Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

As an attorney I often consult with homeowners that are in distress along with the Realtors that represent them in trying to accomplish a short sale.  Often a detailed explanation of the foreclosure process would be very worth while for my client to have a thorough understanding of what they may be facing as the lender seeks to enforce the promissory note and mortgage.  We usually don't have enough time to explain the process in full, so here is an article that should help non-lawyers understand what is happening according to rules of procedure in the court system and what options lenders have for enforcing the money they loaned to the homeowner.

The Promissory Note - the obligation to pay back the borrowed money -

In the beginning there is a PROMISSORY NOTE.  This is a promise to repay money that is being given by the HOLDER, usually a bank or LENDER.  To be sure the promissory note is repaid the HOLDER wants some collateral.  The collateral could be anything from your heirloom watch to your car, but for our discussion purposes it will be your house. 

The Mortgage - the collateral of your promise to pay back the borrowed money -

The typical way to provide the collateral of your house to the HOLDER of the promissory note is to sign a MORTGAGE.  The mortgage is not a promise to pay any money.  It is merely the promise that if the promissory note is not paid according to its terms, the HOLDER of the promissory note has the option of selling your house and taking from the proceeds of that sale only enough money to pay back the promissory note, giving to you the balance of any excess money from that sale.

Why do I get sued if I don't pay the money to the Lender?

Understand that the HOLDER does not have to use the mortgage to collect on the payments unpaid on the promissory note as there are other collection methods.  For example, the HOLDER can just sue on the promissory note and get a money judgment against you for not paying according to the terms of the promissory note.  That money judgment can then become a lien upon all of your property, both real estate and non-real estate, and (with certain exceptions) the HOLDER can then have the Sheriff sell your real estate or non-real estate assets until the funds raised are enough to pay off the promissory note.

For the purpose of this explanation let's assume the other route of enforcing the obligation to pay the promissory note is used and that is the commonly used "Foreclosure" or more appropriately termed "Mortgage Foreclosure".  In the mortgage foreclosure the HOLDER takes the option of using the collateral of your home (in the example above) and elects to have it sold at (in Florida and most other states) a public sale conducted by an officer of the court, usually the Clerk of the Court in the county in which your house is located.  At the foreclosure sale there is the opportunity for the public and the HOLDER to bid on the house and the house is then sold by the Clerk to the person that bid the highest amount.

The Foreclosure Sale Bidding Process-

This bidding process is confusing because you often hear that the Lender (HOLDER) got the house at the public sale for just $100.  The bid of $100 is usually the opening minimum bid at a public sale.  The reason for this is that there was no public interest in the house, usually because the judgment in the mortgage foreclosure is higher than the value of the house being sold.  To understand why the HOLDER then only bids $100 and no one else bids at the public sale, you need to understand that the HOLDER, having been awarded a foreclosure judgment against the house (not against you as the borrower) is entitled to bid on the house at the sale and the HOLDER can "credit bid" up to the amount of the foreclosure judgment.  This makes sense because why should the HOLDER, who is already owed money, have to actually pay the Clerk for any bid it makes if the money would only go right back to the HOLDER?  So the court rules allow the HOLDER to just bid any number up to the amount the judge set in the foreclosure judgment (being the amount owned to the HODLER under the promissory note).  So if no one else bids on the house at the sale, the bidding starts and ends at the $100 and the winner of the bidding is the HOLDER, who then gets the title to the house.

The Meat of the Foreclosure Process -

Now that we have dealt with the very beginning and the very end of the foreclosure process, let's get into the middle of the foreclosure process.

1.  Notice that you are Delinquent:  The foreclosure warning letter is usually the first stage of the foreclosure sale.  This letter is not the letter that you owe a late fee because you did not pay by the 15th of the month.  The foreclosure warning letter is usually after you are 60 or 90 days late on your payments.  It usually precedes the filing of the complaint for foreclosure by 30 days, but currently that time period can be much longer.  This letter could be written by the HOLDER or by the HOLDER's attorney and it usually demands the payment of the full amount of the delinquency and some letters could announce a full acceleration of the amounts due, including the principal amount of the promissory note.  If you don't pay the money demanded to the HOLDER, the foreclosure complaint will likely follow.  This letter may also include a suggestion that you contact the lender and see if a modification, deed in lieu, short sale or other assistance to your problem of paying the mortgage may be available and appropriate for you.  Whatever you do however, understand that unless you pay the mortgage arrearage in full, the mortgage foreclosure process is likely going to continue!

2.  The Foreclosure Complaint and Lis Pendens:  The foreclosure complaint is a document that tells the court that you signed a promissory note and did not pay it, and you also collateralized the promise to pay the promissory note with a pledge of collateral (a mortgage) of real estate, in this case you house.  Some people call this the "lis pendens".  In reality the lis pendens is a document that is filed in the court file and also recorded ("filed" and "recorded" have different meanings) in the public records of the county where the real estate is located.  The lis pendens mean literally "litigation pending" and it identifies who is involved and what property is involved.  Some people think it is a lien on the house, but in a foreclosure litigation situation, the mortgage itself is the lien and the lis pendens is just a notice to the public that a lawsuit is filed, thus alerting anyone that would be buying or otherwise dealing with the identified real estate that its disposition is subject to a lawsuit.  There are some issues of priority of liens that could be part of this discussion, but it is not necessary for the answering of your question.

