Understanding the Kentucky foreclosure process
Navigating the foreclosure process is stressful. This guide aims to demystify the steps involved in Kentucky foreclosure laws and explore the options available to homeowners facing foreclosure in Kentucky. Kentucky uses the judicial foreclosure process. A judicial foreclosure state provides more protections and potential defenses to avoid foreclosure borrowers than the deed in trust process.
The Foreclosure Sale Process in Kentucky
After becoming about two payments behind in a mortgage, the lender will start refusing to take payments. When the loan is about six months overdue, the lender will send the mortgage off to an attorney and begin the foreclosure by filing the complaint. This section will cover various aspects of foreclosure in Kentucky, including ways to stop foreclosure, the foreclosure process, rights during foreclosure, and options available for borrowers facing foreclosure.
There are mandatory times the lender must wait so the homeowner is given the opportunity to catch up and cure promissory note default. However, this is impossible for most debtors. Property taxes and HOA fees can cause a foreclosure in Kentucky. There are no deficiency judgments allowed for federally backed mortgage loan servicers under federal foreclosure laws.
The Kentucky foreclosure Complaint
The foreclosure process begins when the lender files a complaint with the court. This legal document outlines the reasons for the foreclosure, including the amount owed and the borrower’s default. There is generally no right to reinstate the loan by just catching up the payments. However, high-cost home mortgage lenders must provide a notice of default to the borrower giving 30 days to cure the default and reinstate the mortgage. (Ky. Rev. Stat. Ann. § 360.100).
You have 20 days to file an answer or a default judgment may be issued, and the property will be sold. Most persons who attempt to file their own answer fail to use the property defenses or admit that they owe the debt and failed to make the payments. Filing your own answer without an attorney will often speed up the foreclosure process.
Answer your Kentucky foreclosure complaint
Upon receiving the complaint, the homeowner has a limited time to respond, in Kentucky this is 20 days. This response, known as an “answer,” allows the homeowner to present any defense or objection to the foreclosure. A proper complaint can be as short as three to four pages and about 15 to 20 paragraphs setting forth just enough to obtain a default judg. A proper answer will often be much longer than the complaint and refer to federal mortgage servicing laws.
There are about 120 different federal and state laws and defenses to a complaint, from the statute of limitations to fraud. Many of the defenses are affirmative defenses. If you do not assert them in the initial answer, you lose affirmative defenses forever. Just filing a good answer will almost always delay the foreclosure by 6 months.
Mediation
The homeowner has 20 days to request mediation through the court after receiving a complaint. During mediation, both parties will have an opportunity to discuss options and potentially come to a resolution that benefits both parties. This is generally not binding unless both parties agree to make it binding.
Issuing discovery
Just like filing a good answer will almost always delay the foreclosure 6 months issuing discovery will also delay the foreclosure process 6 to 12 months. You are allowed to ask 25 questions; make 25 requests for documentation such as the promissory note, mortgage contract, loan documents and history of missed payment. You can also request up to 25 admissions. I have had the stack of documents alone be over three feet tall from a discovery request.
Default Judgment
A Default judgment is granted when the homeowner fails to respond to the complaint within the designated time frame of 20 days for Kentucky. This allows the lender to proceed with a foreclosure without any further input from the homeowner and often without notice. It is important for homeowners to file an answer and assert their defenses in order to avoid foreclosure.
Summary Judgment motion asks
If the court finds that there are no legitimate disputes of fact that you made in your answer or that were developed after discovery, it may grant a summary judgment in favor of the lender. This means the court has determined that the lender has a legal right to foreclose on the property without going to trial.
Circuit Court Master Commissioner Sale
Following a summary judgment, the property is scheduled for a master commissioner sale, where it will be auctioned off to the highest bidder. These foreclosure sales are typically conducted by a court-appointed commissioner and are advertised in local newspapers. If the homeowner does not file a bankruptcy prior to the sale the only remaining right the homeowner has is the right of redemption.
Before the foreclosure sale date, a notice must be posted on the courthouse door and three other places and published in a newspaper. (Ky. Rev. Stat. Ann. §§ 426.200, 424.130, 426.560). Two appraisers will complete a drive-by inspection of the property to obtain the appraised value for a redemption.
After the Commissioners sale.
Under Kentucky law, the lender can obtain a deficiency judgment for the balance of what is owed (Ky. Rev. Stat. Ann. § 426.005). If the foreclosure sale price is less than the amount owed on the mortgage, the lender may seek a deficiency judgment for the difference. For example, if the foreclosure sale price is $150,000 and the outstanding mortgage balance is $200,000, the lender can seek a deficiency judgment for the $50,000 difference. The lender is required to take the tax deduction under tax laws, which creates a 1099 tax liability for the homeowner.
After the sale, a new owner simply requests a writ of possession from the court. (Ky. Rev. Stat. Ann. § 426.260) and the person in the home can be removed within as little as two weeks; however, it is usually slightly longer. Yes, you have a right of redemption for six months, but you will generally be evicted long before that.
