What Happens When You Are in Foreclosure Status?
American foreclosures occur in or out of court. State law in about half of all states requires foreclosing lenders to use what is called a judicial process by filing a lawsuit against the borrower. A handful of states require lenders to use a non-judicial process, which is really just a series of notices the lender files, mails, publishes and/or posts. The remainder of states allow the lender to choose between judicial and non-judicial processes. Most lenders choose the non-judicial process because it costs less and is quicker. What happens during a foreclosure depends largely on whether your lender is using a judicial or non-judicial process.
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In the Judicial Process
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When the lender uses a judicial process, you become the defendant in a civil lawsuit. After the lender files a complaint with the court, you will be served with a summons and complaint. You will have some period of time -- probably two or three weeks depending on state law -- to respond. If you fail to respond the lender asks the court to issue a summary, or expedited, judgment. If you file an answer, the court will schedule a hearing. You don't have to show up to the hearing if you don't want to. It is, however, your last chance to impact the result -- to challenge the foreclosure or to ask for more time before the judgment is entered.
In the Non-Judicial Process
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In some states, the lender starts a non-judicial foreclosure process by recording a notice of default (NOD) on the property title. In most states in which a non-judicial process can be used, the lender will send you a copy of the NOD or another notice informing you a foreclosure has been initiated. In a few states, however, the lender doesn't have to notify you at all. In all of these various non-judicial processes, the lender has to publish a notice informing the public about the foreclosure sale. State law spells out when and how long that notice must be published.
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You Lose the House
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Whether the process if judicial or non-judicial, every completed foreclosure ends with the owner losing the house. In most states, the lender, trustee for the lender or the court schedules your house for sale at a foreclosure auction. In a couple of states, such as Connecticut, the court can simply approve a change of title to the lender if the house is worth less than the outstanding mortgage balance. After the foreclosure sale, title transfers to the buyer, which is usually the foreclosing lender.
Eviction
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After your property changes hands, the new owner -- usually the foreclosing lender -- is probably going to evict you. How this occurs is also a function of state law. In some judicial foreclosure states, like Florida, the authority to evict the owner is wrapped into the foreclosure process and the lender needs only to pick up a writ of possession from the court clerk. In other states the new owner must file a court action to evict you. Many lenders participate in a "cash for keys" program in which they offer a cash settlement to the occupants for moving voluntarily, obviating the need for a court-approved eviction.
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