CHAPTER 2 - Judicial vs. Non-Judicial Foreclosures

Written by Administrator

The procedure for handling foreclosure differs in each state.• Foreclosures are controlled by state law. Foreclosures are not federally controlled although there are relevant statutes such as the National Housing Act and relevant guidelines imposed on federally supported organizations such as Fannie Mae and Freddy Mac.• It is very important to understand the differences and know the specific procedure in your state.• Seek out the statutes or the procedures for your state.•

Inform yourself of the law and those procedures.• It is not rocket science.• If lawyers can do it surely you can, too.• Included in the Appendix following this chapter is a chart that gives a brief outline of the type of foreclosure procedure in each state as well as the time frame involved. The terms used and timeframes vary from state to state, but the information provides an overview of the different processes.• We have also included in the Appendix following this Chapter a state by state guide to the laws of each state.

Example of Timeline: California

5 Business Days Before Sales Date

Expiration of Right to Reinstate the Loan

Day 1

Record Notice of Default

Within 10 Business Days

Mail and Publish Notice of Default

Within 30 Days

Mail Notice of Default

After 90 Days

Set Sale Date

25 Days Before Sale Date

Send Notice of Sale to I.R.S. (when necessary)

Within 10 Days from 1st Publication

Send Beneficiary Request for Property Directions

14 Days Before Sale Date

Record Notice of Sale

7 Days Before Sales Date

If Court Action, 7 Day Rule May Apply

Sale Date

Property is Sold to Highest Bidder at Public Auction

Elements of a Foreclosure Complaint

The following must be alleged, pled and contained in every complaint for foreclosure:

  • Execution of a note and mortgage, evidence of recording with copies attached:• The borrower must sign and the mortgagee (lender) must record the document in the county courthouse and the lender must prove that you did sign and that they did record the documents.
  • Legal Description of the property:• A legal description must be contained in the complaint.
  • Plaintiff's Status as owner and holder of the note and mortgage must be documented.•• The lender or entity foreclosing a mortgage must provide the court with documentation that it is the owner of the note and mortgage.

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There are alternatives to losing your home.• If you are unable to defend the foreclosure of if the plaintiff bank does, in fact, own and hold the note and mortgage and has complied with all applicable rules and procedures you may want to look at other ways to save your home. Loss modification programs were established by the Federal Government and the mortgage industry in order to stop home Foreclosures. The programs are an attempt to help foreclosure victims in default on their mortgages to find alternatives to home foreclosure.• Not all lenders co-operate nor have the incentives necessary to ensure co-operation.• In fact some servicers have incentive to not modify in that they are paid more for servicing a defaulted loan then for servicing a performing loan.

Taxes and IRS Form 1099

The IRS generally requires the filing of a 1099 whenever debt is forgiven. In mortgage foreclosure cases, if the borrower and the bank work out a modification, short sale, principal reduction or other form of reduction of the amount owed to the bank often times the bank will want to file a 1099 and the borrower will be responsible for paying taxes on• the amount of money reduced from the original loan balance.• A borrower should go to great lengths to avoid this as it constitutes a double whammy.• After failing behind and possibly losing your home to a short sale or giving it back to the bank in a deed in lieu of foreclosure transaction the borrower now had s to pay taxes on the amount forgiven. Follow these easy steps to attempt to avoid such problems.

Borrower's Procedure in Foreclosure Matter

  • QWR.• As indicated above you must send a Qualified Written Request to the lender.• This is your first step.• This request, under Federal Law, abates (delays) any action for 60 days.• But do not rely upon that abatement.• Often times plaintiff banks will go forward with the foreclosure without regard for this or any other statute.• The Qualified Written Request is the first step towards defending your action as well as preserving any claims that you may have against the lender for unfair debt collections practices.
  • Notice of Appearance and Unavailability:• File a Notice of Appearance and Unavailability to alert the opposing counsel of your intent to appear and defend your home.
  • Borrower’s Demand For Disclosures Required By Real Estate Settlement Procedures Act (REPSA):• Some practitioners recommend filing a Borrower’s Demand For Disclosures Required By Real Estate Settlement Procedures Act (REPSA).• This filing demands that the lender give to you all disclosures that were required at the time you executed your loan documents.• This is a form of a QWR only it is filed with the Court.• Failure to provide the disclosures gives rise to a counterclaim by the borrower for damages under RESPA 12 U.S.C. 2605.


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