What’s a Default Judgment in a Foreclosure?

"Foreclosure" is the legal process that a mortgage servicer uses on behalf of a loan holder (the "lender") to sell a home and pay off a home loan 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 lender when the borrower doesn't respond to a foreclosure lawsuit (a judicial foreclosure). 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.

What Is a Default Judgment in a Foreclosure?

Again, a court will enter a default judgment if the borrower fails to respond to a foreclosure lawsuit. Once the court issues a default judgment, the lender may proceed with the foreclosure uncontested, usually resulting in a sale of the property to recover the outstanding debt.

A default judgment basically expedites the foreclosure process. So, if you want to challenge a foreclosure, you must respond to the lender's lawsuit.

How Does a Default Judgment Happen in a Foreclosure?

You'll potentially face a default judgment in a judicial foreclosure, but not 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 or petition (or similar document) and a summons. The summons will notify you about your rights and let you know how many days you get to file a formal written response, 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 lender or servicer.

If you don't want to fight the foreclosure, you don't have to file an answer in response to the suit.

However, keep in mind that, in some cases, it might make sense to answer the complaint to buy more time to work out a loss mitigation option or live in the home. You must have a reasonable basis for doing so, like you want the lender to prove it owns your loan or provide proof of its allegations, like evidence of the total amount it says you owe under the loan documents. 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 to a Foreclosure Lawsuit

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

What Happens After a Default Judgment in a Foreclosure?

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

When the Lender Can't Get a Default Judgment

If you file an answer to the suit, the lender 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 by the lender or servicer.

If the court grants summary judgment in favor of the lender, typically after a hearing, the lender wins the case, and a sale will be held. But if the court denies summary judgment, the case will continue through the litigation process, including discovery and trial. Then, the judge will either order the foreclosure sale to go ahead or dismiss the case.

What Are the Consequences of a Default Judgment in a Foreclosure?

The most immediate consequence for the homeowner is losing the property to a foreclosure sale. After the court enters a default judgment, the lender typically may proceed with the foreclosure process and sell the home through a public auction.

Once the foreclosure is complete, it becomes part of the homeowner's credit files, hurting their credit scores and making it more difficult to get future loans or credit.

Another potential consequence of a default judgment is a deficiency judgment. If the proceeds from the foreclosure sale don't cover the entire outstanding debt, the lender might (depending on state law) be able to pursue a deficiency judgment against the homeowner for the remaining balance. Generally, once the lender gets a deficiency judgment, the lender may collect this amount using typical collection techniques, like a wage garnishment or bank levy.

How Can I Avoid a Default Judgment in a Foreclosure?

To avoid a default judgment, you'll need to act promptly after receiving notice of the foreclosure lawsuit and file a response by the deadline given in the summons. In most cases, it's best to talk to a foreclosure lawyer immediately. A lawyer can prepare an answer, file it in court, and represent you during the foreclosure proceedings.

Also, you might be able to avoid a default judgment by working out a loss mitigation option, like a loan modification, with the servicer. In fact, you should contact your servicer as soon as you know you'll have trouble making mortgage payments to discuss ways to avoid foreclosure.

In addition, many jurisdictions offer foreclosure mediation programs, where a neutral third party facilitates loss mitigation discussions between the homeowner and the lender. Participating in mediation often temporarily pauses a foreclosure while talks are ongoing, and you might be able to work out an alternative to foreclosure.

What Are My Rights After a Default Judgment in a Foreclosure?

Depending on state law and your loan contract, you might be able to reinstate the loan by a specific deadline, such as 5:00 p.m. on the day before the sale or five days before the sale, for example, by paying just the past-due amounts. Or you might get a right of redemption after the foreclosure sale, depending on state law. If you get a post-sale right to redeem, you can pay the total amount owed (or the foreclosure sale price) and reclaim your home.

Whether you get the right to reinstate or the right of redemption depends on state law and your loan documents. Talk to a foreclosure lawyer to find out if you can reinstate the loan or redeem the property in your situation and the deadline for doing so.

In rare circumstances, you might be able to get a court to set aside (annul) a default judgment. To get a court to set aside 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 isn't an acceptable excuse in most cases. But if you're in the military or have a good excuse, you might be able to get a court to invalidate the judgment.

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 be able to file an answer. Accordingly, a default judgment or summary judgment isn't part of the process.

Instead, the lender 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 don't want the court to enter a default judgment against you, talk to a foreclosure attorney immediately. 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, be aware 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.