10 Stages of Foreclosure Distress
To better understand the range of multi-dimensional factors that impact a homeowner’s timeframe to deal with a mortgage foreclosure, we have developed a model that segments the process into ten (10) discrete stages of mortgage foreclosure homeowner distress. These 10 stages span the entire range of financial, legal, and procedural conditions impacting home financing, property rights, repayment, default, foreclosure and ultimate displacement of a former owner. Each stage is marked by specific conditions common across nearly all residential mortgage borrowers facing repayment difficulties. Understanding these stages provides the homeowner’s attorney to explore and pursue a wider range of advocacy options and ultimately to give a more accurate response to the client’s question: “How much time do I have?”.
These 10 stages are summarized below with the characteristics or conditions that mark the beginning and end of each stage. The model, developed by David Acosta, is also intended to help triage the flow of foreclosure defense clients.
Each stage carries with it a set of inquiries, examinations and related advocacy for assisting foreclosure homeowners in distress.
| Stage | Begins with . . . | Ends with . . . | |
| 1 | LOAN | Most recent mortgage loan offer through to closing and making payments | Mortgage payment missed by 30 days or more |
| 2 | DEFAULT | First payment missed by 30 days or more | 3 Consecutive Missed Payments |
| 3 | ACCELERATION | Four (4) or more consecutive missed payments | Acceleration, demand for the entire loan balance due |
| 4 | FORECLOSURE | Filing of a foreclosure action against the homeowner | First request for complete disposition of the legal action |
| 5 | DISPOSITION | Plaintiff’s filing of one or more motions for final disposition for judgment against the homeowner | Judgment, settlement between the parties, or satisfaction of all amounts due |
| 6 | JUDGMENT | Entry of a judgment adverse to the homeowner | Filing of any post-judgment relief, such as an appeal, rehearing or separate action intended to halt the sale of the property |
| 7 | APPEAL | First request for post-judgment relief | Entry of an order/judgment which is a final determination of the main requested relief |
| 8 | SALE | Begins with the sale of the real property | Confirmation of the sale and Clerk’s issuance of a Deed |
| 9 | EVICTION | Filing of an action to remove the homeowner from the property, or eviction | Displacement of the former property owner and other occupants |
| 10 | POST-EVICTION | Filing of any post-eviction motion, action or appeal | Final determination of the requested post-eviction relief |
The Three Cycles: Default, Foreclosure & Post-Judgment
The 10 stages of foreclosure homeowner distress are divided into three (3) broad cycles of Default, Foreclosure and Post-judgment.
Why not just three cycles, instead of 10 stages? Good question. The answer is that each stage a homeowner goes through brings distinct opportunities for the homeowner that change or go away with the transition to next stages. Each stage has a corresponding advocacy objective. The main idea is to help the homeowner keep from advancing to the next stage or to the next cycle.
The Default Cycle is made up of the Loan Stage, Default and Acceleration. It is possible that a homeowner who falls into the second and third stage can recover and never move on to the next stage and cycle of foreclosure. Advocacy at this stage is focused on remediation of the financial condition, advocacy for reinstatement, refinancing, forbearance or other form of workout that does not involve foreclosure or surrender of the home.
The next cycle, Foreclosure is made up of the three main activities that lead to the loss of the homeowner’s property rights through legal process. This includes the plaintiff’s filing of the foreclosure action; setting the case for final adjudication and obtaining a judgment; and obtaining a judgment authorizing a foreclosure sale. The focus at this stage is for settlement with the foreclosing plaintiff through advancing whatever defenses or claims are available to the homeowner.
The last cycle, Post-Judgment, encompasses the filing of any appeals to the foreclosure judgment, the sale of the home, eviction of the former owners and finally legal requests for post-judgment/post-eviction relief. The focus at this stage is aimed at vacating the foreclosure judgment, assuming there are grounds for seeking this relief, and for ensuring the former homeowner’s rights are not violated in the process of dispossessing him/her from the home.
