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Parties to the foreclosure action

The lender in a foreclosure action is called the plaintiff and must file a civil action against you (called a complaint) seeking judicial foreclosure of the property to satisfy the debt to the lender. The complaint must be properly pled and be in conformance with your courts local rules. The homeowner is called the defendant. The plaintiff must prove all elements of the foreclosure action by a preponderance of the evidence. The complaint will be usually filed in the county court in which the property is located. This is called the situs. The complaint must include all interested parties including any person or entity that has a financial interest in the property such as lien holders.

Lender will file and record notice of claim on your property

Your lender upon filing the complaint will immediately file a notice of the foreclosure action with the counties recording office. The Latin term for this is called "Lis Pendens" which means pending action and it serves to give notice to any party considering purchasing the property or otherwise encumbering it that some person or entity has a claim against your title. The notice will effectively prevent the borrower from selling or refinancing the property until the foreclosure is concluded.

Filing a formal answer to the lenders complaint.

Most state require that you formally answer the lenders complaint with a responsive pleading commonly referred to as an Answer. Most states require that you, as the defendant in a legal action, file and serve a written legal answer to the complaint in proper legal form within thirty days of the lenders complaint being served upon you. The purpose of the answer is to provide you with an opportunity to admit, deny or otherwise challenge through affirmative defenses or demurrer the lenders allegations and legal basis of its complaint against you.

Filing fees and service requirements

You will also be charged a filing fee by the court before you will be allowed to actually file your answer with the courts clerk. Make sure you find out the exact amount since the clerk will reject your filing without payment. You must also be certain to properly serve all parties to the action with a copy of your answer. The rules governing pleadings including service requirements and filing deadlines must be followed precisely. This is why it's a very good idea to consider having an experienced lawyer to represent you.

The discovery process before trial

The discovery process allows each side the opportunity to collect its evidence in order to prove its case should the matter proceeds to a trial. Each state has its own discovery rules but most include the right for either party to serve written questions on the opposing side. These questions are called interrogatories and they must be answered in written form and under penalty of perjury usually within thirty days of having been served upon you. In addition, both sides will be allowed to obtain the sworn testimony of the other side through the deposition process. Documents can also be subpoenaed from you or from a third party such as an escrow company.

The judicial foreclosure trial

The trial can take anywhere from a few hours to a few weeks in more complicated and contested cases. The matter is usually heard before a judge or magistrate who will preside over the hearing and consider the evidence and legal arguments. The lender must prove by a preponderance of the evidence that you knowingly entered and executed your loan documents, deed of trust and promissory note. This is a threshold evidentiary showing which is rarely challenged by the defendant borrower. The next stage of the trial is to prove that you defaulted on the promissory note and under the terms of the documents, your lender has the expressed right to sell the property to satisfy the unpaid debt.

The judge will consider the evidence and rule on the matter. In most cases, the plaintiff lender will prevail and the court will enter a judgment, which will specify the amount owed to the lender and will order the sale of your property. If the borrower prevails, the foreclosure action will be dismissed. The dismissal however is not always the end of the matter. In most states, the borrower can still bring a non-judicial foreclosure action to recover the property - but in most jurisdictions the lender will be barred from recovering a deficiency judgment against the borrower, as that is not recoverable in non-judicial foreclosure actions.

Order to be sold - the redemption period

Should your judge rule against you and order your property sold, you will have a specific period of time between the date of the official order and the sale date in which you can redeem your property by paying off the balance of the loan. The actual time you have to act is called the redemption period. The redemption time period can vary greatly between states. The time range can be anywhere between two weeks to five months or longer depending on your jurisdiction. In this period of time you may have the legal right to get your property back. Redemption in most cases allows you to terminate the sale and legally redeem your property. However redemption will only occur if you pay off your loan balance with a cashiers check before the day the sale occurs. It is not enough to just bring your payments current - that will not allow you to redeem your property. You must actually payoff the entire balance of the loan. A very unlikely scenario since it is usually the lack of money that caused you to be late in your payments in the first place.

Will my house be sold for fair value?

