In the world of foreclosures, there’s a term you might come across: “deed in lieu.” But what does it mean, and how does it affect your credit? Let’s break it down in simple terms.
What is a Deed in Lieu?
A deed in lieu of foreclosure happens when you give your house back to the lender to avoid foreclosure. It’s like saying, “Here’s the house, you don’t have to go through the trouble of taking it from me.”
How Does it Affect Your Credit?
When it comes to your credit, a deed in lieu isn’t as bad as a foreclosure, but it still has an impact:
Credit Report: Just like with a foreclosure, a deed in lieu will show up on your credit report. It tells lenders that you didn’t keep up with your mortgage payments and had to give back the house.
Credit Score: While it may not hurt your credit score as much as a foreclosure, it still takes a hit. How much of a hit depends on your overall credit history and other factors.
Future Loans: Having a deed in lieu on your credit report can make it harder to get loans in the future. Lenders might see you as a risk because you didn’t fulfill your mortgage obligations.
Recovery Time: The impact of a deed in lieu on your credit can last for several years. It takes time and good financial behavior to rebuild your credit after such an event.
Conclusion:
In summary, a deed in lieu can have a negative impact on your credit, although not as severe as a foreclosure. It’s important to understand the consequences before considering this option. If you’re facing financial difficulties, it’s best to explore all your options and consult with a financial advisor or real estate professional.
Foreclosure means the lender takes back a home if the borrower can’t pay the mortgage. There are two main ways: judicial and nonjudicial. Let’s see how they’re different:
Judicial Foreclosure:
Court Involvement: The lender sues the borrower in court for not paying the mortgage.
Court Decision: If the court agrees, it allows the foreclosure.
Auction: The house is sold to the highest bidder at a public auction to pay off the debt.
Redemption: In some places, the borrower can buy back the house within a certain time after the sale.
Nonjudicial Foreclosure:
No Court: The lender follows the rules in the mortgage contract, not the court.
Notice of Default: The lender tells the borrower they’ll take the house if they don’t pay.
Notice of Sale: After waiting, the lender announces the auction date.
Auction: The house is sold, and the money goes to pay off the debt.
No Redemption: Usually, the borrower can’t buy back the house after it’s sold.
Key Differences:
Court Role: Judicial foreclosure involves the court, while nonjudicial doesn’t.
Time and Process: Judicial takes longer because of court stuff, while nonjudicial is quicker.
Redemption: Only judicial foreclosure may give the borrower a chance to buy back the house.
State Rules: Whether you get judicial or nonjudicial foreclosure depends on where you live and what’s in your mortgage contract.
In short, both ways achieve the same thing, but they follow different rules and timelines. Understanding these differences helps homeowners and lenders deal with foreclosure better. If you’re facing foreclosure, talking to a real estate lawyer can help you explore your options.
Understand the process that allows a bank to take your house
Foreclosure is the process that lenders use to take back a house from borrowers who can’t pay their mortgages. By taking legal action against a borrower who has stopped making payments, banks can try to get their money back. For example, they can take ownership of your house, sell it, and use the sales proceeds to pay off your home loan.1 Understanding why foreclosures occur and how they work can help you navigate, or preferably avoid, the complex process.
Why Foreclosures Occur
When you buy expensive property, such as a home, you might not have enough money to pay the entire purchase price at once. However, you can pay a small percentage of the price up front, usually anywhere from 3% to 20% of the price, with a down payment, and borrow the rest of the money, to be repaid in future years.23
However, the rest of the money may still amount to hundreds of thousands of dollars, and most people don’t earn anywhere near that much annually. Therefore, as part of the loan agreement, you will agree that the property you’re buying will serve as collateral for the loan.4 If you stop making payments, the lender can foreclose on the property—that is, repossess it, evict you, and sell the property used as collateral (in this case, the home) in order to recover the funds they lent you that you cannot repay.15
To secure this right, the lender places a lien on your property.6 To improve their chances of recouping the money that they lend, they (usually) only lend if you’ve got a good loan-to-value (LTV) ratio, a number that represents the risk that the lender will take in granting someone a secured loan, such as a mortgage. To calculate the ratio, the lender divides your loan amount by the value of the home and then multiples the result by 100 to get a percentage. Lenders view an LTV ratio of 80% or less to be ideal.7
If you have an LTV ratio that exceeds 80%, you will generally require Private Mortgage Insurance (PMI), which can add tens of thousands of dollars to the amount you pay over the loan term.