The Loan Stage
The Loan Stage begins with the offer of the loan because it is often at this stage that the homeowner suffers harm he/she may not know about until a later time. Homeowners feel stress and distress during this phase for many reasons. The closing process alone is intimidating even for homeowners who have previously gone through obtaining home financing. The stress, confusion and anxiety is quickly forgotten because the closing of the loan is seen by the homeowner as the accomplishment of a personal goal.
The distress first shows itself in a more palpable way when the homeowner first experiences something that causes a mortgage payment to be made 30 or more days late. Most consumers know that when payments are more than 30 days late there is an immediate impact on their credit history and report. It is the pursuit of avoiding this impact that contributes the most to the distress.
This may be the earliest warning of trouble ahead. A homeowner who sees the situation as temporary and believe their financial condition will improve takes a gamble on the passage of valuable time that may later generate even greater stress. When a homeowner experiences financial difficulties it is common for them to underestimate the amount of time they have left to resolve the problem. The most difficult cases often come from consumers who have very little time left and who have also waived important legal rights by the passage of time or the failure to timely respond critical notices and warnings.
Default & Acceleration
The greatest stress for homeowners comes in the second and third stages. At this point the homeowner is struggling to do whatever is necessary to avoid going deeper into financial arrears and possibly losing the home. Resolving the problem by catching up on payments may only be temporary and the consumer knows the exercise is just buying a small amount of time. If the problem is cured altogether, the homeowner may actually revert to Stage-1 or even sell the property. Acceleration, at Stage-3, is very critical in that foreclosure proceedings at this point are imminent. Acceleration means that the entire balance of the loan has been demanded and the homeowner can no longer make partial payments.
There is little doubt that a homeowner unable to pay arrearage will find it nearly impossible to pay off the entire balance of the loan at once. This stage causes much distress because the homeowner does not understand why the mortgage company returns his/her payments, even though an enormous effort was made to obtain the funds and send these in to show good faith by the borrower. Homeowners don’t know that acceleration has a specific legal. The mortgage loan has been called. If the mortgage company accepts partial payments by its performance a modification of the underlying promissory note and mortgage contracts may result. Therefore, the payments are returned to the borrower. This information disconnect causes an incredible amount of homeowner distress and distrust. It is easy to understand how homeowners conclude that the mortgage company simply wants to take away the house.
At this stage a homeowner seeking guidance may be well-served by a thorough examination of their loan closing documents to learn whether there was overreaching by the lender or any of its agents in the offering, negotiation, or formation of the underlying agreements. Predatory lending practices discovered at this early stage can lead to the strategies to help the homeowner avoid foreclosure and forceful displacement by legal process.
At these stages a homeowner may likely need to exercise one or more consumer protection rights under state or federal law as shields to harassment and in anticipation of defenses that will need to be asserted at the foreclosure stage.
The Foreclosure Stage
Foreclosures in Florida must follow a process laid out by statute. See Fla. Stat. § 72.01. Where lenders in other states are allowed to publish the home for sale upon default, through the use of a Deed of Trust, Florida law requires the judicial foreclosure process where the foreclosing entity must sue the homeowner to sell the home. This judicial process affords the homeowner opportunities to raise defenses to the claims made by the foreclosing plaintiff.
n Stage-4 the formal foreclosure process begins and the homeowner is now on the defensive. It is at this stage that consumer homeowners feel a new level of distress because the displacement of the family seems inevitable. Questions that loom during this stage are about where can the family go to live; where will the children have to go to school; how will the embarrassment of this situation affect friendships, employment and other relationships; among a myriad of other change-centric uncertainties. From this wellspring of uncertainty emanates the question: “’How much time do I have”.
Homeowner Distress Stages IV – VI Obviously, the answer will depend on numerous factors not the least of which involves the homeowner’s ability to regain a financial footing enough so that a solution can be proposed. Among other considerations impacting how much time the homeowner has until the inevitable eviction the family home are the following:
- Has the original cause of the financial difficulty leading to the lapse of timely payments been resolved?
