Foreclosure Filing

What Is a Foreclosure Filing?

A foreclosure filing refers to the legal act by a mortgage lender in filing a lawsuit in court to win the right to sell the home of a delinquent mortgagor at auction. It is thus the initiation of the formal foreclosure process.

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 foreclosure process is regulated by state laws, and the rights and obligations of both the borrower and the lender can vary widely from state to state.

Types of Foreclosure Filings

There are two main types of foreclosure filing:

• Judicial foreclosure, in which the lender must file a foreclosure suit in court to be allowed to resell the home.
• 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.

Judicial Foreclosure Filing

In states with judicial foreclosure, there are typical steps that 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 their 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 20 to 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 the borrower has any other complaints about the conduct of the mortgage servicer.

Nonjudicial Foreclosure Filing

More than half of the U.S. states—28, including Arizona, California, Georgia, and Texas—primarily use nonjudicial foreclosure, also called power of sale. This type of foreclosure doesn’t require the lender to file a formal lawsuit—in fact, it does not go through the court system at all unless the homeowner sues the lender to try to stop the proceeding.

In a nonjudicial foreclosure, a specific section of the mortgage contract, called the power of sale clause, gives the lender the right to seize and sell the property if the borrower defaults. By signing the mortgage contract, the borrower effectively agrees to this condition.

While every state that allows it has slightly different rules when it comes to nonjudicial foreclosure, the process generally includes these aspects:

• The borrower has defaulted by failing to make payments;
• The lender must provide limited notice of the foreclosure;
• After a specific period of time, a third-party trustee can sell the home at a foreclosure sale.

While they don’t require court action, nonjudicial foreclosures still mandate a series of state-sanctioned steps that lenders have to follow. Usually, borrowers have to receive a written advance warning, like a breach letter or a pre-foreclosure notice, of the lender’s intention. Other steps include:

• A notice of default. giving you a certain amount of time to get current on the loan by making up all of the back payments;
• A combined notice of sale and right to cure. telling you that your home will be sold on a certain date unless you make up the missed payments by a certain deadline;
• A notice of sale.

Filing Foreclosure 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.

In these states, lenders are not required to obtain a decree of foreclosure through the court system. Instead, they may alert the borrower and the public of the foreclosure through other means. These may include a notice of default followed by a notice of sale, a decree of sale specifying an auction date, or simply the publication of a notice of sale in a newspaper. In states with nonjudicial foreclosures, the foreclosure process generally operates more quickly than in states requiring a court-issued decree of foreclosure.

The Bottom Line

The process of foreclosure is regulated by state laws, and the rights and obligations of both the borrower and the lender can vary widely from state to state. A foreclosure filing is the legal act by a mortgage lender in filing a lawsuit in court to win the right to sell the home of a delinquent mortgagor at auction. It is thus the initiation of the formal foreclosure process.