March 22, 2002
MORTGAGE FORECLOSURE-UNEMPLOYED HOMEOWNERS
By: George Coppolo, Chief Attorney
You asked for a summary of the law that provides protection for unemployed and underemployed homeowners when their mortgage is being foreclosed.
Connecticut law allows unemployed and underemployed homeowners to apply for a court-ordered six-month protection from mortgage foreclosure and the restructuring of their mortgage payments. The court has broad discretion in determining whether a homeowner is eligible. The law allows it to consider any relevant fact. But it requires the court to consider certain facts such as the likelihood the homeowner will be able to make timely payments when the mortgage is restructured.
The law requires that the court add certain items such, as court costs and legal fees, to the existing principal balance when it restructures the mortgage debt. The law prohibits restructuring the debt if the restructured debt would exceed the original mortgage debt. The law requires that the foreclosure be dismissed if there are no further foreclosure proceedings for three months following the end of the restructuring period.
MORTGAGE FORECLOSURE PROTECTION
The law allows unemployed and underemployed homeowners to apply for a court-ordered six-month protection from mortgage foreclosure and for the restructuring of their mortgage payments (CGS §§ 49-31d to g). The law permits a person against whom a foreclosure action is brought to apply to the court having jurisdiction over the foreclosure for protection from foreclosure if he had, (1) a mortgage on residential real estate which served as his principle residence for a period of at least two years, (2) no foreclosure action brought against him in the preceedings seven years, and (3) not received an emergency mortgage assistance loan and had not applied for one for two years before applying for foreclosure protection. For purposes of this law, a person is underemployed if his earned income during the 12 month period immediately preceeding the beginning of the foreclosures action is (1) less than $ 50,000 and (2) less that 75% of his average annual earned income during the two years immediately preceeding such 12 month period.
NOTICE TO HOMEOWNER OF PROTECTION FROM FORECLOSURE
The law requires a lender foreclosing on a residential mortgage to give notice to the homeowner of the availability of the protections provided by the law when it begins the foreclosure action. A homeowner who gets this notice has 25 days to apply to the court for protection. The law prohibits the court from granting a foreclosure unless it is satisfied that the homeowner has been given the appropriate notice. If the homeowner was not given notice and was eligible to apply for the protection, the court may on its own or on the homeowner's motion, issue an order delaying the foreclosure for 15 days during which time the homeowner may apply to the court for protection.
The court determines whether the homeowner is eligible for protection. In determining eligibility, the law permits the court to consider any relevant facts. But, it requires the court to consider the following: (1) the likelihood that the homeowner would be able to make timely payments on the restructured mortgage and (2) the presence of any substantial prejudice to the lender or any subsequent lien holder that would result from a restructuring of the mortgage debt.
If the court approves the application, the law halts foreclosure action for the restructuring period. The foreclosure must be dismissed if for a three-month period following the end of the restructuring period, there are no further proceedings to continue the foreclosure because of default on the restructured mortgage. The restructured mortgage debt has the same priority as if it were the original mortgage.
RESTRUCTURING THE MORTGAGE DEBT BY THE COURT
If the court determines that an unemployed homeowner is eligible for protection from foreclosure, it must order the restructuring of the mortgage debt to eliminate any arrearage and must order a restructuring period up to six months.
If the court determines that an underemployed homeowner is eligible for protection, it may in its discretion order the restructuring of the mortgage debt to eliminate any arrearage and may allow a restructuring period of up to six months.
PARTIAL PAYMENT BY HOMEOWNER MANDATED BY COURT
As a condition of granting a restructuring order, the court may order the homeowner to pay to the lender during the restructuring period an amount up to 25% of the homeowner's net income per month as a means of demonstrating the homeowner's good faith to reduce his mortgage debt. For this purpose, net income includes any unemployment compensation benefits the homeowner receives.
RESTRUCTURED MORTGAGE DEBT
The law specifies that the amount of the mortgage debt following a restructuring period may not exceed the amount of the original mortgage debt. Any sum added as a result of a restructuring order, such as for court costs or legal fees, must accrue interest at prevailing market rates.
After the restructuring period, the new mortgage debt must be computed based on a composite rate of interest (original balance plus balance for restructured period at the respective rates).