- Does the homeowner foresee a financial turn-around in the immediate near future, and if so, what does that timeframe look like?
- Are there opportunities for the sale of the home with favorable terms to the foreclosure defendant?
- Are there available and realistic refinancing opportunities that the homeowner can tap?
- Are there other threats impacting the availability of financial resources to cure the default, and if so, what is the likely impact on the timeline?
- Does the homeowner have defenses to the foreclosure that could change the equities and lead to a possible favorable settlement?
- Who is the foreclosing plaintiff? Does the foreclosing plaintiff have standing to bring the action?
- Are there affirmative claims available to the homeowner that could offset the amount of the default or lead to a favorable settlement?
A homeowner facing foreclosure needs someone who can parse out these issues and provide enough information to reach two key pieces of information. First and foremost is a realistic snapshot of the homeowner’s legal position as a defendant in the foreclosure litigation. This includes, among other things, an assessment of the homeowner’s chances of adequately asserting defenses or claims within the action that may impact the overall timeframe. An attorney can assert defenses to the foreclosure from information gleaned from examination of the foreclosure complaint, loan closing documents, promissory note and mortgage, interviewing the homeowner, and conducting other investigations.
The second piece of information found not from examining, investigating, or interviewing but rather from the synthesis of information gleaned in the first part against a known backdrop of legal processes the foreclosing plaintiff must follow and in light of the court’s current docket load. An experienced advocate can formulate an estimated timeframe over which the defenses, claims and other matters litigated will flow. The result, although not in the form of a guarantee, is a more realistic span of time that is based on a calculated estimate based on known timeframes, procedures, possible outcomes and related strategies.
Without some point of reference or calculation, an answer about how much time the foreclosure defendant has is just a guess.
A homeowner in this stage will need aggressive advocacy that is based on sound and recognized defenses to foreclosure actions. Defendants who navigate this stage, with or without counsel, will be greatly disadvantaged by asserting defenses that are not compatible to foreclosure actions – the natural result of which is the wholesale striking of the affirmative defenses. Once the defenses are gone the homeowner has protection and the action moves to summary judgment and eventual determination in favor of the foreclosing plaintiff. The right defenses, however, can make all the difference in the world both in terms of impacting the timeline and ultimately the possibility of settlement.
Disposition & Judgment
The Disposition and Judgment stages have their own set of strategies to be followed based on the underlying facts and application of the law. For example, when a homeowner has failed to respond to the complaint and is facing a motion for final default judgment, an advocate coming in at this stage will naturally move quickly to learn the cause of the homeowner’s failure to timely respond to the complaint; whether there exists excusable neglect sufficient to move for setting aside the default; whether service of process was proper; and whether there are grounds for asserting defenses so that the case may be determined on the merits. The to-do list is very different if there is a pending motion for summary judgment, or where the homeowner has already suffered the entry of an adverse judgment.
Where a judgment has been entered and the underlying evidence or allegations do not support the entry of that judgment, even default judgment, an advocate can move to vacate the judgment or for rehearing. As has been seen all around the U.S., a number foreclosing plaintiffs have sought to obtain judgments against homeowners where they could not prove the right to seek such relief. Not only have some of these plaintiffs had their actions dismissed, but some have been severely sanctioned for fraud upon the court. Obviously a judgment obtained by fraud upon the court or where the plaintiff had no standing to sue, or where the plaintiff did not join an indispensible party, is void and must be vacated.
Depending on the specific circumstances, facts of the case and procedural history, this stage could last for several months – especially where there are issues of material fact that preclude the entry of summary judgment. In cases brought forward without the production of the original promissory note, between asserting specific defenses and the foreclosing plaintiff’s own pursuit of obtaining possession of the actual blue-ink original note, the result is almost always additional time for the defendant homeowner. At these stages, a clear understanding of the Uniform Commercial Code, the Evidence Code, discovery rules and various state and federal consumer protection laws will go a long way to gaining ground for the homeowner defendant. The right strategy can even result in the dismissal of the action.