3.  Summons and Service of Process:  The foreclosure complaint is provided to all of the defendants by "service of process" and usually that is accomplished by the delivery of a "summons" to each defendant.  The summons says that you have a certain number of days to respond to the complaint filed in the court or a default will be taken against you.  Let me mention a few things here:

            a. If you are named a defendant in a foreclosure complaint it is because of one of three reasons: (1) you owe the money to the Holder; (2) you are owned money by the Borrower; (3) you are in possession or have a right of possession (like a renter) of the property described in the mortgage.  If you are in category 2 or 3 you are not subject to owing money as a result of the lawsuit and the complaint is filed against you only so the mortgaged property can be sold free and clear of any claim you have or may have to the property named in the mortgage.

            b. If you don't answer a complaint within the time period stated in the summons, a default will be entered by the court.  The default is in effect an admission of the things stated in the complaint relative to your name and relationships in the complaint are all true.  What this then means depends on what the complaint says concerning you.  If you are a tenant for example, it means that the mortgage is a lien on the property superior to your right of possession.  A discussion on foreclosure defenses is for another article unto itself, but they can include violations by the Lender of various regulatory rules.  I have two caveats in regard to defenses: (1) don't confuse a defense with a defective foreclosure complaint.  A lost note is not a defense, nor is a lack of an assignment of the mortgage.  Both are defects in the complaint.  (2) Defenses like Truth in Lending violations or RESPA violations require the transaction to be unwound and that means you have to pay back to the lender the money they loaned to you (less certain penalties and attorney fees).  If you cannot return the money the defense becomes illusory.  Congress is addressing this issue now that the housing market is upside down, but there are no solutions yet. Learn more at my article FORECLOSURE DEFENSE FALLACY.

4.  The Timing of Pleadings: The HOLDER's attorney's procedure for a foreclosure is usually pretty much standard:  file and serve the complaint, then wait for the statutory time to answer (usually 20 days), then file a motion for summary judgment of foreclosure with the necessary affidavits and schedule the hearing, then have the hearing with the judge on the motion for summary judgment of foreclosure (which hearing usually takes less than 10 minutes), then have the judge enter the order of final judgment of foreclosure and schedule the foreclosure sale date (sometimes the Clerk has to first give the date to the judge) which date is usually no less than 30 and no more than 45 days from the hearing; then the sale date comes and the public auction of the property occurs.  It is this final event that ends the owner's ability to repay the loan. 

5.  Is the House Lost for Good?  After the sale has occurred there is sometimes a period of redemption where you can still reacquire the house not withstanding it having been sold a public auction.  This period of redemption varies from state to state.  In Florida it effectively ends when the bidder at the foreclosure sale pays the full amount of the bid to the Clerk of the court.  There can be legal objections to the sale based on irregularity or other technical infirmities and in Florida this must be brought to the attention of the Court within 10 days of the sale of the property at foreclosure. The judge then has a hearing on the issues and either sets the sale aside and orders a new sale or the judge confirms the sale and orders the Clerk of the Court to issue a deed to the successful bidder.

6.  Attacking Errors in the Procedure: An appeal can be taken from a judgment of foreclosure but it must be timely.  In Florida the time to take the appeal is 30 days from when it is rendered.

7.  Deficiency Judgment or Surplus Funds?  After the foreclosure sale, if the Lender got less than it was owed it can file a motion to have the court award a deficiency judgment against you as the borrower. How this amount of the deficiency is determined is usually the difference between the foreclosure judgment amount and the market value of the home at the time of the foreclosure public sale.  An in-depth discussion on the procedure is covered in Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios.

7.1 After the foreclosure sale, if the Lender got what it was owed there is probably more money left over.  This occurs when the amount of the foreclosure judgment is less than the amount bid at the foreclosure sale.  This excess money or "overbid" is called the "surplus" and it very well may belong to the borrower!  To get this money the borrower must file a motion to the Clerk (sometimes the Court) to get the money.  If there are other creditors that have judgments or liens on the house (like a second mortgage holder) those people could have a superior claim to the surplus money.  Usually you can apply for these monies without an attorney, but if there are other claims or if you are uncomfortable with the process an attorney should be able to get the matter resolved with just a few hours of work.

This is a lot to digest and frankly I could have been much more detailed.  You are probably asking yourself how long this whole process takes.  Before the current deluge of foreclosures the courts and the attorneys were not that busy so things pretty much went about as fast in Dade County as they did in Flagler County.  But today the whole system is over taxed with more cases than is humanly possible to process according the "fastest time" scenarios allowed by the Rules of Court.  What was once typically a 100 day process can now easily be twice that or more.

Copyright 2008 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader. 