If the home sells for more than the debt you can file a motion to be paid the excess money.
Redemption period
Under Kentucky foreclosure laws, homeowners have a right of redemption. This allows them to redeem the property by paying the foreclosure selling price after the commissioner sale if the property paid less than two thirds of the appraised value. To redeem the property you must include any additional costs the buyer paid, after the sale. This right is limited and must be exercised promptly. The redemption period only lasts 6 months after the sale date.
Mortgage companies often bid two thirds plus 1% (67%) of the appraised value at the Commissioners sale to prevent homeowners from redeeming property. The key to saving a home is to file a Chapter 13 before the sale and catch it up. Any Chapter 13 must be filed before the sale, or you lose all rights to the home. Do not attempt to file a Chapter 13 at the last minute. It rarely works to stop foreclosure. Filing a Chapter 13 requires time to design the Chapter 13 plan and petition.
Alternatives to Foreclosure sale
1 Mortgage Modification loss mitigation and forbearance agreements
Homeowners struggling to make their mortgage payments may qualify for a loan modification. This involves negotiating with the lender to change the terms of the loan, such as extending the repayment period or reducing the interest rate, to make the mortgage payment more manageable. A loan modification must be reasonable but Kentucky foreclosure law does not dictate what reasonable is.
Loss mitigation allows you to catch up missed payments outside the litigation process.
A deed in lieu of foreclosure allows homeowners to voluntarily transfer ownership of the property to the lender in exchange for forgiveness of the remaining mortgage debt. This option can be less damaging to credit scores than a foreclosure.
Although the mortgage company may waive holding a homeowner liable the lender will still take a loss on their taxes. If they declare a loss you get a 1099 tax liability.
3 Short Sales
In a short sale, the homeowner sells the property for less than the amount owed on the mortgage, with the lender’s approval. This can be a viable option if the property’s market is below the value it can be sold for.
You would think that lenders would welcome a short sale. However, buyers want to take a clear title. If a property has a second mortgage or a lien creditor, the first mortgage creditor is forced to do a foreclosure to pay off the mortgage and have a property that can be sold or transferred. Judgment liens, workman’s liens, and second mortgages tend to make short sales difficult or impossible. Plus, you still have the 1099 tax liability.
4 Chapter 7 Bankruptcy
Filing for Chapter 7 will only temporarily stop the foreclosure process, giving you about six months to a year of added time to find another home or sell a property. However, Chapter 7 may reduce your debt enough to help make the home affordable. Chapter 7 does not cure the arrearage.
Any bankruptcy is less damaging to your credit than a foreclosure. If you file bankruptcy and get a discharge you can buy a home within two years after a discharge. If you have a foreclosure it will be from 3 to 7 years you will have to wait before you can buy another home. Some of my Chapter 13 clients were able to refinance or purchase a home after making on-time payments for a year inside their bankruptcy.
Chapter 13 bankruptcy can cure foreclosure by giving homeowners time to catch up on their home mortgage payments. This type of bankruptcy allows homeowners to reorganize their debts and create a repayment plan to catch up on missed mortgage payments over three to five years.
However, if plan payments are not made, the case will be dismissed. If the mortgage payments are not made, the lender will file a motion to terminate the stay and foreclose. When the homeowner properly completes Chapter 13, catching up on the mortgage, the foreclosure will be dismissed. Remember that all the damage to your credit was already done when the foreclosure was filed. Filing a Chapter 13 bankruptcy will start the process of paying for items on time after the case is filed. Some clients have had their FICO scores up to 720 within 1-2 years after filing a Chapter 13.
You won’t find this in the bankruptcy code. Many Chapter 13 cases fail because they are unaffordable. If the only thing you repay in your Chapter 13 is your mortgage, it is more likely to be affordable.
If you have 40,000 in unsecured debt, which must be repaid and 20,000 in mortgage costs, then your plan payments will be far more than 1000 per month for a 60-month Chapter 13 plan. However, if you first file Chapter 7, you eliminate the unsecured debts. Then you only have to repay the 20,000 in mortgage arrearages. This is Chapter 20, where you first file a Chapter 7 to eliminate the unsecured debt before filing Chapter 13. It can lower what you repay by 2/3rds and makes it more likely that you will finish the Chapter 13.
Kentucky foreclosure attorney taking the Next Step
Financial hardship and facing foreclosure can be overwhelming, but you don’t have to go it alone. Our experienced team is here to help you understand options and take control of your financial future. Sign up for a free foreclosure process consultation today and get the guidance to make informed decisions.
Call us at 502-625-0905 or visit our website to schedule a consultation. We will work with you to assess your situation and help you determine the best course of action. Our team has years of experience in dealing with foreclosures and can provide you with expert advice and support to stop foreclosure.
Don’t wait until filing bankruptcy is too late. Taking prompt action is crucial when facing foreclosure. Contact us today to take the first step toward finding a solution that works for you and your family. Remember, there are options available to help you avoid foreclosure and protect your financial future. Let us help guide you through this difficult time. So don’t hesitate. Reach out to us today.
