The Steps in a Typical Foreclosure in Kentucky

When a mortgage becomes 60 days overdue the mortgage company will typically no longer accept payments and send the account to be foreclosed.  Kentucky is a judicial foreclosure state and a lawsuit must be filed by a licensed attorney for any corporation to foreclose on a mortgage.  Typically the mortgage will be about 6 months overdue when the homeowner is served with foreclosure.   Service of process must be by certified mail, sheriff, warning order attorney or secretary of state.  If the person cannot be found a copy of the complaint will be sent to an independent attorney hired by the court to locate the homeowner.  This “warning order attorney” will send a copy of the complaint to the last known address of the homeowner and the home will then be foreclosed and sold if the homeowner cannot be located.  When the homeowner is served the homeowner has only 20 days to file an answer.  Unless the homeowner sues the mortgage company back and raises issues a default judgment will normally be issued.

A mortgage company can foreclose on a home and evict the owner in as little as 90 days.  Filing a proper answer to the complaint which raises real issues about the case will delay the foreclosure process but winning a foreclosure is rare.   By filing an answer, the foreclosure and eviction will often be delayed 6 months or longer.  If no answer is filed a motion for a default judgment will be filed within 30 days after all of the parties are served.

Often after the answer is filed discovery will be filed by the homeowner.   Filing discovery may also delay the foreclosure process another 6 months.  It often takes a protracted amount of time for the lender to comply with discovery.  The longest period of time I have seen a foreclosure litigated was 8 years and the lender completing discovery took over one year.

After Discovery is completed the lender may move for summary judgment when and if there are no more issues to be litigated.  Typically if a homeowner just files an answer and discovery the foreclosure will often take a year or longer to complete.

If a homeowner allows the mortgage company to sell the home the mortgage company will often not receive enough to repay the mortgage.  In that case the mortgage company will issue a 1099 and advise the IRS that the homeowner has an income tax liability.   This is required by IRS regulation so the lender may take the item as a loss.   The lender also has the right to sue and collect from the homeowner the deficiency in Kentucky.

To prevent being liable for the deficiency the homeowner in Kentucky will often want to file a Chapter 7 bankruptcy.   Either a Chapter 13 or Chapter 7 bankruptcy will allow a homeowner to avoid the income tax liability if the bankruptcy is filed before the sale.  If a Chapter 13 is filed the homeowner may catch up the mortgage arrearage.  If a Chapter 7 is filed the homeowner will avoid the deficiency and the income tax debt if he obtains a discharge but a Chapter 7 does not allow the homeowner to cure the mortgage arrearage.   A bankruptcy will delay a foreclosure especially if it is filed just prior to the sale of the home.  The mortgage company must move to terminate the bankruptcy stay to send the home back to state court even if the homeowner declares in the bankruptcy he is surrendering the home.  To avoid the tax liability the bankruptcy must be filed during the foreclosure and preferably prior to the sale.  Filing bankruptcy does not avoid property taxes, homeowner association fees or housing code violation fines which can continue to be issues for the homeowner and which needs special planning by someone that understands these issues and how they relate to a foreclosure.

Just because you filed bankruptcy or just because a foreclosure was filed does not mean that homeowner or condo association fees stop accruing.   You may no longer be personally responsible for the past feed after you file but the fees re occur each month.   Property taxes attach as a priority lien and are paid before the mortgage is paid in a foreclosure.   If the property falls into disrepair fines continue to be levied against the owner until the property is sold.  All of these are problems that cause special timing and other issues that have to be planned.   In some office an untrained secretary or inexperienced paralegal is given the job of preparing the petition.   These issues normally require the knowledge and planning by an attorney that understands the process. 

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