Filing Bankruptcy and/or Foreclosure

Seek legal advice before you make the decision to file bankruptcy!

There are different types of bankruptcy that meet different needs. Some may actually help you keep your home. What works for a co-worker, a friend or a relative may not be what's best for you, your household or your circumstance. Don't ask your friends, call a qualified legal advisor.

Foreclosure

When all else has failed and you are faced with foreclosure, what happens?

As we discussed earlier, foreclosure is the process when the lender/servicer has the legal right to force you to move out of your home and sell the property at a public auction in order to pay off the loan.

The laws regarding foreclosure vary from state to state. Check the local practices in your jurisdiction by discussing your case with both an attorney versed in real estate law, and your lender/servicer.

There are several methods of foreclosure:

Judicial
Non-Judicial

1. Judicial: a type of foreclosure which the lender/servicer must file a court action to receive a judicial decree authorizing the foreclosure sale by proving:

  • A valid mortgage exists between the parties.

  • You are in default of the mortgage.

  • The proper procedures were followed prior to filing the judicial foreclosure.

You may raise defense to procedural and substance of the foreclosure.

There are several phases of a typical judicial foreclosure:

    A complaint is filed
    Service of process
    A notice of "Lis Pendens"
    You file an answer to the court complaint
    There is a reinstatement period
    Discovery
    The trial
    Redemption Period (a.k.a. Right of Redemption)
    The writ of sale
    Notice of Levy
    Foreclosure Sale
    Deficiency Judgment
    The post-sale redemption period

  • A complaint is filed by a foreclosing attorney representing the lender/servicer. The complaint is the legal document the lender files with the court. In a complaint which seeks a foreclosure, the lender informs the court that the owner has failed to pay the money he owes the lender and asks the court to order a foreclosure so that the lender may obtain the money he is owed from the sale of the owner's property.

  • Service of process. This is the act of notifying the property owner that the lender has filed a complaint with the court which seeks to foreclose on the owner's property. This act usually involves personally delivering to the property owner a copy of the lender's complaint and a summons, which tells the property owner how and when to respond to the lender's complaint.

  • A notice of "Lis Pendens" This is a written document notifying any party that may have an interest in the owner's property that a lawsuit has been filed which concerns the owner's title to the real property. Potential parties who might receive such a notice may include the IRS; a bank that lent the owner money or a General Contractor who was not paid for the work performed on the owner's property.

  • You file an answer to the court complaint. This is the legal document in which the property owner responds to the lender's complaint. The owner gives copies of this document to the court, the lender and the lender's attorney.

  • There is a reinstatement period. This is period of time where the owner has a chance to stop the foreclosure and to reinstate the loan with the lender by paying the amount of money owed to the lender.

  • Discovery is the gathering of evidence by both the owner's attorney and the lender's attorney which will support their opposing positions on the whether the court should order a foreclosure. Discovery can take the form of interrogatories, which are written questions from one party to the other or through a deposition, which is when one party asks oral questions of the other party or a witness of the other party.

  • The trial is where the lender and owner present their arguments on the issue of foreclosure before the court.

  • Redemption Period (a.k.a. Right of Redemption) provides for a specific period of time during which the property owner has the opportunity to pay the money he owes to the lender. After this period of time has elapsed the lender may seek a foreclosure.

  • The writ of sale is the document in which the court directs the sheriff or other government official to sell the owner's property.

  • Notice of Levy - the act of notifying the owner in writing that his property is going to be taken and will be put up for sale in order to pay off the owner's debt to the lender.

  • Foreclosure Sale: is a court order to the appropriate official to sell the owner's property for the purpose of using monies obtained from the sale to pay off the owner's debt to his lenders and/or creditors. Note: Prior to this event, the property owner may have the right to prevent the sale by paying off his debt.

  • Deficiency Judgment is a judgment issued by the court stating that the owner owes a specific amount of money to the lender because the money obtained from the sale of the owner's property was not enough (deficient) to pay off the owner's entire debt to the lender.

  • The post-sale redemption period. It is a specific period of time, after the sale of the owner's property in foreclosure, where an owner has the right to regain title to his property by paying off his debt to the lender.

Important Note: the foreclosure process varies from state to state, always consult a professional to learn more about the process in a specific state.

2. Non-judicial ("power of sale") foreclosure: the lender/servicer is allowed to sell the property without filing a court action. The "power of sale" is written in a clause included in the mortgage or deed of trust. The clause essentially states that should you default in payment or breach any terms of the loan, the mortgage holder can sell the home after notifying you, the homeowner. This is stated in the terms of the mortgage or it is written in the state or jurisdiction statutes.

Phases of a non-judicial foreclosure include:

    A notice of default and election to sell the property is sent to the homeowner.

  1. Reinstatement period.

  2. Notice of trustee's sale.

  3. Redemption period.

  4. The trustee's sale.

Seek legal advice and make sure you understand all terms of your mortgage long before you find yourself in such a circumstance.

Other forms of foreclosures that are not as well known:

Strict foreclosure- a legal premise followed by some states that the lender owns the property and may simply evict you for nonpayment and gain full and complete title free of your claims by waiting a prescribed period of time until your right to redeem ends. The lender gains the value of the land above what is owned on the loan.

Entry and possession- a method of foreclosure used in some states in which the lender, who already owns the property, reenters it and takes possession away from you, either peacefully or by court order.

Time is of the essence, don't waste it!! If you are not pro-active, you could lose your home and your good credit rating.

For more information about AHAA's Home Retention Program contact us at 1-866-716-3633.

Additional Foreclosure Resources for Consumers