How Foreclosures Work
Foreclosure is generally a slow process. If you make one payment a few days or weeks late, you’re probably not facing eviction. However, you may face late fees in as little as 10 to 15 days.8 That’s why it’s important to communicate with your lender as early as possible if you’ve fallen on hard times or expect to in the near future—it might not be too late to avoid foreclosure.
The foreclosure process itself varies from lender to lender and laws are different in each state; however, the description below is a rough overview of what you might experience.5 The entire process could take several months at a minimum.
Notices start. You will generally start to receive communications as soon as you miss one payment, and those communications might include a notice of intent to move forward with the foreclosure process. In general, lenders initiate foreclosure proceedings three to six months after you miss your first mortgage payment. Once you’ve missed payments for three months, you may be given a “Demand Letter” or “Notice to Accelerate” requesting payment within 30 days. If, by the end of the fourth month of missed payments, you still have not made the payment, many lenders will consider your loan to be in default and will refer you to the lender’s attorney.9 This is when things get critical. Read all of your notices and agreements carefully and speak with an attorney or a U.S. Department of Housing and Urban Development (HUD) housing counselor to stay in the know.
A judicial or nonjudicial foreclosure ensues. When it comes to foreclosure proceedings, there are two types of states: judicial and nonjudicial states. In judicial states, your lender must bring legal action against you in the courts to foreclose. This process takes longer, as you often have 30 to 90 days in between each event. In nonjudicial states, lenders can foreclose based on the “power of sale” clause in the agreements you’ve signed with them, and a judge is not involved.5 As you might imagine, things move much faster in nonjudicial states. But in either type of state, you will be given written notice to make payment followed by a “Notice of Default” and a “Notice of Sale.”You can fight the foreclosure in court; in a judicial state, you’ll generally be served with a summons, whereas in a nonjudicial state, you’ll need to bring legal action against your lender to stop the foreclosure process.10 Speak with a local attorney for more details.
You can stop the process. In certain states, lenders are required to offer borrowers the option to reinstate the loan and stop the foreclosure process. Whether or not those options are realistic or feasible is another matter. Lenders might say that you can reinstate the loan anytime after the “Notice of Sale” up until the foreclosure date (the sale date) and stay in the home if you make all (or a substantial portion) of your missed payments and cover the legal fees and penalties charged so far. You might also have an opportunity to pay off the loan in its entirety, but this may only be feasible if you manage to refinance the home or find a substantial source of money.11
Be prepared for an auction and eventual eviction. If you’re unable to prevent foreclosure, the property will be made available to the highest bidder at an auction that either the court or a local sheriff’s office runs. If nobody else buys the home (which is common), ownership goes to the lender. At that point, if you’re still in the house (and haven’t made arrangements to protect the house), you face the possibility of eviction, and it’s time to line up new accommodations. Local laws dictate how long you can remain in the house after foreclosure, and you should receive a notice informing you of how long you can stay. Ask your former lender about any “cash for keys” incentives, which can help ease the transition to new housing (assuming that you’re ready to move quickly).12
Get a second chance through a redemption. Many states offer what is known as redemption, a period after the foreclosure sale occurs when you can still reclaim your home. The “Notice of Sale” will generally inform you about the redemption period, and timeframes vary by state. You generally must be willing to pay the loan balance that you owe and any costs associated with the foreclosure process to reclaim in the home.13
It often takes four months after you miss your first payment before you are officially in default of your loan.
Consequences of a Foreclosure
The main outcome of going through foreclosure is, of course, the forced sale and eviction from your home. You’ll need to find another place to live, and the process could be extremely stressful for you and your family.
How foreclosures work also makes them expensive. As you stop making payments, your lender may charge late fees, and you might pay legal fees out of pocket to fight foreclosure.9 Any fees added to your account will increase your debt to the lender, and you might still owe money after your home is taken and sold if the sales proceeds are not sufficient (known as a “deficiency”).14
A foreclosure will also hurt your credit scores. Your credit reports will show the foreclosure starting a month or two after the lender initiates foreclosure proceedings, and it will stay on the report for seven years. You’ll have a hard time borrowing to buy another home (although you might be able to get certain government loans within one to two years), and you’ll also have difficulty getting affordable loans of any kind.15 Your credit scores can also affect other areas of your life, such as (in limited cases) your ability to get a job.
