If you default on your mortgage payments in Connecticut, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. The two main types of foreclosure in Connecticut are foreclosure by sale and strict foreclosure. Both types must go through the court system and receive approval from a judge. Connecticut law specifies how these kinds of foreclosures work, and both federal and state laws give you rights and protections throughout the process.
If you get a loan to buy residential real estate in Connecticut, you'll likely sign two documents: a promissory note and, typically, a document called an open-end mortgage deed. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage deed is the document that gives the lender a security interest in the property.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many Connecticut mortgage deeds have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Connecticut foreclosures are typically either a decree of sale foreclosure (or "foreclosure by sale"), which is basically a typical judicial foreclosure, or a strict foreclosure, which is a slightly different process. With both types of foreclosure, the lender files a lawsuit in court.
A decree of sale foreclosure officially starts when the lender bank files a lawsuit (a "complaint") in court and serves a copy to you (the borrower). If you don't respond to the suit, the lender will automatically prevail in the case. If, however, you respond to the lawsuit, the court will move the case through the litigation process. Either way, if the lender wins, the court enters a judgment against you and sets a sale date. Your home is then sold at a foreclosure sale.
At the sale, the lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. The highest bidder at the sale becomes the new owner of the property.
To complete a strict foreclosure, the lender has to file a motion asking for this type of foreclosure. If there's no equity in the home, the court usually allows it. Decree of sale foreclosures and strict foreclosures use the same procedures up until the court sets the sale date. In a strict foreclosure, instead of setting a sale date, the court sets a "Law Day" for you and the other defendants in the case. If you don't redeem the home (see below) by this deadline, you lose the legal right to the property. When all assigned Law Days pass, the lender files a Certificate of Foreclosure in the land records. The Certificate serves as evidence that the foreclosure has been completed and the lender now owns the property. A foreclosure sale isn't held. (If you believe your home has equity, you can ask the court to order a foreclosure sale.)
Along with the complaint, the lender also has to provide notice to you about Connecticut's foreclosure mediation program. The mediation program applies to foreclosure actions that have a return date up to June 30, 2023. (The return date is a date that the court sets to keep track of deadlines in a case.) Foreclosure mediation request forms can't be submitted to the court on or after July 1, 2023. (Conn Gen. Stat. § 49-31l).
Also, under Connecticut law, eligible unemployed or underemployed homeowners can apply for certain protections from foreclosure, namely restructuring the mortgage debt and postponing the foreclosure during the restructuring period. (Conn. Gen. Stat. §§ 49-31f, 49-31g). But be aware that you can't raise a defense to the foreclosure and file for protection. (Conn. Gen. Stat. § 49-31f). Talk to a lawyer to learn details about this law and whether you should invoke your rights under it.
In addition, the Connecticut Housing Finance Authority helps homeowners in Connecticut avoid foreclosure by providing financial counseling, mortgage assistance loans, and job training.
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states, including Connecticut, allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In a decree of sale foreclosure, the lender can ask the court for a deficiency judgment as part of the foreclosure suit. But if the property sells for less than its appraised value, the lender has to credit you with half of the difference between the sale price and the appraised amount. (Conn Gen. Stat. § 49-28).
To get a deficiency judgment following a strict foreclosure, the lender must file a motion with the court within 30 days after the Law Day. The deficiency amount will be the difference between the total outstanding debt and the home's fair market value. (Conn. Gen. Stat. § 49-14).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Connecticut, the redemption period is before the sale in a foreclosure by judicial sale, and after the foreclosure decree in a strict foreclosure.
In a foreclosure by sale, you can redeem at any time before the sale is final. (See Washington Trust Co. v. Smith, 241 Conn. 734, 742 (1997)).
In a strict foreclosure, you must redeem by the Law Day that the court sets. If you need more time, you can request it by filing a motion with the court. Be aware that the court must conduct the motion hearing before the Law Day. (Conn. Rules Superior Ct. Rule 23-17). If you aren't sure when your Law Day is scheduled to happen, call the court clerk or talk to a foreclosure attorney.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure, or you might have leverage to work out an alternative. Consider talking to a local foreclosure attorney or legal aid office to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.