Elements “Judicial” Foreclosure Process
Going through the judicial foreclosure process is an intimidating and complex process. Below you’ll find general information concerning Judicial Foreclosures during the trial stage and beyond. Please remember that the earlier you consult with a foreclosure defense lawyer, the more informed and prepared you will be to face the foreclosure process.
How Judicial Foreclosure Works
In judicial foreclosure, your lender will seek to force the sale of your property to pay off the loan through the court system. The lender will file a lawsuit against you seeking relief in the form of foreclosure of your property.
Deficiency Judgement in Cases of Default
Judicial foreclosure, unlike non-judicial foreclosure, allows the lender (assuming you signed personally for the mortgage and you are in default) to obtain a deficiency judgment against you if the sale of the house does not produce sufficient funds to pay off your loan obligation. Said another way, a deficiency judgment is an enforceable debt representing the difference between the balance of your loan and the amount received from your property at the foreclosure sale. This is different in states that follow the non-judicial foreclosure process.
Why Lenders File Lien and Claim Notices on Your Property
Upon filing a legal Complaint, your lender will immediately file a notice of foreclosure action with the county’s recording office. The Latin term for this is “Lis Pendens,” which means pending action. Filing such documents gives legal notice to any party considering purchasing the property or otherwise encumbering it that some person or entity has a claim against your title. The legal notice will effectively prevent the borrower from selling or refinancing the property until the foreclosure is concluded.
If the homeowner believes the “lis pendens” has been improperly filed, the homeowner can file a lawsuit to remove it from the county’s recording office.
Filing a Formal Answer to Lenders Complaint
Most state laws require that the defaulting borrower formally answer the lender’s Complaint with a responsive pleading, commonly referred to as an Answer. As the defendant in a legal action, most states require that you file and serve a written Answer to the Complaint in proper legal form within thirty days of the lender’s complaint being served upon you.
The purpose of the Answer is to provide you with an opportunity to admit, deny, or otherwise challenge the lender through affirmative defenses or demurrer the lender’s allegations and legal basis of its Complaint against you.
Filing Fees and Service Requirements Foreclosures
The court will also charge you a filing fee before filing your Answer with the court’s clerk.
Trouble-Tips:
Make sure you find out the exact amount since the clerk will reject your filing without payment. You must also be sure 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.
Judicial Foreclosure Civil Discovery Process Before Trial
The discovery process allows each side to collect evidence to prove its case should the matter proceed 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 must be answered in written form and under penalty of perjury, usually within thirty days of being 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 any relevant third party, such as an escrow company.
Depending on your success in collecting as much favorable evidence as possible, you will soon get the chance to make your legal arguments and present your evidence at trial.
The Judicial Foreclosure Trial
The trial can take a few hours to weeks and even months in more complicated, highly contested cases. The matter is usually heard before a judge or magistrate who presides over the hearing and considers the evidence and legal arguments before rendering a decision.
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 standard of proof is a threshold evidentiary showing that the defendant borrower rarely challenges.
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 order the sale of your property.
If the borrower prevails, the foreclosure action is dismissed.
The Non-Judicial Foreclosure Option and Right of Redemption
In some states, the borrower can still bring a non-judicial foreclosure action to recover the property – but in most jurisdictions, the lender is barred from recovering a deficiency judgment against the borrower because that is not a legally recoverable item in non-judicial foreclosure actions.
But all is not over should the judge rule against you and order your property sold, and you will still have the right in most states to redeem your property within a specific period. Here is how it works:
The Redemption Period in Judicial Foreclosure Actions
Should your judge rule against you and order your property sold, you will have a specific period between the official order date and the sale date in which you can redeem your property by paying off the loan balance.
The actual time you have to act is called the redemption period. The redemption time can vary significantly between states. Depending on your state, the time range can be anywhere between two weeks to five months or longer.
In this period, most states afford the borrower the legal right to get their property back. Redemption, in most cases, allows you to terminate the sale and legally redeem your property upon a single but essential condition.
Redemption will only occur if you pay off your loan balance with a cashier’s check before the day the sale occurs, depending on your state’s foreclosure redemption statute.
