Real Estate Default: Takeaways From Our Recent #AskaPro Webinar

In another episode of our popular #AskaPro webinar series, we delved into the complexities of real estate defaults, covering a range of topics from foreclosure alternatives and evictions to litigation strategies. Moderating this session was shareholder Ben Hoen. Joining him on the panel were esteemed experts in the field: shareholder, Chicago office managing attorney, and popular #CoffeeWithCasey webinar series host Casey Hicks and attorney Ricardo Johnstone. This team has a combined 47 years of experience in the real estate default industry.

About the Series:
Weltman’s Ask a Pro Series is an ongoing, virtual Q&A featuring our own in-house attorneys and industry professionals. The series addresses some of your most popular questions regarding creditors’ rights – from general best practices for your portfolio to new trends and insights, and even specific case examples. And we have a little fun along the way!

Now, we’re sharing the top answers to our team’s Q&A!
 

As you prepare to transfer a file to counsel for initiating a mortgage foreclosure action, it's important to consider the Consumer Financial Protection Bureau (CFPB)'s 120-day rule. According to this rule, the first notice or filing under a state's foreclosure law cannot take place until the loan is more than 120 days delinquent. The delinquency date is the first day a mortgage payment is due and not paid. This rule outlines a crucial timeline that must be adhered to when proceeding with foreclosure actions, ensuring compliance with regulatory requirements.

Watch the webinar to learn about Pennsylvania’s special notification process.
 

Weltman makes it easy to submit referrals by email. We also have a referral form that isn’t mandatory but is helpful. It lists the documents needed. You can also get a list by watching the webinar. We only request essential information that is critical for our success in handling each referral efficiently. This ensures that our clients experience a smooth and efficient process when working with us.

Sometimes, it’s important to know what lien position the client believes they’re in, as well as whether or not the borrower is deceased.

There can be mailing requirements, too, which you’ll want to be aware of. The more information you give your attorney, the better!
 

The approach to resolving your case can vary based on different factors, and we always prioritize understanding our clients' preferences. Our advice takes into account key milestones in your case and whether alternatives, such as a deed in lieu of foreclosure is a viable option.

The specific path forward in loss mitigation often hinges on the stage of your case.

The foreclosure process through the courts and the loss mitigation process are two different tracks, so your attorney will guide you through the available options tailored to meet your needs, given your state’s requirements.
 

The most common one is loan modification. Other options include forbearance agreements and the aforementioned deed in lieu. In the webinar, Ricardo walks through these options and how they work. There are some county-specific laws you’ll want to consider. Your attorney will always keep you informed. 

In certain situations, borrowers facing foreclosure may opt to sell their properties as a proactive measure to avoid the full foreclosure process. This emerging solution offers a potential way to mitigate financial challenges and preserve equity. Ben explains the mechanics of this approach, highlighting the importance of effective communication with your borrower throughout the process.
 

A judicial foreclosure action involves legal proceedings conducted through the court system. On the other hand, non-judicial foreclosure actions, also known as trustee sales or power of sale proceedings, are handled outside of the court system and are primarily governed by state laws and the terms outlined in the mortgage or deed of trust.

Once the complaint is filed in a judicial action, everyone is served. All the parties have an answer period (about 20 -30 days). The next step is to move for judgment, depending on the answer the parties have given. Once the judgment is entered, what happens next varies depending on the state.

Non-judicial actions tend to be much faster. In non-judicial foreclosures, the lender can initiate the foreclosure process by recording a notice of default and following specific statutory procedures leading up to the sale of the property.
 

The answer varies based on jurisdiction, the court, the judge and so many other variables. In Illinois, the county makes a difference. Some even have mandatory mediation periods.

If a bankruptcy is filed, the foreclosure goes on hold. The type of bankruptcy affects the timeline.

In Kentucky and Ohio, the foreclosure process tends to be more streamlined compared to Illinois, with fewer procedural hurdles that can delay cases. You rarely have a foreclosure that takes over a year. It is completely state-dependent. New York, for instance, takes longer.

Court delays also affect timelines, as dockets are backed up. Small counties, on the other hand, may not have the staff to move things as fast as you’d like.

Another facet to consider is when a HELOC, or home equity line of credit, is in a first-lien position. Although it’s rare, Casey has seen it happen. Because of these complications, talking to your attorney is key.

If it makes sense to try and clear liens to pursue a deed in lieu, the attorney will work with the lien holders to attain payments. Liens can make a sticky situation.

If the borrower files for bankruptcy, an automatic stay will halt the proceedings. A Weltman bankruptcy attorney can guide you through the complexities of the bankruptcy proceedings. It may be crucial to pursue either a relief from stay or a dismissal order to proceed with the foreclosure action.
 

We touched on some of this earlier. Casey said the most common title issues she sees are unknown senior liens; errors in the property’s legal description on the deed or mortgage; HELOCs; and unpaid real estate taxes. 

Watch the webinar to learn how we’d go about correcting these issues and get everything in proper order. Illinois allows you to resolve some of these issues within the foreclosure process, but some states require you to file additional actions — and this leads to additional costs. 
 

A common one is the defendant evading service. If the state or county allows certified mail, they won’t sign for it. They won’t answer the door and will avoid any attempt to serve. In some states, like Ohio and Kentucky, an unknown spouse is named as a defendant.

Ricardo talks about serving unknowns. 

There are ways to ensure a smoother service. For instance, having updated and current addresses will make it much easier to serve. A borrower can also be served at their place of employment.  Watch the webinar for the best ways to do this.
 

For Casey, it's service that can be the biggest challenge, followed by the resolution of title issues and finally, deceased borrowers.

Ricardo concurs and adds in court delays. In Ohio and Kentucky, it’s not challenging to get a judgment. 

Ben talks about contested foreclosures and asks about the strategies to avoid or streamline those issues. You’ll want to hear the answers here. (Hint: Success comes down to communication between attorneys.)
 

In Illinois, the plaintiff always opens the bid at the sale, and Casey talks through that process in the webinar. The client determines how they want to bid. The maximum amount of the bid is the total debt.

In Ohio, foreclosed properties are sold either by a court-appointment private seller or sheriff. We recommend a private seller due to the potential for more proactive marketing and sales efforts compared to a sheriff's sale. The vast majority of sales today are online, which maximizes exposure to achieve more favorable outcomes. 

Bidding strategies do change when you’re a junior lien holder.

To watch the full webinar click here. Our team is constantly monitoring changes to the industry. If you would like to learn more about Weltman’s real estate default solutions, contact Ben, Casey, and/or Ricardo at any time.

This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.