Can a bank foreclose on a home of a person who has been kidnapped?

Question

Say that an American homeowner is traveling overseas and then he/she is kidnapped by a terrorist organization.

Does the American bank which gave that person the home loan have the legal right to immediately start foreclosure proceedings on that home after the first missed mortgage payment, or is there a federal law that prohibits American banks from doing this to a kidnapped person?

In other words, would this bank have to wait until the kidnapped person is either freed or declared deceased by the U.S. government before it can begin foreclosure proceedings on the home?

Answer 1

12 USC Ch 38A regards single family mortgage foreclosures and 12 USC Ch 38 regards multifamily mortgage foreclosures, however both law applies to mortgages held by or guaranteed by the federal government; nothing in those laws establishes an exception to the right to foreclose in case of kidnapping or some other special circumstances. There has to be written notice of the judicial proceeding, but it is not required that the owner be physically handed and made aware of that notice.

Outside of those cases involving the federal government as the foreclosing party, the details are determined by state law. In Washington, there might be a non-judicial foreclosure under RCW 61.24.031, where you get a Notice of Default. The requirement is that you send the borrower a letter giving the relevant information ("YOU MUST RESPOND..."). You must exercise "due diligence" in providing notice, which is defined in subsection (5), which includes (and is not limited to) sending

both first-class and either registered or certified mail, return receipt requested, a letter to the address in the beneficiary's records for sending account statements to the borrower and to the address of the property encumbered by the deed of trust

You also have to call 3 times, then another certified letter receipt: there is, again, no condition that says "if you can't find the person, you cannot foreclose". One part of the process is that the borrower can apply for mediation under the Foreclosure Fairness Act, guidelines here. However, this would require that someone be able to act on the borrower's behalf, which may not be the case.

Answer 2

Does the American bank which gave that person the home loan have the legal right to immediately start foreclosure proceedings on that home after the first missed mortgage payment, or is there a federal law that prohibits American banks from doing this to a kidnapped person?

There is no federal law of this kind, nor am I aware of any state law of this kind (since foreclosures are governed predominantly by state law).

The Soldier's and Sailor's Civil Relief Act provides a process similar to the one you contemplate in circumstances where the home owner is in military service for the United States, but there are no other laws that govern someone in similar circumstances. Of course, the Soldier's and Sailor's Civil Relief Act would provide protections if the kidnapped person was in military service.

Generally speaking, the bank would not conduct any inquiry into why the person was not paying their mortgage.

But, starting a foreclosure after just one missed payment would be very unusual. Usually banks don't actually foreclose until three or more payments are in default, even though they have the legal right to do so after just one missed payment, and sometimes a state will have a minimum amount that must be owed and outstanding before a foreclosure proceeding of certain types can be commenced (this is $5000 in certain kinds of Colorado foreclosures).

In other words, would this bank have to wait until the kidnapped person is either freed or declared deceased by the U.S. government before it can begin foreclosure proceedings on the home?

No.

In this situation, a more common option would be for an interested person, perhaps a family member, to seek a conservatorship for the kidnapped person and to either request that the bank refrain from acting as an act or mercy, or the conservator could marshal the assets of the person in question to pay the mortgage if there were sufficient funds available.