How to Avoid a Foreclosure
The act of taking back your home is the last resort for lenders who have given up hope of being paid. The process is time-consuming and expensive for them (although they can try to pass along some of those fees to you), and it is extremely unpleasant for borrowers. Fortunately, you can follow some tips to prevent foreclosure:
Keep in touch with your lender. It’s always a good idea to communicate with your lender if you’re having financial challenges. Get in touch before you start missing payments and ask if anything can be done. And if you start missing payments, don’t ignore communication from your lender—you’ll receive important notices telling you where you are in the process and what rights and options you still have. Speak with a local real estate attorney or HUD housing counselor to understand what’s going on.
Explore alternatives to keep your home. If you know that you won’t be able to make your payments, find out what other options are available to you. You might be able to get help through government foreclosure-avoidance programs.16 Some lenders offer similar programs to those willing to fill out a mortgage assistance application.17 Your lender might even offer a loan modification that would make your loan more affordable. Or, you might be able to work out a simple payment plan with your lender if you just need relief for a brief period (if you’re in between jobs, or have surprise medical expenses, for example).
Look into alternatives for leaving your home. Foreclosure is a long, unpleasant, expensive process that damages your credit. If you’re simply ready to move on (but want to at least try to minimize the damage), see if your lender will agree to a short sale, which allows you to sell the house and use the proceeds to pay off your lender even if the loan hasn’t been completely repaid and the price of the home is less than what you owe on the mortgage. However, you may still have to pay the deficiency unless you have it waived.18 If that doesn’t work, another less attractive option is a deed in lieu of foreclosure, which allows you to reduce or even eliminate your mortgage balance in exchange for turning over your property to the lender.19
Consider bankruptcy. Filing for bankruptcy might temporarily halt a foreclosure. The issues are complex, so speak with a local attorney to get accurate information that’s tailored to your situation and your state of residence.
Avoid scams. Because you’re in a desperate situation, you’re a target for con artists. Be wary of foreclosure rescue scams, such as phony credit counselors or individuals who ask you to sign over the deed to your home, and be selective about whom you ask for help.20 Start seeking help from HUD counseling agencies and other reputable local agencies.
Find about your loss mitigation rights, what foreclosure notices you’ll receive, your right to challenge the foreclosure, and more.
When you take out a loan from a bank or mortgage company to purchase a home, in exchange you have to promise to comply with a monthly payment schedule and agree that the lender can sell the property at a foreclosure sale if you fall behind.
If you’re facing a foreclosure, no matter if it is judicial or nonjudicial, don’t panic—you have rights. These rights are based on federal law, state law, and the mortgage (or deed of trust) that you signed when you took out the loan. Read on to find out more about your rights during a foreclosure.
Loss Mitigation Rights
Under federal law, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options no later than 36 days after you miss a payment, and again within 36 days after each subsequent delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available, as well as appoint personnel to help you try to work out a way to avoid foreclosure. (There are some exceptions to some of these requirements, like under some circumstances if you’ve filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. To get details, talk to a lawyer.)
Also, the servicer generally can’t officially begin a foreclosure until you’re more than 120 days past due on payments. This time period should provide you with ample opportunity to submit a loss mitigation application to the servicer.
Right to a Breach Letter
Mortgages and deeds of trust typically have a provision that requires the lender to send you a notice—commonly called a “breach letter”—informing you that the loan is in default before the lender can accelerate the loan (call the entire balance due). The breach letter gives you a chance to cure the default and avoid foreclosure.
Notice of the Foreclosure
In all states, you’re entitled to notice of a pending foreclosure. Depending on state law and the circumstances, the foreclosure will be either judicial or nonjudicial.
Judicial Foreclosures
If the foreclosure is judicial, you’ll get a complaint and summons telling you that a foreclosure has started.
Nonjudicial Foreclosures
You also get some kind of notice about a pending nonjudicial foreclosure. You might get a notice of default in the mail, which gives you a limited amount of time to get current and stop the foreclosure. You might also get a notice of sale that lets you know when the sale will happen.
Tip: Always Read Your Mail
If you’re behind in mortgage payments, be sure to pick up any certified or registered mail, even if you have to go to the post office. Also, be sure you read any communications you receive from your servicer. These notices will inform you about deadlines and important dates in the foreclosure process.
