The Foreclosure Process
Foreclosure is the process by which the lender takes control of the property which was pledged as collateral for the mortgage debt and sells the property to raise money to pay on the debt created by the Note. The sale extinguishes the borrower's interest in the property although some states have redemption period after the sale. Other interests are also extinguished if the foreclosure is done properly, including the rights of other owners, spouses, junior mortgages, lienholders, and some taxes. The foreclosure process is very different depending on whether it is judicial or non-judicial. In the US, approximately half of the states permit non-judicial foreclosure. The rest of the states require judicial foreclosure. A few states allow both. However, the process is different in each state; accordingly the material here is intended as a general guide. It is for educational purposes only, and is not legal advice.
In order for the interests of all parties who may have a claim to the property be extinguished, the foreclosure must be done properly, and all interested parties must be given proper notice as detailed by state law. The typical interested parties are other owners of the property, spouses, junior mortgages, lienholders, and some taxes. If the borrower is deceased, his or her heirs and estate are interested parties.
Judicial foreclosure is a lawsuit, similar to other kinds of lawsuits. It is formal and much more complex, and generally takes longer than non-judicial foreclosure, although this varies by jurisdiction. The point of a judicial foreclosure is for the lender to obtain from the court a judgment in foreclosure, and the right to hold a sale of the mortgaged property. The court is involved in the foreclosure process all the way through. So, if a borrower feels there is something wrong or improper occurring, he or she can raise those issues within the judicial foreclosure proceeding.
Notice of Default and Acceleration
Most mortgage and most states' laws require the lender to give a borrower advance notice that a foreclosure is about to start, and an opportunity to cure the default. The cure period is typically between 20 and 60 days, depending on the mortgage document and state law.
Service of Process
Lawsuits are begun by service of process. All states have laws that govern exactly how this has to work to be valid. In most states, it means that the Summons and Complaint (see below) must be handed directly to you or to an adult member of your household. However, all states have laws to cover situations where you avoid service of process or cannot be served personally. Service of process must be done properly in accordance with the law of the state in question to be valid. These days we see many examples of improper service of process. If process is not served properly, this issue MUST be raised before any other defensive pleadings or it is waived.
Summons and Complaint
This is usually the first evidence that a borrower in a judicial state sees that his or her property is being subjected to foreclosure. A Complaint is filed by the lender or its agent, the loan servicer, with the Clerk of the court having jurisdiction over foreclosures in that county. The Clerk issues a Summons, and that, with the Complaint, is then delivered personally to the borrower and any other interested parties (other property owners, spouses, junior mortgages and liens, condominium and homeowners' associations). Service of the Summons and Complaint starts the clock ticking for the party served to defend if he, she or it is going to do so. The party suing is the Plaintiff, the parties being sued are Defendants. The Complaint asks that the court accelerate the obligation to pay the entire mortgage debt in full, with all accrued costs, fees, advances and expenses.
If a borrower or other interested party has any reason to contest a foreclosure, he she or it needs to file a Response to the Complaint unless there is a defective process service issue (see above). There are many different kinds of responses, and it is critical that the right one be utilized at the right time. Motions and other objections normally deal with preliminary matters of some kind, including technical defects in the Complaint, technical defects in service of process, etc. There are various kinds of preliminary motions. Most applicable usually to foreclosure, depending on the facts, are Motions to Quash Service, Motions to Dismiss, Motions to Strike, and often there are others, depending on the specific law and procedure of the state in question.
Response - Answer
Answers fully address the allegations of the Complaint. In most cases, if issues exist which can be raised by Motion or Objection, this is waived if an Answer is filed first. Answers raise legal issues which are defenses to foreclosure (See Guide - Defenses to Foreclosure). The amount of time allowed for a Response is governed by state law, usually 20 or 30 days. Many people try to file their own "Answer". This is normally a very dangerous move. The filing of an Answer generally extinguishes the right to file preliminary motions, which can be critical to the correct handling of a defense case. The only things which should be contained in an Answer are legal defenses to foreclosure. These are rarely what you would expect. Typically, the sorts of things people file talk about their financial difficulties, about the fact that they are trying to get the mortgage company to work with them, or trying to get a better job, and that they need more time.
If a Defendant does not file a response within the time allowed by law, the Plaintiff can cause default to be entered against that Defendant, which precludes his or her being able to raise defenses. In some states, it also allows the foreclosure to proceed without any further notice to defaulting defendants.
If a borrower has been wronged by the mortgage lender or servicer, he or she may file a counterclaim. A counterclaim is just that - a suit within a suit, where the Borrower is suing the Lender or Servicer.
Interrogatories, Requests for Production, Requests for Admission, Depositions - These are tools which can be used by any party to a lawsuit to obtain more information to prove or disprove his, her or its case. Interrogatories are written questions which one party serves on the other, demanding information. Requests for Production are requests for tangible things, such as documents, files, objects, etc. Requests for Admissions are used by attorneys to attempt to compel the other side to admit or deny issues. Depositions are in-person testimony, under oath, all of which is taken down by a court reporter. Cases may involve all or any combination of these, however each jurisdiction has specific rules as to when discovery can be propounded, how long the other side has to respond, and how to handle a failure to respond or to respond properly. Properly done discovery is usually the key to a successful outcome in a lawsuit.
