What’s a Default Judgment in a Foreclosure?

"Foreclosure" is the legal process that a servicer, on behalf of a loan holder, uses to sell a home and pay off a mortgage if the borrower doesn't make the payments. Depending on the state you live in and your circumstances, the servicer will either:

• file a lawsuit against you in court to complete what's called a "judicial foreclosure," or
• follow specific out-of-court procedures, as state law sets out, to conduct a "nonjudicial foreclosure."

A "default judgment" is a judgment in favor of the foreclosing party (called the "bank" in this article) when the borrower doesn't respond to a foreclosure lawsuit. The main danger of allowing a default judgment against you is that, once it happens, you'll lose the opportunity to fight the judicial foreclosure.

Default Judgments: Applicable in Judicial Foreclosures

You'll potentially face a default judgment in a judicial foreclosure, but not in a nonjudicial one. Here's how the judicial foreclosure process generally works:

Notice of a Judicial Foreclosure

In a judicial foreclosure, you'll receive a complaint, petition, or similar document, along with a summons. The summons will notify you about your rights and let you know how many days you get to file a formal response in writing, called an "answer," to the suit, usually 20 or 30 days.

If you choose to file one, the answer must contain legally acceptable responses to the allegations against you in the complaint. An answer is your opportunity to:

• inform the court of your position on each of the allegations in the complaint and
• formally allege any defenses or counterclaims you have against the bank or servicer.

If you don't want to fight the foreclosure, you don't have to file an answer in response to the suit. Though, keep in mind that, in some cases, it might make sense to answer the complaint to buy yourself some more time to work out a loss mitigation option or live in the home—so long as you have a reasonable basis for doing so. Say you want the bank to prove it owns your loan or provide proof of its allegations, like proof of the total amount it says you owe under the loan documents. But if you file a frivolous answer, you might get stuck paying the opposing party's costs and expenses, including their attorneys' fees.

What Happens If You Don't Respond

If you don't file an answer, the bank will ask the court for a default judgment. Once the court grants a default judgment, you automatically lose the case, and the bank gets everything it's asking for, including perhaps a deficiency judgment.

Once the court grants a default judgment, the bank can sell your home at a foreclosure sale.

Setting Aside a Default Judgment

To get a court to set aside (annul) a default judgment, you have to file a motion and show good cause as to why you didn't file an answer. Getting a court to set aside a default judgment is very difficult. Claiming that you didn't know you had to file an answer or how to file one aren't acceptable excuses in the vast majority of cases.

When the Bank Can't Get a Default Judgment

If you file an answer to the suit, the bank can't get a default judgment from the court. Instead, depending on the strength of your arguments, it might file a motion for summary judgment, asking the court to rule in its favor without a trial or any further legal proceedings because your answer wasn't sufficient for some reason. For example, the case's important facts aren't in dispute, any defenses you've raised lack merit, or you didn't show wrongdoing on the part of the bank or servicer.

If the court grants summary judgment in favor of the bank, typically after a hearing, the bank wins the case, and a sale will be held. But if the court denies summary judgment, then the case will continue through the litigation process, including discovery and trial. Then, the judge will then either:

• order the foreclosure to go ahead, or
• dismiss the case.

Nonjudicial Foreclosures: No Court Involvement, So No Judgment

With a nonjudicial foreclosure, the foreclosure doesn't go through the court system. You won't receive a complaint or have an opportunity to file an answer. Accordingly, a default judgment or summary judgment isn't part of the process.

Instead, the bank completes the steps that state law requires to foreclose—like mailing you notice about the foreclosure, publishing it in a newspaper, and posting sale information at the property—and holds a foreclosure sale. If you want to fight a nonjudicial foreclosure in court, you'll have to file your own lawsuit

Talk to a Foreclosure Attorney

Homeowners sometimes get served with a lawsuit and don't know what to do. So, they do nothing. If you've received notice that a foreclosure lawsuit has been filed against you and you don't want the court to enter a default judgment against you, or you want to buy yourself some time, consider talking to a foreclosure attorney right away. A foreclosure attorney can tell you about potential defenses in your situation, help you explore ways to avoid a foreclosure, and prepare an answer to file in court on your behalf.

If you've received notice of a nonjudicial foreclosure, keep in mind that this kind of foreclosure usually moves quickly. You should talk to an attorney about filing a lawsuit as soon as possible if you think you might want to challenge the foreclosure in court.