If the servicer makes an error and neglects to provide proper notice under state law, you likely have a defense to the foreclosure. You probably won’t be able to derail the proceedings permanently, but you might be able to force the servicer to issue a new notice and start the proceedings over again.
In other states, notice of the foreclosure might consist of publishing information about the sale in a newspaper and posting a notice on the property or in a public location.
Right to Reinstate
State law sometimes allows you to stop a foreclosure by getting current on the loan with a lump-sum payment covering overdue payments, fees, and expenses. You then resume making regular payments. Usually, you must reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other deadline.
Also, many mortgages and deeds of trust give you the right to reinstate. Usually, the contract says reinstatement is allowed up until five days before the sale in a nonjudicial foreclosure or up until judgment in a judicial foreclosure. And even if you don’t have the legal right to reinstate, the lender might, after considering the situation, let you reinstate. If the lender refuses your request, consider asking a court to allow you to reinstate. A judge generally won’t want to foreclose if you have enough money to get caught up. Sometimes merely offering to reinstate in front of a judge will embarrass the lender into accepting the reinstatement.
Right to Redeem
All states permit borrowers in foreclosure to redeem the property before the sale, and certain states provide a redemption period after the sale. You would redeem the home by paying the full amount owed to the bank, plus fees and expenses, or by reimbursing the person or entity that bought the property at the foreclosure sale, depending on the situation.
Unfortunately, unless you can get a new loan, either kind of redemption might not be practical if you’re already behind in payments.
Right to Foreclosure Mediation
Some states, counties, and cities give homeowners who are in foreclosure the right to participate in mediation. Mediation brings the borrower and foreclosing lender to the table with the goal of working out a loss mitigation option, like a modification or a short sale.
Right to Challenge the Foreclosure
You have the right to challenge the foreclosure in court. If the foreclosure is judicial, you’ll likely find it easier—and generally less expensive—to simply participate in the existing foreclosure lawsuit. But if the foreclosure is nonjudicial, you’ll have to file your own lawsuit to raise defenses to the foreclosure. If the servicer made a mistake, violated the law, or you want to make the lender prove its case, you might want to fight the foreclosure in court.
Right to a Surplus
After a foreclosure sale, you might get a notice telling you who bought the property and the sale price. If the sale brought in enough to repay the loan, including all foreclosure fees and costs, and any other liens on the property, as well as some extra money, you’re entitled to the excess proceeds, called a “surplus.”
On the other hand, if the foreclosure sale doesn’t fully pay off the debt, you might be on the hook for a “deficiency judgment,” which is a personal judgment against you for the difference between the total debt and a lesser sale price.
Talk to a Lawyer
This article covers many of the rights you have in a foreclosure, but—of course—others exist. Your rights in a foreclosure can vary a great deal depending on your jurisdiction and situation. To get detailed information about your rights, consider talking to a local foreclosure lawyer.
Federal laws protect homeowners when facing foreclosure.
On January 10, 2014, new federal laws that protect homeowners in the foreclosure process went into effect. These laws protect consumers by:
ensuring servicers provide assistance if a borrower is having difficulty making mortgage payments, and
protecting borrowers from wrongful actions by servicers.
Keep reading to learn more about these federal laws and how they might help you if you’re facing a foreclosure.
Why the Need for Laws Protecting Homeowners?
During the foreclosure crisis that began around 2008, the number of homeowners in financial distress increased exponentially and servicers simply couldn’t keep up with the increased demands for information and assistance. As a result, servicing errors were common and egregious.
Servicers Now Must Provide Homeowners With Assistance
Now, under federal law, servicers are supposed to work with borrowers who are having trouble making monthly payments.
Early Intervention Requirements: Servicer Must Contact the Borrower By Phone (or In Person) and In Writing
If a borrower falls behind in payments, a servicer must attempt to contact the borrower to discuss the situation no later than 36 days after the delinquency, and again within 36 days after each subsequent delinquency, even if the servicer previously contacted the borrower. If appropriate, the servicer must tell the borrower about loss mitigation options—like a modification, short sale, or deed in lieu of foreclosure—that might be available to the borrower. But, if you filed for bankruptcy or asked the servicer to stop communicating with you under to the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to this law, the servicer doesn’t have to try to contact you by phone or in person.
