Foreclosure is the process by which a lender, usually a bank, takes possession of a home when a borrower fails to make their mortgage payments. Foreclosure may be devastating and can result in an individual and/or family losing their home. When a borrower purchases a home and obtains mortgage financing, they sign a contract stating that the home serves as collateral for the loan and may be repossessed in the event the borrower does not make payments as required.
After a borrower misses a certain number of payments, the lender has the authority to seize the property from the borrower and sell it to recover the debt owed for the mortgage. In some cases, a lender will provide a grace period in which a payment can be made in order to avoid foreclosure proceedings.
Usually, however, this is a short period, often a couple of months. In many cases, a borrower is behind on their payments and has a difficult time catching up due to late fees.
The two different types of foreclosures are non-judicial foreclosures and judicial foreclosures. A non-judicial foreclosure, or a foreclosure by power of sale, does not require court intervention. The lender, often a bank, can sell the mortgaged property directly to recover the money owed for the mortgage. This foreclosure option is only available in certain states.
A judicial foreclosure, on the other hand, is available in every state. It requires court intervention to sell the mortgaged property.
What is a Foreclosure by Judicial Sale?
A foreclosure by judicial sale is the sale of a mortgaged property due to the intervention of a court. Typically, it is ordered in cases of dispute where the property debt cannot be resolved. It may also occur if the borrower is insolvent and cannot afford to continue making mortgage payments.
The proceeds from a judicial sale will be paid towards the original mortgage. If there is any profit remaining, any other lien holders and/or second mortgages may be paid from the sale. If there are any profits remaining after all debts are paid, the borrower may receive those proceeds.
Which States Allow Foreclosure by Judicial Sale?
As noted above, all states allow foreclosure by judicial sale. In many states, judicial sale is the required method for foreclosure.
What is a Necessary Party to a Judicial Sale?
An important aspect of any foreclosure process is ensuring that all necessary parties are included in the proceedings. The parties to a judicial sale may be divided into two categories, necessary parties and proper parties.
Necessary parties are those parties that are required to be included in the foreclosure process. Any party that has acquired an interest in the property after the initial mortgage was taken out is considered a necessary party. The party that brings the foreclosure lawsuit must name these parties in the case, even if they do not consent.
Any parties that acquired a lease, lien, and/or easement after the mortgage was executed is also considered a necessary party. For example, say Party A takes out an initial mortgage from Party B as well as a second mortgage from Party C. Because Party C obtained their interest after the initial mortgage, they must be named in the suit if Party B files a foreclosure suit.
What is a Proper Party to a Judicial Sale?
The second category or parties to a judicial sale is a property party. A property party is a party that obtained an interest in the property prior to the execution of the mortgage.
A proper party is a party that may be helpful in a foreclosure process but is not essential to the lawsuit. A proper party is considered a voluntary party and cannot usually be named without their consent. They are normally not affected by the outcome of the lawsuit. In some cases, the court may order a proper party to be named in a case if their input would be helpful for the judicial sale.
What is the Judicial Foreclosure Timeline?
As previously, a judicial foreclosure is a court-ordered foreclosure. In order for an individual to protect their rights during a foreclosure, having knowledge of the process is essential. Although the foreclosure process varies from state to state, the general timeline is discussed below.
If the borrower misses a single payment, they will likely have a chance to pay and continue the mortgage. The loan officer will give them a call and remind them to make the payment and that they are late. It is important to note that late fees may apply.
The second missed payment is more serious than the first. The loan officer will likely call and request a payment be made over the phone immediately. Late fees will also likely apply.
The third missed payment is where the situation becomes serious. If a borrower misses three consecutive payments, the loan officer will send a notice of breach of the mortgage contract. In the breach notice, it may state that the mortgage company is exercising its accelerated clause, meaning the remainder of the mortgage must be paid within 30 days.
If a borrower receives a notice of breach and cannot pay the remainder of the mortgage within 30 days, the lender will begin foreclosure proceedings. This is where it is most important to obtain an attorney.
Next, the attorney for the mortgage company will begin the judicial foreclosure proceedings by filing a lawsuit. The borrower will have around 20 to 30 days to object in the form of a formal written response.
If the borrower does not formally object to the foreclosure proceedings, the court will enter an automatic default judgment against them. If the borrower objects, a number of procedural and substantive defenses may be available to them.
If the court does not enter a default judgment against the borrower, foreclosure proceedings will continue. The court next schedules a foreclosure auction. At the auction, the highest bidder on the property will become the new owner.
The borrower may have a right of redemption, depending on the location of the property. If this option is available, the borrower will have a period of time following the auction to purchase the property back from the highest bidder.
If the borrower is unable to exercise their right of redemption, they will be evicted from the property. The borrower will have a specified number of days to vacate the property and if they do not, they will be removed by law enforcement.
What is a Deficiency Judgment?
In some cases, a judicial foreclosure sale does not satisfy the mortgage amount. If that occurs, the lender may file a deficiency judgment against the borrower in order to recover any back and/or missing payments. For example, if a lender of a $15,000 mortgage only received $10,000 from the judicial sale proceeds, they may sue the borrower for the remaining $5,000 due for the mortgage.
Deficiency judgments are not permitted in every jurisdiction. Additionally, even if they are permitted, they may be modified according to fair value legislation. In those cases, the mortgage lender will only be permitted to recover an amount that is based on the fair value of the property at the time of the sale, not at the time at which the mortgage agreement was signed.
Do I Need a Lawyer for Foreclosures and Judicial Sales?
Yes, if you are facing any foreclosure and/or judicial sales issues, it is essential to have the help of an experienced foreclosure lawyer. Your attorney can review any documents related to your mortgage and ensure your interests are protected. A lawyer can also assist you with a deficiency judgment and represent you during any court proceedings, if necessary.