In Connecticut, mortgage and other foreclosures fall into one of two categories; either Strict Foreclosure (no equity-debt greater than value of property) or Foreclosure by Sale (enough equity to justify auction considering costs of sale- debt less than value of property). A broad overview follows:
Foreclosures are equitable actions and the court retains a great deal of leeway to fashion a fair solution. However, usually, the foreclosing party is entitled to a judgment absent some type of mistake, fraud or duress.
The action is started by a Summons and Complaint being served on the owner(s) of the property and all those having a right subsequent or junior to the lien being foreclosed- including tenants or any later judgment lien holder, etc. A title search before the filing is therefore required and a “Lis Pendens” or notice of the filing is recorded in the land records at the time the suit is started.
Connecticut has a mediation program for consumer mortgagors who are owner occupiers. If an eligible mortgagor elects to participate in this system the process of obtaining a judgment can be delayed many months.
Assuming that none of the mortgage signers or subsequent lienors have any fraud/duress/invalidity defense the case proceeds to defaults. Defaults for Failure to Appear (with military affidavits for individual defendants) are filed and granted, or Demands for Disclosure of Defense (when attorney appears for a defendant) are filed. Subsequently, Motions for Default for Failure to Disclose Defense or Failure to Plead are filed and granted. Frivolous answers or denials are met with Motions for Summary Judgment with appropriate original documents and affidavits being presented to the court.
When all defaults are entered or summary judgment is granted the case is ready to move to judgment. An appraisal is then required and a list of all prior and subsequent debts is submitted with an Affidavit of Debt regarding the obligation foreclosed upon. The court will examine the original loan/judgment lien documents at the hearing and order Foreclosure by Sale or a Strict Foreclosure, depending on the value of the property and amount of debt being foreclosed including the amount of debt ahead of the plaintiff’s debt.
If the value of the property is greater than the amount of the plaintiff’s debt, (and all liens prior to or ahead of the plaintiff’s debt) the court will enter a judgment of Foreclosure by Sale and set a Sale Date at least two to three months out. (In all cases where there is an IRS lien, a sale will be ordered regardless of the debt to value ratio) The court will also award costs and fees at the time of entry of judgment including filing fee (currently $360.00), Marshal’s fee (variable $100.00 to several hundred dollars), Title Search fee ($225.00), appraisal fee ($350.00 for residential property), attorney’s fees (ranging usually from $2,000.00 to $3,000.00) and other allowable costs.
At the time judgment is entered and a sale date is set an attorney is appointed as Committee of Sale. The Committee’s job is to post a sign on the property advertising the sale, arrange for a legal notice to be published online and in a local newspaper, obtain a new title search and to conduct the actual auction on the property on the date of the sale A new updated appraisal is ordered by the court. Plaintiffs are usually allowed to fax their bids to the Committee.
At the time of sale on site the high bidder, if not the plaintiff, must post a deposit with the Committee (10% of the value) and sign an agreement to deliver the balance to the Committee after the sale is approved by the court. The Committee promptly delivers the deposit to the clerk of court and submits a report of his/her activities to the court along with a deed and a request for approval of the sale and of his fees and expenses, which is usually granted. Committee fees and expenses can range from $2,500.00 to $5,000.00, more or less, for a completed sale. The plaintiff must pay these approved fees and expenses.
The successful bidder must deliver the balance of the sales price to the Committee about a month after court approval in return for a Committee Deed. The sale is “as is” and is not subject to any financing contingency. Such a sale is subject to outstanding taxes and prior liens. Failure to come up with the balance of the sales price may result in forfeiture of the deposit. The court’s judgment usually contains an order of possession once title vests in the high bidder, but an application for ejectment or an eviction action sometimes have to be instituted upon acquiring title to the property.
Assuming a high enough sales price, after the proceeds have been deposited with the court the plaintiff files a Motion for Supplemental Judgment and upon court approval is paid by the clerk its updated debt plus its costs and fees, including the Committee fees and expenses. Any excess on hand is then available for subsequent lienors, or to the former owner to apply for payment by way of Motions for Further Supplemental Judgment.
If the plaintiff is the high bidder, (usually after bidding its debt) upon court approval of the sale (and waiting out the twenty-one (21) day appeal period) it becomes the title owner and a deficiency judgment may be possible, by way of a subsequent motion.
The owner of the equity of redemption may redeem the property up until a short time before the sale by paying the plaintiff its debt, fees and costs. If a bonifide buyer is obtained and a valid contract of sale entered into, the court often opens the judgment and postpones the sale upon proper motion.
Any filings of Bankruptcy along the way delay the sale and change the process to some degree, with steps required to obtain relief from the Bankruptcy stay (in a Chapter 7 proceeding), etc. Sale dates are often cancelled and rescheduled for this reason.
Any successful bidder or plaintiff takes the property upon passing of the title subject to those liens ahead of its debt, such as property taxes or water/sewer liens or prior mortgages for example.
If the debt is higher than the value of the property then a judgment of Strict Foreclosure will be entered by the court and Law Days set- usually four to six weeks after the entry of the judgment.
All defendants (in the inverse order of their priority) have a right to redeem the property by their law date assigned by paying the plaintiffs debt fees and costs, etc. When all assigned law dates pass the plaintiff obtains title by filing a Certificate of Foreclosure in the land records and may proceed to seek a deficiency judgment upon appropriate motion (unless precluded by Bankruptcy).
Most foreclosures follow similar predictable patterns but each action has a life of its own and many proceedings have legal and factual twists and turns that cannot be addressed here. Readers are directed to Connecticut Foreclosures Fifth Edition 2011 by Richard Caron and Geoffrey Milne for more detail.