If you are concerned that your home will be sold for less then the fair value, many states like California afford you the right to petition the court to determine the market value of the home at the time of the foreclosure sale. This issue usually comes up in response to the lenders petition for a deficiency judgment against you. In California this process is called a "fair hearing" proceeding and it is pursuant to CCP Section 736(b). The hearing will allow you to present evidence to the judge of what you contend was the fair market value of your home. It is common to present evidence in the form of an appraisal supported by properties of like kind and quality to yours. The lenders representative will offer evidence of value as well. The judge will then set a fair market value to the property and the difference between courts value and the price obtained at the foreclosures, will, if determined in your favor, will result in a favorable adjustment to the lenders deficiency judgment against you.

The deficiency judgment

While not all lenders obtain a deficiency judgment, most do as a way of obtaining maximum leverage against the borrower. Also, since it is unlikely the lender will obtain the full amount of the debt from the foreclosure sale, the lender will seek to recover their full measure of damages against you in the form of a deficiency judgment. This means if the lender sells the property for less then what is still owed on the promissory note, the lender can collect the amount of this deficiency from you as well. To make matters worse, the lender may be entitled to court costs, interest and attorney fees related to the trial which gets added to the judgment amount you will become legally liable to pay.

Post-sale redemption

Some states like California, afford you an additional redemption opportunity after the foreclosure sale has concluded. This is called "post-sale redemption" and it is, in most cases, the final opportunity for you to save your home by paying the full redemption price plus costs and fees. Note however, a post-sale redemption is usually only available where the lender has also sought a deficiency judgment against you. In most cases the only way your lender can actually cut-off your post-sale right of redemption is for the lender to forfeit it's right to a deficiency judgment against you. This can be a powerful negotiating tool with your lender and an experienced real estate lawyer will know how to exploit this advantage in your favor given the right circumstances.

Living in the home during the redemption period

Under judicial foreclosure, most states will allow you to keep possession of the home during the entire redemption period. However you will be obligated to pay the purchaser of the property the fair rental value of your use during your occupancy of the property. Once the redemption period expires however, you will be obligated to vacate the property. It is possible, but usually unlikely, that the purchaser will agree to allow you to continue to rent the property like any other tenant.

What if the property being foreclosed produces income?

In civil actions within the judicial foreclosure process the lender can allege and request in the complaint and subsequent pleadings that the court appoint a receiver, in favor of the lender, who will manage the financial responsibilities of the property, including collecting rents. Judicial foreclosure affords lenders with certain creative options like injunctive and declaratory relief. In certain cases the courts in a foreclosure proceeding will consider the plaintiffs request to fashion a remedy for the lenders benefit. This is especially true in instances where the property being foreclosed is commercial and income producing.

Consider negotiation at every stage

Your attorney should consider negotiating with your lender even in the late stages of the foreclosure process. This is especially true if you believe or have evidence that the lender did not comply with the rules and technical requirements governing the foreclosure. You might be able to negotiate a favorable position if the lender thinks it might be required to re-litigate the matter or repeat any part of the legal process which might end up costing them additional time and money. Lenders are first and foremost business people - it's all about the money and they rarely take the matter personally. Furthermore, do not avoid considering your bankruptcy options should you not prevail at trial. Again, it is always wise to obtain a bankruptcy opinion well in advance of trial.

Negotiating repayment can stop or delay foreclosure

One of the most effective ways to stop or delay foreclosure is to negotiate repayment with your lender. You need to do this in good faith. But do not let fear, anger or embarrassment stop you from exploring a negotiated settlement. It may surprise you that lenders, if approached correctly, are often quite receptive to working out the outstanding debt with you. However, don't be mistaken about their intentions. Lenders are not altruistic, far from it. What they want is to reduce their exposure of financial loss should they have to foreclose on the property. Lenders will not make money through foreclosure; they make it by having borrowers like you continue making mortgage payments pursuant to the terms of the loan. This is especially true in a falling real estate market. The problem that most people face is the discomfort and often embarrassing emotions that comes into play with having to confront the lender. One option is to remove yourself from the process by having a real estate lawyer negotiate on your behalf. If you feel you can do it yourself, here are a few tips to consider: