When banks foreclose on a home, the owners are often confused by the language used in the various legal documents. One of the terms that causes the most confusion is “default.” There are at least two different ways that this word is used during the foreclosure process, neither of which have good implications for the borrowers most of the time. However, homeowners should know how the word will be used by the bank.
The first way that banks use the word “default” is when they allege that the homeowners are in default of the mortgage contract. The borrowers sign the mortgage or deed of trust to establish the terms under which they will make payments to the lender or servicing company to keep the contract in place. Once payments are missed, the payment terms of the contract have been breached and the homeowners are in default.
So a default of a mortgage contract means that the homeowners have failed to meet one of the conditions for holding up their end of the agreement. While there are other ways to fall into default of a loan, the most common breach of the contract is when borrowers fail to make payments on time and the lender begins the foreclosure process. In the lawsuit paperwork, the lender claims the owners are in default.
The second way that banks use the word “default” is when they file a motion with the court during the foreclosure. This motion may be called an order of default, motion for default judgment, or some other similar term. For the purposes of this article, the motion will be referred to as an “order of default.” However, homeowners should be aware that the same type of legal document may have a different name in their state.
An order of default means that the bank is attempting to get a judgment against the homeowners for foreclosure without having to go through a trial or other court procedures. Of course, this can not be done just under any circumstances, but it is often done in foreclosure cases due to the uninformed nature of most borrowers. The bank can begin a few steps of the process and then get a judgment without having to prove its case.
This is usually done when homeowners do not show up at an initial foreclosure hearing or file an answer to the lender’s complaint. The borrowers’ silence is taken by the courts to mean that they have no objection or argument with the bank’s allegations of breaching the mortgage contract, nor do they dispute the lender’s ability to bring a foreclosure into court in the first place.
Thus, if the homeowners did not file an answer to the lawsuit or show up or request a hearing on the matter, then the bank will request that an order of default judgment be entered by the court. Most courts will have little problem entering this order, as they figure the homeowners were given enough time in which to hire a lawyer, obtain a law degree, or learn the court procedures competently enough to file an answer.
An order of default is not the end of the line, however, as homeowners can try to have the default judgment vacated or dismissed. This requires that they file the appropriate motions in court in time. If the order to vacate the default judgment is granted, the bank will have to pursue the lawsuit more carefully. It will not be able to rely on homeowner ignorance of the process in order to have the home sold at a sheriff sale.
it is a small tragedy that most foreclosure cases are decided by default judgment. This is due to so many borrowers not filing an answer or showing up to foreclosure hearings. Thus, it is important for more borrowers to educate themselves on at least a few basic steps they can take to make it much more difficult for the bank to declare them in default of the contact and then get a default judgment against them.