Owners can lose their properties through one of two methods of foreclosure: judicial foreclosure (a process that involves the court system) and nonjudicial foreclosure (which allows a lender to sell the property without prior approval from a judge). The foreclosure type that your bank chooses will depend on the options afforded by the law of the state where the property is located. In either case, foreclosure law is complicated, which means that hiring a knowledgeable attorney will increase your chances of keeping your home.
A judicial foreclosure requires the lender to go through the state court system and receive approval from a judge before foreclosing on property. All states allow the lender to foreclose judicially; however, some require this process exclusively. For instance, in New York, Ohio, and Florida, judicial foreclosure is the only method available to lenders.
How a Judicial Foreclosure Begins
The lender starts the process by filing a lawsuit with the court. In the lender’s opening pleading–often called a “complaint” or a “petition”—the lender asks the court for the right to sell the home and apply the proceeds from the sale to the debt.
If state law allows for it, the complaint might also ask the court to grant a deficiency judgment (see below) if selling the property won’t fully pay off the debt. If granted, the borrower will remain responsible for the outstanding balance left on the loan after the foreclosure sale. Some states, such as California, do not allow deficiency judgments if the property sold was a borrower’s primary residence.
Responding to the Lawsuit
After the lender files the court case, you must file a responsive pleading—such as an answer to the complaint or motion to dismiss the case— with the court within 30 or fewer days. If you don’t respond, the lender will ask the court for a default judgment and will automatically be declared the winner.
Your response must be in the format described in the local court rules. For example, you’ll likely need to create a caption at the top of the first page that includes the names of the people and businesses involved in the lawsuit, the name and address of the court, and the case number. If you file an answer, you’ll include responses to each of the claims made by the lender and any defenses you might have, as well.
It’s important to understand that filing an answer isn’t always the best choice. If you have an argument that requires you to file another type of pleading to preserve your rights, filing an incorrect response might cause you to lose an important right. For instance, a lender must comply with the law before a court has “jurisdiction” (authority) to hear a case. If the lender made a mistake, such as by failing to properly serve you with the lawsuit, you can dispute the court’s jurisdiction by filing a motion to dismiss. If you win, the lender must start over. If, however, you file an answer, you are “stipulating,” or agreeing, that the court has the right to hear the matter and the case moves forward. Bottom-line, litigation is tricky stuff and most people fare better by getting help from a lawyer. (To find out how a foreclosure attorney can help, see When Should I Hire a Foreclosure Attorney?)
What Happens Next
Once you file your answer, the lawsuit will move to the discovery stage—the stage that allows both sides learn about evidence in the other’s possession. Both you and the lender will be able to obtain information using discovery tools, such as:
- written interrogatories (questions about case-related facts that the other side must answer in writing)
- requests for the production of documents (a demand requiring the other party to turn over specified documents)
- depositions (the other side testifies under oath in front of a court reporter), and
- property inspections (one side views real estate or property, such as a car, that’s in the other side’s possession).
As a result of what it learns during discovery, the lender might file a “summary judgment” motion, asking the judge to decide the entire matter without a trial, based solely on what the discovery process brought to light. The lender will present its arguments and evidence (as developed during discovery) in the motion. You have the right to oppose the motion by submitting your arguments and evidence, as well. If the court finds that you don’t have evidence that can support a defense, the lender will win the motion, obtain a judgment, and be free to proceed with a foreclosure sale. If the judge denies the lender’s motion, the court will allow the case to proceed to trial.
To complete a nonjudicial foreclosure, the lender follows the steps outlined in state law. About half of the states allow nonjudicial foreclosures (including California, Nevada, and Arizona). Although the exact steps vary from state to state, the lender might have to:
- send you a notice of default (a notice that you’re behind on your payments)
- record the notice of default in the county records, and
- send you a notice of sale, letting you know the sale date of your home.
Some states allow the lender to send just a notice of sale, a combined notice of default and sale, or permit notification by publishing a notice in the newspaper and posting it somewhere on the property. To fight a nonjudicial foreclosure, you, or your attorney, will have to file a lawsuit on your behalf, and then the case will proceed in the same manner as a judicial foreclosure
How Long Will the Foreclosure Process Take?
The length of the foreclosure process depends on the type of foreclosure and the laws in your state. For example, nonjudicial foreclosure can happen pretty quickly because there is no court action—though it varies by state. In Georgia, a nonjudicial foreclosure can be completed in 30 days. In California, it takes about four months.
Judicial foreclosure lasts longer because a court must sign off on a foreclosure—but not always. For example, if you fail to file a response to a complaint and the lender obtains a default judgment against you, the case could be over in as little as a month. That’s not usually what happens, however. If you respond in a timely manner, court backlogs and judges’ burdened schedules can result in a wait of six months to several years before your foreclosure action goes to trial. New York and New Jersey are examples of places known for their lengthy foreclosure process.
If your foreclosed home sells for less than the amount you owe, the difference between the sale price and your balance is called a “deficiency.” For example, suppose you owe the lender $250,000 (including the unpaid principal balance, interest, fees, and costs). However, the home sells for only $200,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender is entitled to a personal judgment for the deficiency, called a “deficiency judgment.” Whether the deficiency judgment is included as part of the foreclosure or obtained in a separate court action depends on state law.
To learn about the options available to you in foreclosure, see Homeowner's Options When Facing Foreclosure.
Questions for Your Attorney
- How much time do I have to respond to a foreclosure lawsuit in my state?
- If I respond to a foreclosure lawsuit, but I don’t have a defense, will I have to pay my lender’s attorneys’ fees?
- Does my state give a bank the right to get a deficiency judgment against me?