What are mortgage companies' foreclosure practices?

The answer to this question is a somewhat tricky one but it is evident, in certain situations stipulated by the nature of the mortgage contract signed, that a mortgage company is allowed to change the locks. But it takes a particular set of circumstances to activate such a chain of events.

According to various real estate and foreclosure attorneys, one's house is considered the collateral for the mortgage debt. Thus, mortgage companies have the right to protect that collateral in situations where the homeowner has:

A) fallen behind in making regular mortgage payments, AND

B) visibly abandoned the property in question.

As long as a homeowner is up to date on making their mortgage payments, they will not run into any situation whereby the mortgage company can change their locks. If, however, the homeowner falls behind on payments, mortgage companies employ third-party property managers who patrol regions to see if such properties have been abandoned or otherwise endangered. If, in the view of the property manager, the property has been abandoned or endangered, they have the right to change locks and secure the property in order to protect the collateral. This can be especially tricky because sometimes it is not clear whether a property has been abandoned or not. Some signs of abandonment beyond the lack of human presence include, but are not limited to, mail that has piled up, very long grass, or inadequate removal of snow or ice.

The moral of the story is that even if regular payments on a mortgage are not made, mortgage companies are still NOT allowed to change the locks unless the property has been abandoned. The house still belongs to the homeowner until a foreclosure sale takes place. As long as a homeowner continues to occupy the home, even in a pre-foreclosure situation, mortgage companies do not have the right to change locks.

This is a great question, and one which is being asked with more frequency as foreclosures and short sales continue to flood the real estate market.

The mortgage agreement that you signed at the closing of your property probably has a clause that protects the lender in the case of abandonment. The idea here is that an abandoned property is a natural target for vandalism, damage and theft. Most agreements contain language similar to the sample below from a Florida mortgage.

"9. Protection of Lender’s Interest in the Property and Rights Under this Security
Instrument. If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property.
…
Securing the Property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not have to do so and is not under any duty or obligation to do so. It is agreed that Lender incurs no liability for not taking any or all actions authorized under this Section 9."

In situations such as foreclosures and short sales, lenders will often request that the court temporarily secure the property in question in an effort to protect their interests. Most states require the mortgage company or bank to prove that the home has been abandoned. Mortgage companies must show that the owners have not responded to the lawsuit and that the house has not been occupied for a certain period time. This time frame may vary from weeks to months depending on location. Unfortunately, the determination of abandonment is not always easy. Occasionally, these homes are investment and rental properties with no current residents or the homeowner could be away on vacation, business trips, etc.

There are several things you can do to avoid getting into a situation where you cannot access your property. The obvious number one thing you can do is make your mortgage payments on time. In the event that you do find yourself in a foreclosure or short sale situation, be sure to take the following action to prevent losing access to your home.

1. Respond to any and all communication with the bank/mortgage company.
2. Respond to communication regarding a foreclosure lawsuit. Either appear in court or hire an attorney if necessary to represent you at the foreclosure hearings.
3. Stay in contact with your lender and explain why the property is empty.

Once the locks have been changed, it is very difficult to regain access. Also be aware that if the homeowner decides to “break-in,” they may actually be liable for any damage incurred.