No later than 45 days after missing a payment, the servicer must inform the borrower in writing about loss mitigation options that might be available, and must do so again no later than 45 days after each payment due date so long as the borrower remains delinquent. The servicer does not, however, have to provide the written notice more than once during any 180-day period. If you’ve filed bankruptcy or asked the servicer not to communicate with you, it generally has to send a modified letter, subject to some exceptions.
Continuity of Contact Requirements: Servicer Must Appoint Personnel to Help the Borrower
The servicer must assign personnel to help the borrower by the time the borrower falls 45 days delinquent. The personnel should be accessible to the borrower by phone and able to respond to borrower inquiries.
When applicable, the servicer’s personnel should help the borrower pursue loss mitigation options, like by advising the borrower about:
available loss mitigation programs
how to submit a complete loss mitigation application
the status of a submitted application
how to appeal (if the application is denied), and
the circumstances when the servicer may refer a file to foreclosure.
The servicer may assign a single person or a team to assist a delinquent borrower.
Restrictions on Dual Tracking
Federal law also restricts “dual tracking.” Dual tracking happens when a servicer simultaneously evaluates a borrower for a loan modification (or other loss mitigation option) while at the same time pursuing a foreclosure.
Restrictions on Starting Foreclosure
Servicers generally can’t start a foreclosure until the loan obligation is more than 120 days delinquent, which provides time for the borrower to submit a loss mitigation application. A borrower is considered delinquent starting on the date a periodic payment sufficient to cover principal, interest, and, applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid.
What is the first foreclosure notice or filing? In a judicial foreclosure, this means the foreclosing party can’t file a lawsuit in court to start the foreclosure until you’re more than 120 days behind. If the foreclosure is nonjudicial, the foreclosing party can’t begin the foreclosure by recording or publishing the first notice until you’re more than 120 days late in payments. If your state’s foreclosure laws don’t require a court filing or any document to be recorded or published as part of the foreclosure process, the first notice is the earliest document that establishes, sets, or schedules a date for a foreclosure sale.
Further restrictions on starting a foreclosure. Even if a borrower is than 120 days delinquent, if that borrower submits a complete loss mitigation application before the servicer makes the first notice or filing required to initiate a foreclosure process, the servicer can’t start the foreclosure process unless:
the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
the borrower rejects all loss mitigation offers, or
the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.
To learn more about how foreclosure works in your state, see our Key Aspects of State Foreclosure Law: 50-State Chart.
Restrictions on Continuing Foreclosure After the Borrower Requests Help
If the servicer has already started a foreclosure and receives a borrower’s complete loss mitigation application more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions mentioned above has been satisfied.
A Motion to Reschedule the Foreclosure Sale Doesn’t Violate Federal Law
While federal law generally prohibits a servicer from moving for a foreclosure judgment or an order of sale after a borrower submits a complete loss mitigation application, the U.S. Court of Appeals for the 11th Circuit held that a motion to reschedule a previously set foreclosure sale doesn’t violate this law. (See Landau v. RoundPoint Mortgage Servicing Corporation, 925 F.3d 1365, 27 Fla. L. Weekly Fed. C 2045, (11th Cir. June 11, 2019)).
The servicer doesn’t have to review multiple applications after you become delinquent on the loan. But if you bring the loan current after submitting an application, you may submit another.
Applicability of the Laws
These laws apply to mortgage loans that are secured by a property that is the borrower’s principal residence. The determination of principal residence status depends on the specific facts and circumstances regarding the property and applicable state law.
For example, a vacant property might still be a borrower’s principal residence under certain circumstances, like when a servicemember relocates due to permanent change of station orders and was living at the property as his or her principal residence immediately prior to displacement, intends to return to the property at some time in the future, and doesn’t own any other residential property.
Getting Help
If you’re having trouble making your mortgage payments, consider submitting a loss mitigation application to your loan servicer. Once submitted, under federal law, the servicer has five days to tell you whether it needs more information—so long as you submit the application 45 days or more before a foreclosure sale—and, if so, what information it needs.
Generally, the servicer is required to evaluate the application for all loss mitigation options within 30 days, as long as you submit the complete application more than 37 days before a foreclosure sale. Also, you may generally appeal a loan modification denial so long as the servicer received the complete loss mitigation application 90 or more days prior to a scheduled foreclosure sale. Remember, the servicer is required to review you for a loss mitigation option only once, unless you bring the loan current after submitting your complete application.
