By Janet Howard
Recent surveys show that a significant number of Americans are unprepared to handle an unexpected bill of $500. As many as 80% of Americans live paycheck to paycheck. A sudden job loss, illness or accident can create financial chaos. For anyone paying off a home mortgage, foreclosure and the impending loss of their home can quickly become a reality. The COVID-19 pandemic has heightened the problem.
State foreclosure laws vary, and a homeowner facing foreclosure should quickly become familiar with state and federal laws outlining procedures and requirements. Both the process and length of time involved will depend on the type of foreclosure allowed by state law and documents that were signed to finance the home purchase.
Judicial vs. Non-Judicial Foreclosure
Just under half the states employ judicial foreclosure in which the foreclosing party must begin a lawsuit to regain the property. A complaint and summons are filed in court and then served on the homeowner. The remaining states use non-judicial foreclosure, a process that generally works more quickly and begins when the homeowner receives a notice of default from the loan servicer that foreclosure and sale of the home is imminent.
Judicial foreclosures are more common when a mortgage is involved. Non-judicial foreclosures are most common where ownership involves a deed of trust which includes a power of sale clause.
Judicial foreclosures tend to take longer for several reasons. First, federal law requires homeowners to be 120 days in arrears before a foreclosure suit may be filed. Second, the court process is slow due to crowded dockets, required hearings and a limited number of available judges. Once a homeowner has been served with a complaint, he or she usually has 20-30 days to file an answer which either admits or denies the allegations, raises potential defenses and tells the court why foreclosure is improper. Filing an answer prevents the lender from obtaining a default judgment and automatically winning.
In non-judicial foreclosures the homeowner must initiate court proceedings by filing the complaint. The initial filing should also request a temporary restraining order (TRO) and a preliminary injunction to prevent the foreclosure action from proceeding pending court action. Obtaining a TRO requires the person seeking it to show he or she will suffer irreparable harm unless the order is granted. The potential loss of a family home usually meets that requirement.
Once the matter is in court, the foreclosure process naturally slows down. If a homeowner can survive a motion for summary judgment in which the lender wins by showing there is no legitimate dispute regarding a material fact, the discovery and trial preparation process will likely take months to complete. The discovery process allows both sides to request information from the other including property and financing records. Depositions may be taken or written questions may require answering as each party tries to obtain further evidence to justify or defend against foreclosure.
Judicial foreclosures are less expensive for the homeowner since the owner is not the one starting the lawsuit. Judicial foreclosures place the burden on the lender to prove the foreclosure is justified and that applicable laws have been followed. Conversely, the homeowner must pay to start a lawsuit in non-judicial foreclosures. The lender, at least initially, does not need to prove anything. The homeowner has the burden to show the foreclosure action is improper.
Remaining in the Home
A homeowner can remain in the home without making payment at least until the foreclosure process is completed. In fact, the homeowner should remain in the home since the owner is ultimately responsible for the home and any damage to the property until required to vacate. Remaining in the home is often a requirement to take advantage of a loan modification program. Staying without paying also provides the opportunity to save money to put toward a new, less costly residence if saving the current home proves to be impossible.
The homeowner should explore options which can prevent loss of the home or which might, at least, minimize the damage to the owner's credit report. Losing a home through foreclosure will appear on a credit report and will typically prevent purchase of a home for the following 3-5 years. Options to foreclosure include loan modification, short sales and surrendering the deed to the property in lieu of foreclosure.
If a court determines a judicial foreclosure is appropriate, the homeowner still has time before being required to vacate the property. The lender must schedule a date for the home sale and publicize the sale. Notice often requires several weeks of publication in a local newspaper. State law may also require a current home appraisal be performed.
Some states also provide for a redemption period following foreclosure during which the homeowners can buy back the property. Depending on state law, the homeowner may be able to live in the home during the redemption period even if the buyback proves impractical in the end.
Length of the Foreclosure Process
Pre-COVID, the average foreclosure took more than 800 days from the time of first notice to end of the foreclosure process. In many states the actual process may take more than a year, and in a handful of states the foreclosure process often takes several years.
Receiving notice of foreclosure does not mean loss of a home is inevitable. A number of defenses may be available to prevent the loss. Actions can be taken to slow down the process, minimize the anxiety and even save the home under the right circumstances. Consultation with an experienced real estate attorney should be among the first steps taken for anyone facing foreclosure.
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