If a Buyer and Seller enter into a RealtyPact under the Seller-Financed Mortgage Contract (SFMC) framework and the Buyer fails to make full payment as the contract requires, the remedy for the Seller to get paid in full is to file a foreclosure action.
The steps in a foreclosure case will vary from state to state, as each state has its own civil procedures and timing requirements. However, a foreclosure action will usually follow this process:
1. When the Buyer defaults on his or her obligations under a SFMC (whether it be a failure to timely make payments of principal, taxes, insurance, failure to keep the property in a good condition, etc.), the Seller will provide the Buyer with a written notice of default. If the Buyer does not cure the default listed in the written notice, the Seller will have the right to foreclose on the mortgage that the Seller has filed to secure the Buyer’s compliance with the SFMC.
2. The Seller will initiate a foreclosure lawsuit by filing a complaint for foreclosure in the court of general jurisdiction where the property is located. The Seller must ensure that the Buyer is “served” with summons and filed copy of foreclosure complaint. Service is usually done by the court, per the instructions of the party filing the lawsuit.
3. The Buyer will then have a certain period of time (generally 20 – 30 days, depending on the state where the case is filed) to submit a written response to the foreclosure complaint. This response (usually referred to as an “Answer”) must be filed with the Court and a copy provided to the Seller.
4. Should Buyer fail to file a written answer to the foreclosure complaint, or failure to do so within the time required by law, the Seller can file a motion seeking a “default judgment” against the Buyer. This default judgment has the same effect as if the matter went to trial and the Seller won the case. This default judgment will allow the Seller to seek a sale of the property so that the Seller’s mortgage can be paid through the sale.
5. Should the Buyer not have a valid legal reason for his or her failure to comply with the terms of the SFMC, or should the Buyer not file, the Seller may submit a written request to the Court for “summary judgment.”
6. Should the Seller not file a motion for a default judgment or for summary judgment, the matter will be set for a trial. Foreclosures trials are not very common, as many of the foreclosure cases are decided by default or a motion for summary judgment, or settled by the parties.
7. If a judgment is entered against the Buyer and in favor of the Seller, the court will set a sale date for the foreclosure auction of the Buyer’s home. Depending on state law, this sale date can be as early as 30 days after the judgment is entered or as many as 120 days. The Buyer’s property will be offered to the public for sale via auction, which usually takes place at the courthouse or other public access place.
8. There may be a short waiting period in some states during which the Buyer can “redeem” the property after the auction sale –- that is, pay the Seller the balance of the purchase price in order to retain the property. Redemption is not common, as the amount required to be paid is usually significant.
9. If the property is not redeemed, or in those states where redemption is not provided, the sale will be reviewed by the court. If the proper procedure was followed, the sale will be approved. The title to the Buyer’s home is transferred to the winning bidder at the auction, usually through a “Sheriff’s Deed” an upon payment of the winning bid by the buyer.
10. Within a short period of time following the auction, the Buyer must vacate the property. If the Buyers refuse to move, the new property owners will have the right to begin an eviction process which, once complete, will allow the new owner to take possession, with the assistance of a court bailiff, a police officer or sheriff deputy (depending on the jurisdiction).
UNSUCCESSFUL FORECLOSURE SALES
Many foreclosure auctions do not result in a bid. Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and the costs associated with the foreclosure process. In total, this amount is often more than the market value of the property.
Also hindering most foreclosure sales: the requirement for a potential buyer to have cash or a cashier’s check in hand for the full amount of the bid; receiving the property in “as is” condition (which may include someone still living in the property); and the potential for other liens against the property.
If a foreclosure sale is not successful, the property reverts back to the ‘bank’ — i.e. the Seller in a Seller-Financing situation.
The foreclosure process can take months to complete from beginning to end. The Seller must carefully follow the court rules and processes, and failure to do so can result in a dismissal of the foreclosure lawsuit, which will require the Seller to restart the foreclosure action.
Unless the Seller possesses significant understanding of the legal process, the Seller should consider hiring an attorney to initiate the foreclosure action.