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It's The Law: Foreclosure Procedure Explained

Q: A friend of mine is in mortgage foreclosure. He does not know what will happen next. Can you explain the foreclosure process?

A: Most foreclosure proceedings are filed in State court. In Florida, there are 2 methods of foreclosure. One method is similar to any other lawsuit. The other is an expedited procedure for foreclosures added by the legislature in 1993..

Under the expedited procedure, the foreclosing mortgage holder (plaintiff) files a verified complaint including all information needed to show it is entitled to foreclosure. With filing of the complaint, the court is asked to issue an order that the debtor show cause why final judgment should not be entered. A proposed final judgment is attached to the show cause order and, if the debtor does not file defenses, judgment is entered.

Few Florida foreclosures utilize the expedited procedure most pursue foreclosure just as any other civil suit.

The mortgage holder files a complaint alleging the debtor is in default, asking the court to determine the amount that is owed and that the property encumbered by the mortgage be sold to pay the debt if the judgment is not paid by the debtor. The plaintiff must also allege that all prerequisites to filing suit have been met. Depending upon the language in the mortgage and type of mortgage, those prerequisites can include pre-suit notice of default and acceleration of the entire debt offers assistance to the debtor under recently enacted Federal programs. Florida does not require the mortgage holder to specify each prerequisite, but only to make a general claim that all have been met. The plaintiff must allege that it owns and holds the mortgage and note.

It is important to understand the difference between mortgage and note. The note, or promissory note, is the document signed by the debtor under which the debtor agrees to repay the loan. The mortgage pledges property as security for that debt, so it can be sold under foreclosure judgment if the debt is not paid. A mortgage holder can foreclose, sue under the promissory note to obtain a judgment for the amount due, or even both in some circumstances.

The mortgage holder must file the original note and mortgage with the court prior to judgment. If they have been lost, Florida has procedures to re-establish them. It must generally be shown that the plaintiff actually owned the note and mortgage at the time it was lost.

In many cases, the foreclosing lender is unable to prove it owns the note and mortgage. Most mortgages are sold and many are transferred more than once. The paperwork accompanying those transfers is often lost or nonexistent so attacking this area has proven to be a fertile ground of defense for debtors in the past few years.

After suit is filed, the Sheriff or process server authorized by the court serves the complaint and a summons on the debtor. The debtor has 20 days to serve a response to the complaint.

Response to the complaint can be in form of a denial, defenses such as fraud in the inducement or even a motion to dismiss on some technical ground. If no response is timely served, the plaintiff can get a default from the court. A default means that the defendant admits all of the well pled allegations in the complaint. A large percentage of mortgage foreclosures result in defaults, as the debtors simple give up and walk away.

The next step in the process is usually for the plaintiff to file a motion for summary judgment. In a summary judgment proceeding, the plaintiff asks the court to agree that there is no issue of fact or law. This is done by filing affidavits confirming the amount due and default in payment. If there is any doubt about the issues, the court will not enter judgment. Doubt must be raised by more than the debtor's denial of the claim. Where the debtor has defaulted, most courts routinely grant the summary judgment request since it is supported by sworn affidavit and there is no opposition.

If summary judgment is not granted, a trial will be held. The case is heard like any other civil lawsuit and, at conclusion, the judge enters a judgment for either the foreclosing mortgage holder or the debtor.

As part of the foreclosure action, the plaintiff will join all parties with inferior interest in the property. That will include junior mortgages (such as an equity line), judgment lien holders, mechanics lien holders and even tenants. The plaintiff will usually record a notice of Lis Pendens in the Public Records, which is notice to anyone who may later acquire an interest in the property that the lawsuit is pending and that the lawsuit will foreclose such interest.

Final judgment will determine the total amount owed, and set a date for sale which is not less than 20 days or more than 35 days after the judgment date. If the judgment is not paid prior to sale date, the property is sold by the clerk at public action.

Anyone can bid at the foreclosure sale. The judgment holder can use the judgment as if it is money. Others must pay 5% at time of final bid and balance within 24 hours. When payment is received, a certificate of sale is issued and, if no objections are filed, a certificate of title is issued to the purchaser 10 days later. The debtor's right to redeem the property ends when the certificate of sale is issued by the clerk.

The mortgage holder can also seek a deficiency judgment if it is not paid in full from the foreclosure sale. The mortgage holder must prove that the property value on date of the foreclosure sale was less than the amount of the debt. If a deficiency judgment is granted, it is just like any judgment and is subject to collection from the debtor just like any other judgment.

At each step in the foreclosure process, a debtor has opportunity to raise defenses. Many defenses are based on legal technicalities, such as failure of the lender to comply with its own documents or failure to prove it actually owns the note and mortgage. Others rely upon equitable principals, as when the lender's own delay in foreclosure has affected market value of the property. For these reasons, a defendant in mortgage foreclosure is well advised to retain an experienced attorney at earliest possible time.

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