SEE A TABLE OF CONTENTS OF MY ARTICLES AT Need Short Sale Information? - These Articles Probably Answer Your Question

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com. See our simple access to Short Sale and Foreclosure articles on Activerain at TABLE OF CONTENTS - RICHARD ZARETSKY SHORT SALE ARTICLES - 11/1/08


Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Palm Coast Homes 12/01/2008 09:11 PM
  2. Elizabeth Helton 12/22/2008 04:19 PM
  3. Janie Coffey 03/19/2009 12:49 AM
  4. Terry McCarley 11/30/2010 05:40 AM
  5. Petra Norris 10/11/2011 12:51 PM
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Chad Baird
Re/Max Spirit - Dayton, OH

Do you happen to knopw how often there is a "surplus" amount?  Just asking out of my own curiosity. 

Great info though! 

Nov 30, 2008 06:20 AM #1
Gordon Sloan
Group1 Real Estate, selling houses in Salt Lake City Utah - Salt Lake City, UT
Salt Lake Homes For Sale, Salt Lake Real Estate

Richard, I appreciate the work that went into these posts.

I would like to use some of the material on my own blog (with proper credit).

As soon as I learn how to use the re-blog feature, you will become the short sale expertin Utah.

Thanks again

Nov 30, 2008 06:25 AM #2
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Great post and information that every realtor needs to know in this market!

Nov 30, 2008 07:00 AM #3
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


Thank you for a detailed (for our purposes, as I know that even this is general for you) information about the foreclosure. Will have to read it second time to digest.

You are a great authority on these subjects.

I am not quite sure about the deficiency judgement. I thought the lender can ask for the difference between what was on the promissory note and the actual sale. I am a bit confused why the Lender shuld be hurt if the property is upside down. Shoud the lender be entitle to the mone they gave, whether the market went up, or down?

I know you have a link here, and I will go and read it again (I read it before)

Nov 30, 2008 08:05 AM #4
Elizabeth Helton
RE/MAX of Orange Beach - Orange Beach, AL


Thank you for all you have to offer! WOW! You are a great professional who obviously loves his job enough to use your extensive knowledge to help people and I think that is so wonderful!!

I am going to be sending you an email in the AM with  a synopsis of a short sale deal I am working on right now. I am so looking forward to your response!


Elizabeth Helton

Dec 22, 2008 04:22 PM #5
Kent Anderson
Coldwell Banker Resort Realty, Sandpoint, Idaho - Sandpoint, ID
from Schweitzer to the Lake
Thanks so much for this concise report. It is interesting how concerned we are with homeowners currently facing foreclosure procedures (in many cases due to unscrupulous lenders/appraisals)...looking for ways to "bail them out". The families that faced these same foreclsures 3-4 years ago are the real victims. This foreclosure crisis started several years ago.
Dec 23, 2008 03:18 PM #6
Susan Romanello
A1A Realty & Development Inc - Palm Coast, FL

Richard, great commentary and information.  I'm glad you weren't "detailed!" It is certainly a lot to digest but in layman terms!  Thank you.

Feb 07, 2009 07:14 AM #7
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Thank you so much for defining terms and explaining the process for us so we understand the details.  I appreciate your time and effort.  I"m grateful.

Mar 15, 2009 09:45 AM #8

Thanks for such detailed post. I have some questions regarding another compliction involed with foreclosure, namely, IRS lien attached to the property. I live in NJ and was in process to close on a bank foreclosed (freddie-mac owned) property. Less than a week before the closing, we found out about a Federal Lien attached to the property in the amount double than the property is worth. Now the bank's attorneys are not even responding to our attorney's repeated notices/requests to let us know what is happening with the whole thing. We are in complete dark about what is going on as far as the process is concerned. I tried making a complaint with Freddie Mac about this but after 10 months of waiting, there is no progress.

Jul 29, 2010 07:44 AM #9
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney


You are apparently a buyer. If the loan was foreclosed, the IRS lien probably attached after the mortgage was placed on the property and therefore is inferior to the mortgage - but there is a 100 day right of redemption by the IRS to take the home for the amount of the foreclosure bid - likely $100!!!!!  And if the IRS was not named in the suit, they first have to be re-foreclosed by the lender.

Regardless, you probably have a wait on your hands.

Jul 29, 2010 11:51 AM #10
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Thanks, Richard. This does seem pretty complicated and definitely a situation where folks need legal counsel!

Sep 16, 2010 12:30 AM #11
Lisa LaMastra
Coldwell Banker Legacy - Albuquerque, NM

I'm getting ready to jump into my first short sale and I found this information very helpful.  Thanks for posting this informative piece.

Oct 15, 2010 05:56 AM #12
Terry McCarley
REMAX Trend - Cape Coral FL - Cape Coral, FL

Excellent information!  I just read an article in our paper today written by one of the judges about the foreclosure process and thought about writing a post about it today.  I think I will pass as your post covers it all and then some.

Nov 30, 2010 05:37 AM #13
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Richard Zaretsky

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