Alabama Repossession Laws

Any purchase made in Alabama on credit or using collateral may be repossessed by the creditor. Repossession is most frequently seen with cars. Until the creditor receives the final loan payment, the lender holds crucial rights to the vehicle. Every state has specific laws regarding repossession and these laws are constantly changing. The laws in Alabama might differ from laws in some other states.


When Repossessions Can Happen

As soon as a borrower defaults on the loan, the creditor can repossess the property. The lender is not required to provide a grace period or extra time for payments. Repossession can begin as soon as one day after a payment was due. If the borrower knows he will be late on payment, he should contact the creditors immediately to inform them of the issue. To avoid repossession, creditors may work with borrowers to make a revised payment schedule or delay the payment, although they are not legally obligated to do so.

How Repossessions Happen

A creditor can repossess property at any time, as long as it is handled in a peaceful manner. The creditor does not have to officially sue the borrower or take her to court before it occurs, but the borrower has to be notified of the repossession. The creditor cannot lure the borrower into bringing the property to a desired location or use any force or threats of violence. The borrower does have the right to any personal property left within the vehicle. She should approach the creditor immediately to retrieve those items or write a letter listing the items and make arrangements to collect them.

After the Repossession

Once the property is gone, the borrower will receive a notice of his right to redeem the automobile. This simply means that the borrower has the right to get the car back, but only if he satisfies the conditions set forth. Usually the borrower has to pay the entire balance of the loan, not just the sum of late payments. The borrower will also have to pay any expenses associated with the repossession (such as storage and preparation for sale). If the borrower cannot pay off the loan, the creditor normally sells the car. If the car sells for less money than the balance of the loan, the borrower is still responsible for the remaining balance. The creditor will inform you of the deficiency and will sue you for the payment. If the creditor did not follow the law on repossession (breached the peace or failed to sell the car in a reasonable manner), the borrower may have some legal defense against paying the deficiency on the loan. In this case, the borrower should obtain sound legal advice.

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The Process of Foreclosure

The process of a foreclosure may differ from state to state, but the basics remain constant. Foreclosure can happen to any home-owner and typically no one benefits from it. It damages the credit of the home-owner and usually results in loss for the lender. If you are facing foreclosure, or you represent a lender foreclosing on a borrower, these steps should accurately reflect the process.

Step One:

Neglect to pay the loan payment. Most banks will not start foreclosure after just one missed payment. There tends to be a grace period before the proceedings begin. After the second missed payment, the bank will contact the borrower. At this point, the lender will usually accept both missed payments to rectify the situation. If the borrower is unable to pay, the situation will escalate.

Step Two:

Continue into foreclosure. At the third missed payment, the mortgage holder will proceed with a judicial sale or a power of sale. In a judicial sale, the mortgage lender files suit with the court system, and the borrower receives a letter demanding payment. Usually the court gives the borrower 30 days to respond with payment. If thirty days lapses without payment, then the lender can sell the property in an auction. A power of sale is less common, but operates without the court system. The mortgage lender demands payment from the borrower; if the payment is not received in the established time period, a deed of trust transfers the property to a trustee. The trustee then sells the house at a public auction. The home owner will be notified of all proceedings.

Step Three:

Sell the home. At auction, the opening bid is usually set at the sum of the outstanding loan balance, interest accrued, and legal fees associated with the foreclosure. If the opening bid is not met, the property is purchased back by the lender and deemed an REO or Real Estate Owned.

Step Four:

Leave the property. Once the property is sold, the sheriff’s office will serve an eviction notice. The borrower must vacate the home immediately. If the property was sold for an amount less than what was owed on the mortgage, there can be a deficiency judgment. The borrower will be required to pay the difference on the mortgage.


Warnings

A foreclosure should not be seen as an easy solution to a financial hardship. The foreclosure can leave a family homeless and can damage the family’s hopes of buying real estate in the future. Many employers are now requiring a good credit rating for employment, and in some cases, foreclosure can be grounds for termination.

A foreclosure can cost the local government thousands of dollars in trash removal, unpaid utilities, police costs, and inspections.

It is likely that the value of properties near the foreclosed home will decrease.

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Buying a Home with Bad Credit

Simply because you have bad credit doesn’t mean that the dream of home ownership is out of your reach. While credit scores and credit history do play a role in mortgage financing approval, it’s not the end all and be all of the approval process.

Different Borrowers Require Different Lenders

Borrowers with good credit and borrowers with bad credit should not be approaching the same mortgage lenders. It’s similar to a bargain shopper heading to the Gucci store. The two things do fit in the same category.

Borrowers with bad credit typically need to seek lenders that cater to low credit score and poor history borrowers. Generally, these lenders are called B-paper lenders or subprime lenders. The interest rates between traditional lenders and subprime lenders is subprime lenders typically have higher interest rates because they are dealing with higher risk borrowers. Fees can also differ between the two, with subprime lenders charging more to process a mortgage than a traditional lender.

Where to Find Bad Credit Lenders

Probably one of the best sources to turn to for subprime lending is a mortgage broker. Since a mortgage broker doesn’t work for any one lender, they have access to a variety of lending sources. One of the lending options is sure to fit the need of a bad credit borrower.

Another option is to work on repairing your credit before applying for a mortgage. Once you have your credit under control, then you can apply with a traditional lender and keep your fees and interest rate down.

Bad credit borrowers are not exempt from home ownership. You may have to take a different route than a good credit borrower, but in the end home ownership is within reach.

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