If you can’t get current with your mortgage loan, you can expect your lender to begin the foreclosure process. This often involves filing a foreclosure lawsuit and asking a court to issue a foreclosure judgment.
Written by Attorney Curtis Lee.
Updated October 19, 2021
If you stop making mortgage payments, you can expect your lender to take action. It might start with warning letters letting you know that you’ve missed a payment and you’re about to default. If you can’t get current with your mortgage loan, you can expect your lender to begin the foreclosure process. This often involves filing a foreclosure lawsuit and asking a court to issue a foreclosure judgment.
If your lender gets this judgment, they’ll sell your property to someone else and use the proceeds to cover the mortgage balance you still owe. This article will explain the foreclosure process. It’ll also cover what you can do as a homeowner to prevent your mortgage loan servicer from getting a foreclosure judgment against you.
How Does the Foreclosure Process Work?
The home mortgage foreclosure process is determined by state law. There may also be special procedures and rules at the county or city level. But these local laws typically only come into play during the foreclosure sale. The terms outlined in the mortgage loan can also control what happens during foreclosure and when. That said, most foreclosures still consist of the following stages.
The homeowner misses a mortgage payment. In response, the mortgage company sends a letter to the borrower or calls them to let them know they missed a payment and to tell them to make the payment as soon as possible.
The homeowner misses a second monthly payment. At this point, the lender will send a letter or call to explain that you’re in default or about to go into default. The letter will also warn you of the consequences of not getting current with your mortgage. Even with a second missed payment, foreclosure still hasn’t started. That’s because, under federal law, a foreclosure action can’t begin until at least 120 days have passed without a mortgage payment. To avoid foreclosure at this point, ask your lender about your loss mitigation options.
The lender will inform you that you’re delinquent on your mortgage loan and are in default. They’ll then give you a deadline to become current on your mortgage to avoid foreclosure. Most homeowners will have at least 30 days to do this but could have as many as 90.
Foreclosure begins. In a judicial foreclosure, the lender files its foreclosure lawsuit and seeks a judgment of foreclosure from the court. A judicial foreclosure is defined by the need to get court approval to foreclose. In a nonjudicial foreclosure, the lender doesn’t need court approval for foreclosure. Instead, they file a notice of default at the county clerk’s office where the property is located. The lender will also inform the public of its intent to sell a foreclosed property. This may involve posting a notice on the property itself and publishing a notice in the local newspaper.
Assuming the lender successfully forecloses on the property, they’ll sell it to the highest bidder, usually at a foreclosure auction.
The last stage of foreclosure is the homeowner leaving the property. In many foreclosures, homeowners leave on their own after the foreclosure sale. Many states have laws giving homeowners a little bit of time to move out after the foreclosure sale. If they don’t leave, an eviction proceeding could occur and a local sheriff may physically remove the homeowner from the property.
Keep in mind that foreclosures are costly for both the lender and the borrower. During foreclosure, the lender isn’t getting any mortgage payments from the borrower. At the same time, the lender is paying employees and/or lawyers to handle the foreclosure action. As for the homeowner, late fees and penalties are getting added to the already growing mortgage loan balance due to missed payments. And if the homeowner chooses to fight the foreclosure, they may have to pay legal fees if they hire a foreclosure lawyer.
Because the foreclosure process differs by state and by case, if you’re facing a foreclosure, it’s a good idea to speak to a professional. This might mean contacting a foreclosure defense attorney to get legal advice or talking to a credit counselor.
What Is a Foreclosure Judgment?
A foreclosure judgment is issued by a court. It formally grants the lender permission to foreclose on a property. A court will issue a foreclosure judgment after the lender wins its foreclosure lawsuit against the borrower. This gives the lender the right to sell the foreclosed property to collect the debt owed on the mortgage loan.
A foreclosure judgment will list all parties that have a lien on the property, as well as the total amounts owed. This includes stating the outstanding mortgage debt and the lender. It’ll also identify unpaid utility bills, tax liens, and other costs associated with the foreclosure. This can include legal fees and interest that may be accruing on any unpaid balances.