If you have questions about the foreclosure process in your state or about the laws discussed in this article, consider talking to a foreclosure attorney. If you want to learn about different loss mitigation options or you need help with your loss mitigation application, consider contacting a HUD-approved housing counselor.
Learn the basics about judicial and nonjudicial foreclosures.
The foreclosure process in any given state is generally classified as being either judicial or nonjudicial. The key difference between the two procedures is court involvement. (To learn which foreclosure procedure lenders in your state usually use, see Key Aspects of State Foreclosure Law: 50-State Chart.)
Judicial Foreclosures
All states allow a lender to foreclose judicially, but certain states require this process for residential properties.
How the foreclosure process works. In states that have a judicial foreclosure process, the lender must file a lawsuit to foreclose the property. The court will attempt to determine the circumstances surrounding the default through in-court hearings and documents filed by the homeowner and lender. The homeowner will also have the opportunity to try to negotiate a way to avoid foreclosure. If the court determines that the foreclosure is proper, and the homeowner isn’t successful in the negotiations to stop the foreclosure, the court will enter a judgment against the homeowner and a foreclosure sale will follow. (For details about the judicial foreclosure process, see How Judicial Foreclosure Works.)
How long a foreclosure takes. The judicial foreclosure process can be lengthy, frequently lasting several months—or years in some cases. (Learn about states with a long foreclosure timeline.)
Nonjudicial Foreclosures
In states that use a nonjudicial foreclosure process, the court system is minimally involved, if at all. In fact, a nonjudicial foreclosure is typically handled entirely out of court by a trustee, which the lender designates in the deed of trust that the borrower signs when buying the home. Or the lender might substitute a different trustee later on to handle the foreclosure.
In states that allow nonjudicial foreclosures, a lender might choose to foreclose through the courts. For example, if there’s a title problem that a court needs to sort out, the lender might choose to foreclosure judicially—even when state law permits nonjudicial foreclosures.
How the foreclosure process works. Nonjudicial foreclosure procedures differ widely from state to state. In some states, the trustee provides the homeowner with a notice of default that lets the homeowner know that the trustee intends to foreclose on the home. The homeowner is then given a period of time to get current on the loan or negotiate a way to prevent a foreclosure. The trustee might also have to send a notice with details about the sale. Depending on state law, though, the lender might:
send only a notice of sale
send a combined notice of default and sale, or
state law might only require the lender to publish notice in a newspaper and post a notice somewhere on the property or somewhere public.
If the homeowner can’t cure the default or otherwise find a way to avoid foreclosure, the trustee sells the home at a foreclosure sale. (For details about nonjudicial foreclosures, see How Nonjudicial Foreclosures Work.)
How long a foreclosure takes. The nonjudicial foreclosure process is generally quicker and less expensive than the judicial process, often lasting just a few months or less. (To learn more about the timelines for judicial and nonjudicial foreclosures, see our articles Timeline for a Judicial Foreclosure and Timeline for a Nonjudicial Foreclosure.)
Talk to an Attorney
Foreclosure laws and procedures vary from state to state and, again, sometimes depend on the individual circumstances of the case. While the above descriptions provide general information about the two primary foreclosure processes, if you’re facing a foreclosure, you should become familiar with the specific laws and procedures in your state. Consulting with an attorney or a HUD-approved housing counselor is strongly recommended.
Also, be aware that that states sometimes have different laws and procedures if the property being foreclosed is a commercial property, multifamily home, timeshare, or undeveloped land, rather than a single-family residence.
Don’t be caught off guard if you’re facing a foreclosure. Read on to learn about each step in a Florida foreclosure—from missing your first payment all the way to eviction. (To learn what to do, and what not do, if you’re facing a foreclosure, read Foreclosure Do’s and Don’ts.)
Florida Mortgage Loans
People who take out a loan to purchase residential property in Florida typically sign a promissory note and a mortgage. A promissory note is basically an IOU that contains the borrower’s promise to repay the loan, as well as the terms for repayment. The mortgage creates a security interest in the property.
What Happens When You Don’t Make Your Mortgage Payments
If you miss a payment, most loans include a grace period of ten or fifteen days after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge you a late fee. To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement. (Learn more about fees that the servicer can charge if you’re late on mortgage payments.)
