Foreclosure

Find Out About the Difference in Foreclosure Remedies

Mortgage Modification

A Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e. mortgagee and mortgagor in mortgage states; Trustee and Trustor in Trust Deed states). In general, any loan can be modified, and the process is referred to as loan modification or debt rescheduling.

Short Sale

short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. Creditors holding liens against real estate can include primary mortgages, second mortgages, home equity lines of credit (HELOC), homeowner association liens, mechanics liens, IRS and State Tax Liens, all of which will need to approve the sale in return for being paid less than the amount they are owed. The lien holders do not have to agree to accept less, but they often do since the alternative is to let the property go to foreclosure.

A short sale is a more beneficial alternative to foreclosure and has become commonplace in the United States since the 2007 real estate recession. Other countries have similar procedures. For instance, in the UK the process is called Assisted Voluntary Sale.  While both short sale and foreclosure result in negative credit reporting against the property owner, because the owner acted more responsibly and proactively by selling short, credit impact is less.

Deed In Lieu

deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts his/her credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.

If there are any junior liens a deed in lieu is a less attractive option for the lender. The lender will likely not want to assume the liability of the junior liens from the property owner, and accordingly, the lender will prefer to foreclose in order to clean the title.

This information is provided as a guide and not as legal advice.


Find Out How Homes Are Foreclosed in New Jersey

Every home or property that is foreclosed in NJ goes through the same process. The steps that lead a home to go up for public auction at a Sheriff Sale are described below.

Notice Of Intent Mailed to Debtor

When a debtor fails to pay their financial obligation the mortgagee must send a Notice Of Intent (NOI) by registered or certified mail indicating that the lender intends to foreclose. The debtor has 30 days to cure the default to avoid foreclosure.

Lender's Attorney Searches for Intervening Liens

The lender's attorney obtains mortgage documents, performs searches and inspections and obtains title insurance.

Mortgagee Files Complaint

If the debtor has not cured the default within the time prescribed, the lender's attorney then files a complaint with the Clerk of the Superior Court.

Lis Pendens is Recorded

After the complaint is filed and docket number assigned the lender's attorney prepares a Lis Pendens which gets submitted and recorded by the County Recording Office (County Clerk).

Lis Pendens is latin for "suit pending". It is a notice that a law suit has been filed that affects the title or claiming interest to real property.

The lis pendens cuts off the right of any other person that records their lien or other document against the property after the lis pendens was recorded.

When a lis pendens is recorded the debtor cannot sell the property without until the lis pendens is released.

Amendment of Complaint

The lender's attorney orders continuation search and upper court search to identify any intervening liens between the time of the first search and time the lis pendens was recorded.

If additional intervening liens were identified through the search the lender's attorney will file and Amendment to Complaint.

Borrower is Served Documents

The lender's attorney will prepare a Summons along with the Complaint and Amendment to Complaint (if applicable) and send it to the County Sheriff or other process server to be served upon the borrower (defendant).

After being served with the Summons and Complaint the defendant has 35 days to file a response with the Court.

Amendments

If any amendments are filed to the complaint all parties affected by the amendments need to be served.

The defendant has 20 days to respond to any amendments.

Answers Filed

Borrower: If the borrower believes the lender does not have the legal right to foreclose on the property or the amount due, they can file a contesting answer providing reasons why the lender does not have the right to a foreclosure judgment.

Other parties: Other parties that were named in the complaint because they have an interest in the property can file a contesting answer to assert any rights they have.

If a contesting answer was filed the case is sent to a County Vicinage Judge to resolve the contested issues either through Summary Judgment or trial. When the issues are resolved the case is returned to the NJ Foreclosure Unit.

If no contesting answers are filed the case will not be resolved by a judge. Instead the complaint will be sent to the Office of Foreclosure in Trenton.

Lender's Attorney Requests Entry of Default or Notice of Motion

If the complaint was not contested, the attorney for the lender mails a notice indicating they will apply for entry of a foreclosure judgment after 14 days from the time the notice was mailed.

The defendant may send to the lender's attorney by registered or certified mail (return receipt requested) within 10 days of receipt of the 14 day notice a good faith statement that certifies there is a reasonable likelihood they will be able to provide the payment necessary to cure the default within 45 days of when the 14 day notice was mailed. If this letter is sent final judgment cannot be entered until 45 days after the 14 days notice was sent.

After final judgment is entered the defendant loses any right to cure the default.

Final Judgment Requested

Once all complaints have been resolved or defaulted by not appearing, the lender's attorney will send all the necessary paperwork to the Court Foreclosure Unit. This includes copies of the complaint, motions, orders, proof of service, etc.

If everything is in order the Foreclosure Unit will enter the final judgment.

Writ of Execution Sent to County Sheriff

A Writ of Execution is a court order granted to a plaintiff seeking to satisfy a monetary judgment. The Writ of Execution will contain details on the property and information on prior liens.

The County Sheriff will then schedule the property for sale at public auction to satisfy the judgment.

Sheriff Sale

The attorney for the lender must mail out a notice of sale to the debtor and other parties participating in the foreclosure a Notice of Sale at least 10 days prior to sale.

The sheriff may give up to 2 adjournments up to 14 days each. After the second adjournment no other adjournments may be granted other than by court order or debtor filing for bankruptcy relief.

The property then goes up for sale by the sheriff and is sold to the highest bidder who will receive a Sheriff's Deed once all conditions of sale are met.

Redemption

There is a 10 day redemption period after the sale. The debtor can directly pay the Sheriff the amount of the judgment and any fees to keep ownership of the property. Or they can file a motion with the County Judge with tender or offer of tender of the amount due along with a notice sent to the Sheriff and plaintiff.

If an objection to Sale is filed within the redemption period the County Judge must schedule a hearing within 20 days of the Sale. If the Sale is approved by the Judge and Order of Confirmation of the Sale is entered ordering the Sheriff to deliver the deed to the successful bidder.

Eviction

If the property is occupied an application for Writ of Possession is made by the plaintiff on an ex parte basis.

Writ of Possession is sent to the County Sheriff to schedule and eviction date. Plaintiff's attorney sends a notice of eviction to occupants.

Tenants with a valid lease may be protected from eviction until their lease expires.

Plaintiff will schedule movers and a locksmith to coordinate with the eviction by the County Sheriff. The plaintiff must pay for these services and 30 days of storage in a safe storage facility rented in the defendant's name. After the first 30 days it becomes the defendant's responsibility to pay the storage fees.

This information is provided as a guide and not as legal advice.

 

Mia Austin

Mia Austin

Broker-Associate
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