to force you out early by changing your locks.