Burden of Proof
Normally, whichever party raises an issue has the burden of proving it. This means that if I say you owe me money, I have to be able to prove it. If I say I own the mortgage on your home, I have to be able to prove it. As mentioned above, well-done discovery will allow your attorney to find out whether I can prove it or not. As an example, if you claim that the mortgage company did not apply payments correctly, you have to be able to prove it. You may be able to do this with your records, but it would also be of tremendous use to get the mortgage company's records of what payments they applied to see if their records are right. So, in a Judicial Foreclosure, the Plaintiff has the burden of proving its right to foreclose, the amount of the debt and the existence and details of default. The defendant has the burden of proving any affirmative defenses he she or it raises.
Either party has the right to ask the court to grant summary judgment in its favor. Normally, the Motion for Summary Judgment is supported by affidavits from potential witnesses supporting their claims. If granted, that ends the case - it means the moving party wins. Summary judgment is the goal of foreclosure plaintiffs. Technically, it means that the court is convinced that there is no reason for a trial, that the pleadings and issues raised in the case by the parties demonstrate that the party requesting summary judgment does not have to do any more to prove its case. If a defendant does not raise issues which constitute defenses to foreclosure, and does not establish that there are issues that need to be sorted out at trial, the court is likely to grant summary judgment, since that removes one more case from the court's swollen caseload.
Summary Judgment (cont.)
If a defendant has been defaulted, the way to summary judgment for the Plaintiff is wide open. If a defendant has filed a homemade "answer" telling the court that he, she or it can't pay right now, is trying to get a modification, is trying to get a better job, needs more time, likewise the way to summary judgment for the Plaintiff is wide open. If the defendant has properly raised legitimate issues, there is a chance of surviving summary judgment and if a summary judgment is improperly granted anyway, that may be a basis for appeal. The Order granting Summary Judgment normally itemizes the entire amount claimed to be due at that point - the entire mortgage debt in full, with all accrued costs, fees, advances and expenses. Once Summary Judgment is granted, the next step normally is the scheduling of a foreclosure sale.
If neither party is able to obtain Summary Judgment, and unless the dispute is settled by agreement, the next step is trial. Trial is a full scale proceeding. Some states allow for trial by jury, others do not, but most mortgage documents contain a jury trial waiver which the borrower consented to at closing. At trial a judge with or without a jury hears and rules on all the evidence presented, hears the arguments of counsel and makes a decision. If a Counterclaim has been filed and has not been disposed of via Summary Judgment, the counterclaim may allow for trial by jury. At the conclusion of the trial, if the Plaintiff wins, then it proceeds to set a sale (see below). If it loses, it will be unable to proceed any further with the foreclosure process. If it did lose, depending on the reason why, it may be possible for another Plaintiff to bring an action for foreclosure.
In order for a foreclosure sale to be held in a judicial foreclosure, the actual lawsuit must be over, either through Summary Judgment or after trial, and all that remains are the final details of getting the property sold. Again the process and details vary by state, but all entail setting a date for sale. Notice of the date is given to all interested parties and in many states also provided publicly in the newspaper and often now by posting on the web sites of Courts, Clerks of Court or other similar locations. The foreclosure sale is handled by a judicial officer - in some states it is the Sheriff, in some states it is the Clerk of Courts, in some states a referral is made to a court-appointed master. The date is set, notice is given, and then the actual sale occurs. It is generally in the form of an auction.
Foreclosure Sale (cont.)
The foreclosing lender sends a representative to bid. Its bid is usually the total amount due it, although sometimes if the property is underwater, the lender will reduce its bid in the hope that it will be outbid by a third party. If a junior lienholder or third party is the high bidder, it is the successful purchaser. However, in many places now, when the mortgage debt equals or exceeds the current value of the property, there are no other bidders, and so the mortgage company wind up as the high bidder. Normally the entire bid amount must be paid right away in full. There is some time period after the sale before the sale is confirmed. This varies by state. Once the sale is confirmed, a document is issued to the buyer conveying title. Depending on the state, it might be a Sheriff's Deed, a Certificate of Title or some other instrument, but the practical effect is to convey title. Once the new buyer owns the property, they can do what they want, subject to right of redemption.
Many states provide a mechanism for a foreclosing Plaintiff to recover a deficiency judgment, usually consisting of the shortfall between the total owed by the borrower and the value of the property it recovers if it buys it at the foreclosure sale. In those states that permit this, a borrower is not done with the obligation simply because he she or it allows a foreclosure to be completed. It is very important to understand whether or not you may be exposed for a deficiency judgment before you decide whether to oppose foreclosure or to consider bankruptcy. For details of how deficiency judgments work in Florida, check my Legal Guide on deficiency judgments. While the guide is geared to Florida, the concept is similar in other states that permit it, although the details and time-frames vary. Some states do not allow deficiency judgments under some circumstances.