If a borrower is unable to meet the terms of their loan with Groundfloor, the loan is put into default and our Asset Management team steps in to monitor the project even more closely and to work directly with the borrower to get the project back on track. Additionally, a defaulted loan is not necessarily a bad thing for our investors. Our investors continue to earn interest from the time the initial investment is made until the time that the loan is paid in full. There are some instances where default interest is added to the loan, which is then returned to our investors. (Please note, this is on a case-by-case basis and will depend on the commercial agreement between Groundfloor and the borrower.)
As a lender secured by a first mortgage/first lien, we always have the right to foreclose on a troubled loan. However, we seek to resolve problem loans in a manner that is quicker, more cost-effective, and ultimately economically better than a foreclosure.
In the event that foreclosure is necessary, Groundfloor initiates the foreclosure process required. There are two types of foreclosures that vary based on the state in which the property is located. The first type is a Judicial Foreclosure, which is ordered by the courts. Judicial Foreclosures are typically a much longer process than a Non-Judicial Foreclosure - Judicial Foreclosures can potentially take six months to three years for completion. If the property is in a Non-Judicial Foreclosure state, Groundfloor does not have to go to court to foreclose on the property and the process is much quicker.
Below is a breakdown of the Judicial and Non-Judicial states. Please be sure to refer to state-specific laws for the most recent foreclosure guidelines, which may periodically change.
Judicial States: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico (sometimes), New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin.
Non-Judicial States: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Washington D.C., Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico (sometimes) North Carolina, Oklahoma (unless the homeowner requests a Judicial Foreclosure), Oregon, Rhode Island, South Dakota (unless the homeowner requests a Judicial Foreclosure), Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
Judicial Foreclosure Process
If the loan is not repaid by the maturity date, Groundfloor will issue a Notice of Default to the borrower. The borrower will be given a specific time-frame to repay the loan. Please note that the time-frame varies on the state.
If the loan is not repaid by the Notice of Default deadline, Groundfloor will file a complaint with the court holding jurisdiction. Then the following will happen:
1. The borrower will be served a notice of the Complaint filed with the court.
2. The court will issue a Judgment.
3. The court will issue a Notice of Sale to the borrower.
4. Sheriff Sale is held at a public auction.
5. The highest bidder will be awarded the property, and Groundfloor will repay the investors less any direct costs associated with the foreclosure. If no bidder meets the minimum bid, the property will be awarded to Groundfloor.
Non-Judicial Foreclosure Process
If the loan is not repaid by the maturity date, Groundfloor will issue a Notice of Default to the borrower. Then the following will happen:
The borrower will be given a specific time-frame to repay the loan. Please note that the time-frame varies on the state.
The borrower will be issued a Notice of Sale, which may be served personally, published in the local newspaper, or posted in the courthouse and property itself.
The Notice of Sale is issued based on state requirements.
The Sheriff Sale is held at a public auction.
The highest bidder will be awarded the property, and Groundfloor will repay the investors less any direct costs associated with the foreclosure. If no bidder meets the minimum bid, the property will be awarded to Groundfloor.
*Some Judicial and Non-Judicial states give the borrower a Right to Redeem for Judicial and Non-Judicial Foreclosures. This is a time-frame provided to the borrower to pay off the successful bidder to reclaim the property.