Our attorneys have experience representing both financial institutions and home owners in the following "special assets" situations:
Foreclosure Overview:
The foreclosure process is both a daunting and emotional process for debtors. However, being served with a foreclosure complaint and summons does not mean a debtor has no rights or options. The debtor does have some options he or she can pursue during the foreclosure / loan default process. The debtor can:
- Attempt to negotiate a reinstatement or modification of the defaulted loan
- File for bankruptcy
- Sell the property to pay off the debt in full or a portion thereof
- Give up the home to the creditor
- File an answer and defenses to the complaint
It is important to at least consult an attorney to discuss these options. For example, many times the lender's Complaint will mistakenly omit important evidence or documents, or may contain other deficiencies that could assist an attorney in delaying the foreclosure action or obtaining a dismissal.
The Process:
The foreclosure process begins with a "Default." The default is typically a monetary default in which the debtor fails to make the payments described in the Promissory Note. A default under the Promissory Note is an event of default under the Mortgage. The Mortgage is the document that pledges the property as security (collateral) for the debt, and will be the tool by which the lender attempts to take back the property through the foreclosure process.
The lender will initiate the foreclosure by sending the debtor a Notice of Default, typically a letter outlining the default and any cure periods within which the debtor can pay the amount owed. Failure to cure the default can result in the lender filing a lis pendens. The lis pendens is a legal document that is recorded in the Public Records of the County Courthouse that places the public on notice that "litigation is pending" concerning the property described in it. While there is no immediate action that needs to be taken in response to a lis pendens, the existence of one will create a cloud on title and render the property non transferable until the lis pendens is removed. The filing of a lis pendens is often accompanied by the filing of a Complaint, which is essentially the law suit for foreclosure.
The next step in the process includes the service of process of the "Summons" and Complaint upon the debtor. This will typically be effectuated by a process server or the county sheriff. Once personally served with the Summons and Complaint, a debtor has twenty (20) days to file a responsive pleading with the court. This will usually come in the form of an Answer, which may include "affirmative defenses" depending on the content of the Complaint, or may also come in the form of a Motion to Dismiss. A debtor's attorney will help determine the best course of action in response to a Complaint. A failure to respond to the Complaint will result in the lender seeking a clerk's default against the debtor for failure to file a responsive pleading.
If the debtor files an answer, the debtor can schedule and attend a Preliminary Hearing or a Hearing on the Motion to Dismiss. These hearings provide the debtor with an opportunity to appear before the judge and can help to delay the foreclosure process.
The lender's next step will be to file a Motion for Summary Judgment and schedule a hearing on that motion. Summary Judgment means that the case contains no factual issues in dispute and the moving party is entitled to a judgment as a "matter of law." In a foreclosure action this simply means the debtor did not pay, the debtor owes the lender money, and there are no other facts in dispute. Proof of payment is really the only defense that can ultimately defeat the motion for summary judgment, while other defenses may delay the lender's motion from being granted by the Court. The final summary judgment will not only include the principal amount of the debt, the interest, as well as the lender's attorneys' fees and costs, and possibly unpaid property taxes and other costs associated with the property.
Once the judgment is issued, the clerk of court will set a date for the foreclosure sale. This is the sale of the property at the courthouse. During the time between the judgment and the foreclosure sale the debtor has the right to "redeem" the property. This is the equitable right of redemption which affords the debtor a chance to stop the foreclosure sale and keep the property by paying the amount owed. Finally, after the sale, the lender may file for a deficiency judgment. This is a monetary judgment against the debtor for the difference in the value of the property and the amount owed to the lender.
The Alternatives:
Some lenders are willing to provide alternative plans to foreclosure for borrowers depending on the circumstances:
Forbearance: Lenders sometimes agree to suspend payments for a period of time. At the end of this time, you will resume your regular monthly payments, and you may be required to either make one lump sum payment or additional partial payments. This may be a good option if you have a temporary reduction in income.
Loan Modification: Your lender may agree to reduce your interest rate, extend the term of the loan, or add missed payments to the loan balance.
Short Sale: Depending on the strength of the housing market in your area, selling may provide funds needed to pay the mortgage debt in full. In a “short sale,” the lender allows you to sell and agrees to forgive any shortfall between the sale price and the mortgage balance. You still may face a tax liability on the amount of debt forgiven.
Deed in Lieu of Foreclosure: You voluntarily transfer title to the lender in exchange for cancellation of the remainder of your debt, but you will lose any equity in the home and may have to pay taxes on the debt forgiven. A sale or a deed in lieu of foreclosure may be a better alternative than a foreclosure adversely affecting your credit.