The Appeal stage
Like other appeals, in Stage-7, a homeowner seeks relief from a judgment adverse to his position. Although it is the rare exception that a foreclosure defendant winds up in a full-blown plenary appeal in district court, procedurally this is the proper method to obtain reversal where a homeowner faces a foreclosure judgment obtained by a plaintiff who lacked standing to sue. Other grounds that merit appeal include denial of the homeowner’s right to due process, fraud on the court, unfair striking of affirmative defenses or dismissal of counterclaims.
Homeowner Distress Stages VII – X The cost of litigating an appeal can be quite high and requires a different form of advocacy. The only bright spot at this stage is that any appeal that is on solid ground and results in obtaining reversal, in favor of the defendant homeowner, may likely also yield an award of attorney’s fees. Additionally, if the foreclosing plaintiff used unfair methods of collecting on the homeowner’s mortgage debt, claims may be brought against the mortgage servicer and his attorney/law firm for violations of the Fair Debt Collection Practices Act (FDCPA); the Florida Consumer Collection Practices Act (FCCPA) and the Florida Unfair and Deceptive Practices Act (FDUTPA).
Sale, Eviction & Post-Eviction
In the final stages of the foreclosure process the home is sold, even though the homeowner may still occupy the property. Nonetheless, the legal process of foreclosure moves on and the homeowner’s property rights are take away leaving his/her status as merely that of a hold-over tenant, or tenant at sufferance.
The common perception about foreclosure is that it is the process by which a lender takes back the property because the borrower homeowner did not pay. This is not entirely accurate. In Florida foreclosure is the method sanctioned under state law by which a property owner’s rights are terminated, for cause, through legal a process that is governed by statute and rules of civil procedure. The key is the termination of the owner’s rights to the real property. Once the owner’s rights are terminated the court is then in a position to sell the real property and the proceeds are advanced to lien holders appearing in the public record in the priority of recordation. Nothing in the process precludes the foreclosing plaintiff, or anyone else, from bidding any amount for the property at the public sale.
Florida law provides the homeowner whose rights to real property have been terminated through foreclosure one last opportunity to restore his rights. Under Florida law, a homeowner has until the issuance of the deed by the Clerk of the Court, after the public sale, to redeem his/her property ownership rights by paying all amounts deemed to be due under the decree of foreclosure. The sale process is the last opportunity the homeowner has to save the property from being taken over by a new owner. Once the sale is complete, it is extremely unlikely the property may be placed back into the hands/ownership of the losing foreclosure defendant.
Following the public sale of the property the Clerk of the Court confirms the sale issues a Deed to the new owner and the property. Then, if the homeowner is still in the property after the entry of a foreclosure decree, the sale, confirmation of the sale and the issuance of a new Deed, he/she is now merely a tenant and subject to eviction. If the new owner wants to rent the property to the former homeowner a new agreement may be put into place to avoid the complete displacement. On the other hand, if the new owner does not want the former owner as a tenant and there is a hold-over condition (tenant refuses to vacate the property) then an eviction action is filed to remove the tenant.
The three stages of Sale, Eviction and Post-Eviction relief are identified separately because each stage presents opportunities for advocacy, again based on the specific facts and procedural history of the case. For example, a foreclosing plaintiff may have moved quickly to sell the property even though the underlying record did not adequately support the judgment or where the plaintiff did not plead or show standing to bring the action. Advocates with this situation would move quickly to stay the sale, possibly with the filing of motions or even a new action complete with a new lis pendens on the property, in an attempt to keep the homeowner’s right of redemption from being extinguished with the sale of the home.
Another scenario is presented where the homeowner asserted defenses or defenses under federal law, such as rescission under Truth in Lending, the defenses or claims were unfairly stricken and now the homeowner faces the loss of these rights forever if the property is sold. In this scenario an advocate may explore bringing a separate action in federal district court seeking injunctive relief on the grounds that the homeowner will lose valuable rights under federal law if the sale of the property goes through. This strategy has been proven successful.