In most states, more is needed to bring your payments current – that will not allow you to redeem your property. You must pay off the entire balance of the loan. Unfortunately, this is an improbable scenario since it is usually the lack of money that causes you to be late in your mortgage payments in the first place.
How to Ensure The Home is Sold for Fair Market Value
If you are concerned that your home will be sold for less than market value, many states like California afford you the right to petition the court to determine the home’s actual market value at the time of the foreclosure sale.
This issue usually comes up in response to the lender’s petition for a deficiency judgment against you. In many states, obtaining a deficiency judgment is not permitted under the judicial foreclosure process and is seen as adding insult to financial injury.
Some States Require a “Fair Market” Hearing
In California, for example, this process is called a “fair market hearing” proceeding. The hearing will allow you to present evidence to the judge of what you contend is your home’s actual fair market value.
It is common to give evidence in the form of an appraisal supported by properties of like kind and quality to yours. The lender’s representative will offer proof of value as well. The judge will then set a fair market value for the property, and the difference between the court’s value and the price obtained at the foreclosures, will, if determined in your favor, will result in a favorable adjustment to the lender’s deficiency judgment against you.
Deficiency Judgment as Possible Bargaining Tool
A deficiency occurs when the lender sells the property for less than what is still owed on the promissory note.
Since it is unlikely the lender will obtain the total amount of the debt from the foreclosure sale, the lender may seek to recover their full measure of damages against the borrower in the form of a deficiency judgment.
As stated earlier, depending on the state, the law allows the lender to collect the total amount of this deficiency from you. To make matters worse, the lender may also be entitled to court costs, interest, and attorney fees related to the trial, which get added to the judgment amount you will become legally liable to pay.
However, depending on your state, the homeowner may still have the right of redemption in states that permit a deficiency judgment even after the property sale is made.
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 total redemption price plus costs and fees.
Trouble-Tip:
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 cut off your post-sale right of redemption is for the lender to forfeit its right to a deficiency judgment – a potent negotiating tool with your lender and one in which an experienced foreclosure lawyer may know how to negotiate.
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 and occupancy of the property.
Once the redemption period expires, you will be obligated to vacate the property.
It is possible but usually unlikely that the purchaser will agree to allow you to rent the property like any other tenant.
When 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 rent.
Judicial foreclosure affords lenders specific creative options like injunctive and declaratory relief. In some instances, the courts in a foreclosure proceeding will consider the plaintiff’s request to fashion a remedy for the lender’s benefit. This is especially true in cases where the property being foreclosed is commercial and income-producing.
Consider Negotiation at Every Stage of Judicial Foreclosure
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 foreclosure rules and technical requirements.
You can negotiate a favorable position if the lender thinks it is required to re-litigate the matter or repeat any part of the legal process, which might cost them additional time and money.
Lenders are, first and foremost, business people who rarely take the matter personally. Furthermore, do not avoid considering your bankruptcy options should you not prevail at trial. In this regard, you obtain a bankruptcy opinion well in advance of trial. But first, consider how you might renegotiate or delay the foreclosure process.
Negotiating Repayment Can Stop or Delay Judicial Foreclosure Process
One of the most effective ways to stop or delay foreclosure is to negotiate repayment with your lender. The law requires that you act in good faith. But do not let fear, anger, or embarrassment stop you from exploring all negotiation options.
If approached correctly, it may surprise you that depending on the circumstances, a lender can be receptive to working out the outstanding debt with you. However, be correct about the lender’s intentions. Lenders do not become lenders for altruistic reasons – far from it.
Trouble-Tip
Be clear on the lender’s primary objective: Lenders want most to reduce their exposure to financial loss should they foreclose on the property. Lenders rarely make money through foreclosure – they make it by having borrowers like you continue making mortgage payments according to the loan terms – this is especially true in a falling real estate market.
The problem that most people face is the discomfort and often embarrassing emotions that come into play when confronting the lender. This is why we strongly recommend removing yourself from the negotiation process by having an experienced foreclosure defense lawyer do your bidding for you.
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