Foreclosure Filing

What is 'Foreclosure Filing'

Foreclosure filing refers to the act of a mortgage lender filing a lawsuit in court to win the right to sell the home of a delinquent mortgagor at auction. When a homeowner defaults on mortgage payments, or otherwise fails to fulfill the terms of the mortgage agreement, the lender can enforce its rights through the foreclosure process. The process of foreclosure is regulated by state laws, and the rights and obligations of both the borrower and lender can vary widely from state to state.

BREAKING DOWN 'Foreclosure Filing'

There are two main types of foreclosure filing: judicial foreclosure, in which the lender must file a foreclosure suit in court in order to be allowed to resell the home, and nonjudicial foreclosure, wherein a lender doesn’t need to seek court approval. Whether or not your mortgage lender will have to file a judicial foreclosure depends on the laws of your state.

In states with judicial foreclosure, there are typically steps a mortgage lender must take before it can file a foreclosure suit in court. In New York State, for instance, the bank must first send a delinquent borrower an acceleration letter, which states its intention to accelerate the mortgage, if the borrower does not get current on his loan by a certain date. To accelerate a mortgage means to require that a borrower pay the entire amount due at once. An acceleration letter is usually sent after a borrower has failed to make their mortgage payment for three months. After sending the acceleration letter, a mortgage lender in New York State must also send delinquent borrowers a 90 Day Pre‐Foreclosure Filing Notice, which must inform borrowers of at least five nonprofit legal counseling services in the borrower’s area.

Only after this 90-day period can a mortgagor file for foreclosure. In many states like New York, the delinquent borrower then has a period of time, typically between 20 and 30 days to file a response to the mortgage lender’s complaint. This response is the borrower’s opportunity to state if the mortgagor believes the foreclosure complaint has been filed in error, or if there are any other complaints the borrower has about the conduct of the mortgage servicer.

Foreclosure Filings in Nonjudicial States

In many states where there are laws supporting nonjudicial foreclosure, the actual filing of a foreclosure suit is sometimes not necessary. In these states, banks can forgo a judicial review of the foreclosure if they included a power of sale clause in the mortgage agreement.