Judicial vs. Nonjudicial Foreclosures
The two most common forms of foreclosure are judicial and nonjudicial. The primary difference is that judicial foreclosures involve a foreclosure lawsuit. In most of these cases, the plaintiff is the lender and the defendant is the homeowner. The lender has the burden of convincing the court that the homeowner is in default on the mortgage loan. Only then can the lender foreclose on the mortgaged property.
Because judicial foreclosures involve a lawsuit, they can take longer than nonjudicial foreclosures. This is particularly true if the defendant-borrower raises a legal defense. Judicial foreclosures take at least a few months to complete but can sometimes take a few years. In contrast nonjudicial foreclosures often only take a few months.
Not all states permit nonjudicial foreclosures. In states that do, many lenders still use the judicial foreclosure process. This is because some states only allow deficiency judgments in judicial foreclosures.
Types of Judgments
Foreclosure judgments are typically only found in judicial foreclosures. A foreclosure judgment grants the lender the right to take the property and sell it at a foreclosure auction. But judicial foreclosures can have two other types of judgments: deficiency judgments and summary judgments.
Deficiency judgments give the lender permission to collect a deficiency balance. This is the money a borrower still owes on their mortgage after the property gets sold. Borrowers may owe a deficiency balance when the fair market value of their property is less than their mortgage balance. This can happen when real estate prices drop or because the borrower owes additional fees and penalties, which were added to their mortgage balance because of missed payments.
A summary judgment is a court judgment that ends the case summarily, or without a trial. A lender may file a motion for summary judgment because there’s enough evidence from discovery and pre-trial litigation to grant the foreclosure. If a lender receives a summary judgment in a foreclosure case, they can proceed with the foreclosure sale.
How To Avoid Foreclosure
The best way to avoid foreclosure is to not miss any mortgage payments. But if that’s not possible, the next best thing you can do is contact your mortgage lender before you miss a payment. Let them know that you’re having financial trouble and you need help with your mortgage. They’ll have loss mitigation and other foreclosure prevention options, like a mortgage loan modification. If your lender can’t help, there are other sources of foreclosure assistance, such as government and nonprofit programs.
If you’re in the middle of a judicial foreclosure, it’s best not to ignore the lawsuit. This means responding to the lender’s foreclosure complaint. If you don’t, you risk a default judgment. This means losing your case because you ignored the lender’s complaint.
If you do respond to the complaint, you can assert a defense to slow down the foreclosure proceeding. Depending on the facts of your case, you may also be able to petition the court to stop or delay the sale of the foreclosed property. You could file the appropriate motion, like an order or rule to show cause. You might want to do this if you are close to finding a buyer for the property, have filed bankruptcy, or are about to refinance your mortgage. Filing bankruptcy is also something you can do after foreclosure.
Lastly, you can consider a deed in lieu of foreclosure. This allows you to reduce or even eliminate your mortgage balance in exchange for signing over the legal title of your home to your lender.
Consequences of Foreclosure
There are many consequences of foreclosure and none of them are good. When you miss mortgage payments, you’ll see your credit score drop. Then once the foreclosure is complete, there’ll be further damage to your credit. Most credit reports will list the foreclosure one to two months after the foreclosure starts. And it takes seven years for the foreclosure to come off your credit report. But its negative impact should diminish over time, especially if you’re taking steps to rebuild your credit.
Foreclosure judgments are part of judicial foreclosures or foreclosures that require the lender to go through a court process. These foreclosures are different from nonjudicial foreclosures, which don’t require the lender to file a lawsuit or go to court. After foreclosure, you can expect a notable drop in your credit score and for the foreclosure to remain on your credit history for seven years.
That’s what it’s best to try to avoid foreclosure. You can do this by contacting your lender as soon as you encounter financial difficulties. Ask about any loss mitigation options or foreclosure alternatives like a deed in lieu of foreclosure. You may also be able to get help from a government or nonprofit foreclosure assistance program as well.