In most cases, federal mortgage servicing laws require the servicer to contact the borrower by phone and in writing during the preforeclosure period. (12 C.F.R. § 1024.39). Don’t ignore the phone calls and letters. They offer a good opportunity for you to discuss loss mitigation options —like a loan modification, forbearance, or payment plan—with the servicer. Also, federal law generally requires the servicer to wait until you’re more than 120 days delinquent on payments before officially starting a foreclosure. (To learn more, read How Soon Can Foreclosure Begin?)
What’s a Breach Letter?
Many Florida mortgages contain a clause that requires the lender to send the borrower a breach letter. The letter must inform the borrower that the loan is in default and specify: the default, the action required to cure the default, a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property. Usually, the servicer will send this letter when you’re around 90 days’ delinquent on the loan.
Florida Foreclosures
In Florida, foreclosures are judicial, which means the lender (the plaintiff) must file a lawsuit in state court. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
The lender’s attorney initiates the foreclosure by filing a complaint with the court and serving it to the borrower, along with a summons that provides 20 days to file an answer. If you don’t respond to the lawsuit by the deadline, the lender can ask the court for a default judgment. On the other hand, if you file an answer, then the lender can’t get a default judgment. Instead, it will likely file a motion for summary judgment. Unless you have some defense or counterclaim that would justify or excuse your nonpayment, the lender will likely win the motion for summary judgment and the court will render a final judgment of foreclosure. But if the judge denies the lender’s motion for summary judgment—say you have a potentially legitimate defense to the foreclosure—the foreclosure will proceed to discovery and trial. If you lose at trial, the court will enter a final judgment of foreclosure against you.
Expedited Foreclosure Process in Florida
Florida law provides a procedure designed to speed up the foreclosure process in uncontested cases or in cases where the homeowner does not have a genuine defense. (To learn more, see Fast-Track Foreclosure Process in Florida.)
Setting the Foreclosure Sale
If the lender gets a judgment of foreclosure, the court schedules a sale of the property not less than 20 days, but no more than 35 days, after the judgment (unless the plaintiff or plaintiff’s attorney consents to additional time). (Fla. Stat. § 45.031).
Notice of Sale Posting Requirements
A notice of sale must be published in a newspaper for two consecutive weeks with the second publication at least five days before the sale. (Fla. Stat. § 45.031).
The Foreclosure Sale
At the foreclosure sale, the property will be sold to the highest bidder, which is often the foreclosing lender. (The lender usually makes a credit bid at the foreclosure sale.) If the lender is the highest bidder, the property becomes REO.
Certificate of sale. Under Florida law, the court clerk must promptly file a certificate of sale after the foreclosure sale takes place. (Fla. Stat. Ann. § 45.031). This usually occurs within one day of the sale.
Certificate of title. The borrower has ten days after the certificate of sale to file an objection to the amount of the bid. After ten days, the clerk confirms the sale and issues a certificate of title to the purchaser. (Fla. Stat. Ann. § 45.031).
Deficiency Judgment Following Sale
In Florida, a lender may obtain a deficiency judgment as part of the foreclosure action or in a separate action within one year, starting on the day after the court clerk issues a certificate of title to the buyer who purchased the home at the foreclosure sale. (Fla. Stat. § 702.06, Fla. Stat. § 95-11).
The court has flexibility regarding the amount of the deficiency, which can’t exceed the difference between the judgment amount and the fair market value in the case of an owner-occupied residential property. (Fla. Stat. § 702.06).
Eviction Following Foreclosure
If the foreclosed borrower doesn’t vacate the property following the foreclosure sale, the new owner (usually the foreclosing lender) will likely:
The eviction process is typically part of the foreclosure action with the right to possession included in the judgment. After the certificate of title is issued, the lender files a motion for a writ of possession. When the motion is granted, the clerk of court issues the writ, which gives you 24 hours to move out, and the sheriff posts it to the property. If you don’t move out, the sheriff will make you leave.
Talk to a Lawyer
If you need more information about how foreclosures work in Florida, or want to learn whether you have any potential defenses to a foreclosure, consider talking to a foreclosure lawyer.
Foreclosure is a legal process through which lenders reclaim properties from borrowers who can no longer afford to meet their monthly mortgage obligations. Home foreclosure laws and procedures vary from state-to-state. So depending on where you live — or where you’re looking to buy — the foreclosure timeline can and often does change.
Below is a state foreclosure laws timeline that is designed to give you a comprehensive overview of the process throughout the United States. Click on any state name to drill down and learn more details about the foreclosure procedures in that state.
