Foreclosure – What is the process? Are there Alternatives?

Taking the covers off of the foreclosure process and revealing alternatives for homeowners in trouble. You may get to keep your home.

December 26, 2007Palm Coast, FL – The news is full of talk about the rash of real estate foreclosures, especially because Florida ranks among the top states in the number of foreclosures. Yet many facing possible foreclosure do not understand the process. Unaware of their alternatives, they are ill equipped to deal with it.


When buying real estate using borrowed funds, a person signs two additional documents?

  • The promissory note, which acknowledges the indebtedness
  • The mortgage, which pledges the real estate as collateral for the loan

If the buyer defaults on the loan, the lender can exercise their rights under the mortgage agreement to foreclose, thus gaining title to the underlying collateral, in this case, the real estate. Here is what usually takes place.


1.  When the owner has missed payments (typically, but not always, three consecutive payments), the lender issues a demand letter which “demands” that the buyer bring the loan current.


2.  If the loan is not brought current under the terms of the demand letter, the lender issues a Notice of Foreclosure. An attempt is made to serve this document in person. If this attempt is unsuccessful, the notice is published in the newspaper. This explains why you don’t see a public notice for all foreclosures.


3.  At the same time, the lender files a Lis Pendens with the county clerk. The purpose of the lis pendens is to notify a pending action regarding the property and the property owner.


4.  The property owner has 20 days to respond to the foreclosure complaint. In nearly all cases, payments have not been made and there is no response.


5.  After 20 days, the attorney for the plaintiff (lender) requests (of a judge) a default judgment. Once issued, the attorney requests a summary judgment. There is no statutory time period between the two judgments.


6.  Once a summary judgment is issued, the plaintiff requests a foreclosure sale date. The sale must be noticed (advertised) in the newspaper for two consecutive weeks. The last notice can occur not later than 5 days prior to the scheduled sale date. The property owner is also notified.


7.  At the foreclosure sale, a representative of the plaintiff makes a minimum bid for the property. While others may be present to bid against the plaintiff, I have seen none at the handful of foreclosure sales I’ve attended. Once the sale is complete, a deed of title is issued to the plaintiff. As to the plaintiff, subordinate liens are wiped out. As to the borrower, they are not.


8.  The plaintiff disposes of the foreclosed property. If the sale proceeds are not sufficient to cover the mortgage balance, a deficiency judgment for the remaining balance may be issued against the borrower depending on the terms of the note.


While the entire process may be condensed into only a few months, it typically takes 6 – 8 months. Until the sale, the owner or tenants may continue to occupy the premises. After the sale, they can be evicted. A foreclosure sale terminates any tenants’ lease regardless of the term of the lease.


In addition to losing and being evicted from their home, foreclosed owners face additional problems. The foreclosure does not erase or mitigate any other obligations which might include credit card debt, deficiency judgment resulting from the foreclosure, or subordinate liens.


Bankruptcy offers some owners a more attractive option, according to attorney Lewis Roberts. Roberts says that many people shy from bankruptcy because they fear the effect on their credit rating, but foreclosure has as negative an effect. The missed payments prior to foreclosure have already had an adverse effect. Further, he says, bankruptcy may make it possible for them to keep their home.


For those who qualify, bankruptcy can eliminate crushing credit card debt, possibly freeing up enough cash to cover the mortgage payment, but the bankruptcy (a federal court action) must be filed before the foreclosure sale. If the filing is made after the foreclosure sale, the house is lost, but credit card debt and any deficiency judgment or subordinate debt remaining from the foreclosure may be erased. Those choosing the bankruptcy route may find it easier to obtain credit. That’s because new creditors are shielded for a period of time from a subsequent bankruptcy .


Property owners facing possible potential foreclosure should contact an attorney early to discuss their options. Some options are better than others.


2 replies
  1. cafena ortiz
    cafena ortiz says:

    what about short sales?

    I will really apreciate if you can give me your point of view on the subject. This is a process that is growing rapidly in South Florida.
    Also what happen to the home in the foreclosure process if this is not the primary home?

  2. Toby
    Toby says:

    Reply to cafena

    Short sales are an option, but it takes a willing lender and a knowledgeable real estate agent to pull it off. Sellers are required to submit detailed financial information. It also exposes the seller to income tax on the forgiven loan amount. And of course, you lose the house. If a foreclosure involves a second home, there is no way to rescue it from foreclosure short of refinancing and you lose the home.

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