Alabama Hard Money Loan Guide

Alabama homeownership rates consistently outperform the national average by almost 5 percentage points and have for the last 20 years. The state is ranked 16th in the nation for home sales. Buyers in the Yellowhammer State sometimes look for alternatives to big bank mortgage loans to fund a new home purchase or to renovate an existing property. Hard money loans, where the borrower puts up their home or some other owned real estate as collateral can sometimes fund faster than traditional mortgage loans. They also usually require less paperwork. Hard money loans are not offered by large banks, but are usually available in Alabama from small group and individual investors.

Alabama Foreclosure Laws

Alabama is mostly a non-judicial foreclosure state. Foreclosures in Alabama typically move faster than they do in other states. This is because the vast majority of them are managed outside of the court system, called non-judicial foreclosures. Some special cases will go through the state courts, with a judicial foreclosure process, but for most homeowners facing the loss of their property in Alabama, it is a non-judicial foreclosure process that looms and must be addressed.

Property Redemption after Foreclosure Sale

As of January 1, 2016, Alabama law provides a 180-day redemption period that allows a homeowner who has lost their property to reclaim or redeem the home, even after the foreclosure sale has taken place. It is important to note that this law does not apply to sales made under a "power of sale" clause that can be contained in any mortgage or junior mortgage dated prior to the effective date. This law applies only to homestead properties (properties the owner actually lives in as a primary residence) [Alabama Code § 6-5-248(b)]. The foreclosing party must mail a notice about the right to redeem the home at least 30 days before the foreclosure sale. [Alabama Code § 6-5-248(h)].

In cases where notice is not provided before the foreclosure sale, homeowners have:

• 180 days to redeem the homestead property from the date the notice is provided or
• two years from the foreclosure sale, if notice was never provided.

Under the 2016 law, the redemption period is one year from the foreclosure sale date for non-homestead properties. It is also possible to lose this new right of redemption. If the homeowner does not move out of the house within ten days after the purchaser provides a written demand for possession, they lose the right to redeem the property [Alabama Code § 6-5-251].

Deficiency Judgments in Alabama

When a home is sold in foreclosure, if the sale price does not bring in enough money to cover the homeowner's debt, the remaining balance can be charged back to them with a deficiency judgment. Some states protect homeowners from this kind of action but Alabama does not have an anti-deficiency laws. If the home is lost to foreclosure in Alabama, the lender can sue to obtain a deficiency judgment.

Deed in Lieu of Foreclosure

When homeowners come to the realization that they are likely to lose their home in a foreclosure, they sometimes have the option to ask for an agreement with the lender called a Deed in Lieu of Foreclosure. This means that they willingly walk away from the home, leaving the property in the possession of the mortage company or lender. It can make the process less stressful and sometimes a homeowner can negotiate a small payment from the lender, to help pay for moving out. Many lenders will accept this kind of agreement.

This is also sometimes called "cash for keys" because homeowners willing to make the process easy for the lender can also usually negotiate a small cash settlement to help with unexpected moving costs. This agreement does not automatically protect the borrower from deficiency judgments, but many are able to negotiate that in the agreement.

Grace Period Notice

Alabama does not technically provide a built-in grace period for homeowners facing foreclosure, but the state's standard notification timeline does provide for some additional time to make an arrangement with the lender or to pay past due balances.

Service Members Mortgage Protections

If a service member dies while deployed overseas, the lender must wait at least 180 days before starting a foreclosure against the surviving spouse or the service member's estate provided that the surviving spouse or the estate notifies the lender and asks for a delay (and the mortgage was taken out after August 1, 2009) [Alabama Code § § 35-10-70 to 35-10-71].

High Risk Mortgage Protections

States sometimes build in anti-predatory lending laws to protect homeowners with very high interest rates or big balloon payments from facing foreclosure. Alabama does not have these protections in place. All homeowners have the same set of protections in the state.

What Are the Maximum Interest Rates Allowed in Alabama?

The maximum interest rate allowed by law is 8%. The legal maximum interest rate, if agreed upon in writing, is 8% per year, otherwise the maximum rate is 6% per year.

Additional Homestead Laws

Alabama is a homestead state. Alabama's homestead statute, like other state homestead laws, places a limit on acreage and value that can be designated as a homestead. However, the limits differ between Alabama's constitution (limiting homesteads to 80 acres and $2,000) and its statutory code (limiting homesteads to 160 acres and $5,000).

Lender Licensing Requirements

A Mortgage Broker License is required of any company or sole proprietor who directly or indirectly solicits, processes, places, or negotiates mortgage loans for a borrower, or offers to solicit, process, place, or negotiate mortgage loans for a borrower on Alabama residential real estate.