In some states, the foreclosing party (such as a bank) has to file a lawsuit to foreclose. This process is called a judicial foreclosure. In other states, though, the bank can choose to foreclose without going to court. This process is called a nonjudicial foreclosure.
Read on to learn how a typical judicial foreclosure might proceed.
Peter and Mari bought their house several years ago at the price of $400,000. They made a 10% down payment and borrowed the other $360,000. The house now has a market value of just $325,000. Mari was laid off from her $90,000-a-year job and now earns $20 an hour. Peter also took a major pay cut. She and Peter can no longer afford their payments. They live in Ohio, where foreclosures are judicial. (Read a summary of Ohio’s foreclosure laws.)
Under federal law, in most cases, a foreclosure can’t begin until the borrowers are over 120 days’ delinquent. (To learn about federal laws that protect homeowners during foreclosure, see Federal Laws Protecting Homeowners: Foreclosure Protections.)
Once Peter and Mari miss four payments, the bank sends them a written notice—called a breach letter—that foreclosure proceedings won’t start for 30 days and that a foreclosure can be avoided if they make up the missed payments plus costs and fees. Peter and Mari decide to let the foreclosure happen. They have no equity in the house and they believe they won’t be able to make the payments, even if they got a loan modification. Peter and Mari let the 30 days expire without paying the amount needed to reinstate the loan.
Two weeks later, Peter and Mari are served with a summons and foreclosure complaint that the bank has filed in the local court. They have 28 days to respond. (In other states, the amount of time might be different, though it is usually between 20 and 30 days.) They visit a lawyer, who tells them they might be able to put off the foreclosure sale by filing a response. Unfortunately, the lawyer wants too much money. Peter and Mari could do some research into possible defenses and represent themselves, but they decide they really can’t afford the house any longer and will have to move anyway. They let the 28 days go by without responding.
The court issues a default judgment—which is what happens when you don’t respond to a suit filed against you—that authorizes sale of the property. After the judgment, the property is appraised because in Ohio the home can’t be sold for less than two-thirds of its appraised value at the foreclosure sale. (Get more details about Ohio foreclosure procedures.)
Then, a notice of the date, time, and place of sale is published for three consecutive weeks in a newspaper of general circulation in the county where the property is located. The bank files the notice of sale with the court at least seven days prior to the sale and sends a copy to Peter and Mari, as well as to the other parties that have appeared in the case. Then, on the specified date, the property is put up for sale at auction and the bank makes a credit bid, which is the highest and only bid on the home.
At a foreclosure sale, the foreclosing bank doesn’t have to come up with actual money to bid on the home. Instead, the bank makes a “credit bid” which means it gets credit for the total amount of the debt owed by the borrowers—including the principal, interest, fees, attorneys’ fees, and foreclosure costs. If no one else makes a bid higher than the bank’s credit bid, the bank becomes the new owner of the property.
In Ohio, the court has to confirm the sale after the auction and the new owner gets title to the property. In Peter and Mari’s case, this happens within 30 days after the sale. If they haven’t left the property by this time, the new owner (the bank) will take steps to evict them from the home. (Read about eviction after a foreclosure.)
To evict the couple, the bank asks the court for a writ of possession, which orders the sheriff to remove Peter and Mari from the property. The bank doesn’t have to file a separate lawsuit to evict them. (In other states, the new property owner has to file a lawsuit to evict the foreclosed homeowners.) At this point, a representative from the sheriff ’s office will notify Peter and Mari of the date by which they must vacate the premises.
Read more about the timeline for a typical judicial foreclosure.
Foreclosure laws and procedures vary widely from state to state. For an estimate of the timeline in your area and in your particular situation—and to learn exactly what steps will take place in your foreclosure—talk to a local foreclosure attorney.