Judicial and Non Judicial Foreclosure Explained

There are two kinds of foreclosures. In order to defend yourself properly against your lender one must know the difference.

One type is judicial foreclosure, wherein the lender would have to file a foreclosure complaint before the court. ^{The following states have judicial foreclosure:} Arizona, New Jersey, Delaware, New Mexico, Florida, New York, Hawaii, North Dakota, Illinois, Ohio, Indiana, Oklahoma, Iowa, Pennsylvania, Kansas, South Carolina, Kentucky, South Dakota, Louisiana, Vermont, Maine, West Virginia, Nebraska, and Wisconsin.

The second type is ^{non judicial foreclosure} which involves a shorter time of proceeding against the property to be foreclosed. ^{The states which use non judicial foreclosure are:} Alabama, Nevada, Alaska, New Hampshire, Arizona (sometimes), New Mexico (sometimes), Arkansas, North Carolina, California, Oklahoma (unless homeowner opts for judicial foreclosure), Colorado, Oregon, District of Columbia, Rhode Island, Georgia, South Dakota (unless homeowner opts for judicial foreclosure), Idaho, Tennessee, Maryland, Texas, Massachusetts, Utah, Michigan, Vermont (sometimes), Minnesota, Virginia, Mississippi, Washington, Missouri, West Virginia (sometimes), Montana, and Wyoming.

Judicial Foreclosure

In judicial foreclosures, the lender must make sure that the homeowner has defaulted in making payments. Most often, lenders wait longer than just one missed payment. The lender must issue a ten-day notice signifying his intention to bring foreclosure proceedings in court. The notice apprises the homeowner that foreclosure can be avoided if missed payments shall be paid fully together with interest and costs. After the lapse of the period of time given and no payments have been made, lender now will have to file the foreclosure complaint in court.

In the complaint, the lender must specify their ownership and interest over the loan and mortgage to establish legal standing to initiate the foreclosure proceedings. Without this notice, the foreclosure complaint which is prematurely filed will be thrown out of the court by the judge and the lender will have to start over again. In addition, the lender will specify certain essential elements in the complaint such as failure on the part of the homeowner to make proper payments as written in the mortgage contract. The lender must be able to prove later in court that they have complied with the terms of the contract and have not violated any state law relative to mortgages or loans.

The lender is required to serve or deliver to the homeowner a summons and a copy of the complaint. The homeowner is usually given fifteen (15) to thirty (30) days within which to answer or reply to the complaint which contains defenses which may bar the foreclosure proceedings. Should the homeowner not reply within the specified period, the lender will request from the court the issuance of a Default judgment so that foreclosure can be made already. This is done through the filing of a Motion for the Issuance of a Default Judgment.

In case the homeowner files his answer to the complaint and there are no issues to be litigated or to be proven, the lender will move or request for summary judgment. This is done through filing a Motion for Summary Judgment. In simple terms, the lender is asking the court to issue a judgment based on the pleadings, i.e. Complaint and Answer including the attached evidence of the respective pleadings. However, should there be issues that require hearing and more proof such as when the homeowner raised defenses in his Answer; hearing will be scheduled and be conducted.

After the hearing and should the decision be in the lenders favor, they will send a notice of intent to sell after the period of time you have specified, usually ten (10) days. In some states, the law allows the homeowner to redeem the foreclosed property by paying the full amount of the judgment debt (mortgage) as well as foreclosure costs and attorney’s fees. Should the homeowner fail to redeem during the period granted by the state law or if the period specified in the notice of intent to sell has lapsed, lender shall proceed to sell the property at the auction. In case no one buys the property, the ownership goes to you as lender.

Non Judicial Foreclosure

In the case of non judicial foreclosures, the lender does not have to go to court in order to foreclose the property. In the states where non judicial foreclosure occurs, the homeowner must have signed two kinds of documents when they purchased or refinanced the property, i.e. a promissory note and a deed of trust. The deed of trust converts the promissory note into a debt secured by a claim on the property. Moreover, the deed of trust authorizes the foreclosure without court proceedings.

The lender in non judicial foreclosure shall send the homeowner a notice of sale which shall be delivered personally, published in a local newspaper, posted in the court house and on the property itself or any combination thereof depending on the provisions of the state within which the property is located. In some states like in Georgia, two notices are required, i.e. notice that the homeowner is in default and usually given thirty (30) days before a notice of sale is received. It is within this 30-day period that the homeowner can reinstate his mortgage by paying the amount owed including fees and costs.

There are cases in non judicial foreclosures that resort to court. The homeowner may contest and challenge the foreclosure by initially requesting for the issuance of either a temporary restraining order which ordinarily lasts until ten (10) days from its issuance or a preliminary injunction which lasts during the pendency of the case until the court issues a decision. In both cases, the homeowner seeks to stop the foreclosure. The lender will try and oppose the defenses raised by the homeowner. Should the lender fail to counter the defenses factually and legally, the court may issue a permanent injunction that will enjoin and stop them from permanently foreclosing on the property.

When trying to avoid foreclosure and/or modify your loan, it is important to know the difference between judicial and non judicial foreclosure proceedings. Now that you know the difference and the unknowns associated with each process you can make better decisions on behalf of you and your family.

Written by Kevin Levonas and Giselle G.