Foreclosure is Not Neccessarily Flipping a Switch

When you took your mortgage loan, you signed a mortgage instrument, which gave the lender an interest in your real estate as collateral for repayment of the mortgage loan. The mortgage instrument normally is called a “mortgage deed” or “deed of trust” depending on the state where the property is located. The mortgage instrument provides that if you do not pay the loan, you are in default. This activates the lender’s right to take the collateral. “Foreclosure” is the process by which the lender takes the collateral.

The steps in the foreclosure process are determined by the state where the property is located. Some states, like Connecticut and New York, are “judicial” foreclosure states. This means that the lender must start a lawsuit against you in order to foreclose. The lender’s goal is a foreclosure judgment. The lawsuit is, for the most part, like any other lawsuit, which is to say that it can take considerable time for the lender to obtain the foreclosure judgment. The borrower has rights that it can exercise as part of the foreclosure lawsuit that can delay the foreclosure judgment or, in some circumstances, stop the lawsuit entirely. This is “foreclosure defense.” So, in Connecticut and New York (and possibly any other judicial foreclosure state) a lender does not foreclose merely by flipping a switch. With proper assistance, the property owner can often retain the property for an extended period.

I frequently use a train analogy to describe the foreclosure lawsuit process. The first stop on the train is the summons and complaint, which starts the lawsuit. The foreclosure judgment is the last stop. There are a number of stops between the summons and complaint and foreclosure judgment. Foreclosure defense is trying to make sure the lender moves as slowly as possible between stops and attempting to insure that the lender makes every stop. Sometimes a borrower can derail the train, which means that the lender has to start the process all over again.

Connecticut and New York have programs associated with foreclosure lawsuits that are designed to help homeowners and lenders achieve a mortgage modification. The programs, in addition to helping with modification, slow the foreclosure lawsuit process. Connecticut’s program is called “Foreclosure Mediation” and New York’s is the “Foreclosure Settlement Conference Program.” Borrowers are admitted to these programs when the foreclosure lawsuit starts.

The foreclosure process is closer to flipping a switch in nonjudicial foreclosure states because the lender does not need to involve the courts. Instead, it follows the procedure set forth in the mortgage instrument, which ordinarily provides the lender the right to sell the property at an auction on a specified number of days notice to the borrower.

Some states provide for both judicial and nonjudicial foreclosures. Click here for RealtyTrac’s state-by-state listing of foreclosure procedures. I don’t know how RealtyTrac calculated the “Process Period” but my experience in Connecticut and New York has been different.