Before learning more about the differences between a non-judicial foreclosure and a judicial foreclosure, you should know what “foreclosure” means.
When people buy a home, they usually can’t pay for it in cash. Instead, they get a loan, usually from their bank. To guarantee loan repayment, they will sign mortgage documents that give the bank the right to take possession and ownership of the home if the homeowner fails to make the required monthly payments. Foreclosure is the legal process by which the bank takes possession of a home when its owner (e.g., the borrower) fails to keep up with the mortgage payments.
After the borrower misses several payments, the lender can foreclose on the home. This means that the lender will legally be permitted to seize the home from its owner and may sell it to recover any remaining debt still owed on the mortgage.
There are two types of foreclosures: (1) non-judicial foreclosure and (2) judicial foreclosure. A judicial foreclosure is a foreclosure that a court supervises. A non-judicial foreclosure, also known as a “foreclosure by power of sale,” is a foreclosure that does not involve or require a court to intervene in the process. Not every state gives the parties the option to conduct a non-judicial foreclosure.
Lenders who conduct business in states that do not allow non-judicial foreclosure sales (such as Arkansas, New York, and Vermont) must adhere to state statutes and complete the foreclosure process through a court.
If you need further information about the type of foreclosure process allowed in your state or require assistance with another foreclosure issue, it may be in your best interest to consult an experienced real estate attorney in your area for help. An attorney can guide you on how foreclosures are handled in your state and can assist you in navigating the kind of foreclosure process available in your jurisdiction.
What Is a Judicial Foreclosure?
Judicial foreclosures involve court intervention. This arises most often if the borrower and the lender dispute the lender’s right to reclaim the house and thus cannot work together independently of a judge. Of course, it also arises in the 22 states that do not allow non-judicial foreclosure.
In a judicial sale, the lender will bring a lawsuit in court, and a judge will review the evidence submitted by both sides. They may hold a hearing to decide whether the homeowner defaults on the loan. The homeowner can try to settle with the lender before the hearing to prevent foreclosure. If the parties cannot reach a settlement, and the court finds in favor of the lender, the court will enter a judgment of foreclosure.
This will trigger a foreclosure sale and expose the homeowner to a deficiency judgment for any remaining loan balance not covered by the sale.
Some homeowners may be reassured that this process can take a long time. They may be able to delay a foreclosure for close to a year or more. This can give homeowners time to repair their finances and develop contingency plans.
Judicial foreclosure, or “foreclosure by judicial sale,” is available in all fifty states. Judicial foreclosures are the required and preferred foreclosure method in most states. Foreclosure by judicial sale is usually ordered by a court in cases where the debt on a specific property cannot be resolved. They are also ordered if the property owner is insolvent and cannot afford to continue making mortgage payments to the lender.
Judicial foreclosure is required for home equity loans, reverse mortgages, property owner’s associations, and property tax situations.
Generally speaking, the proceeds from a judicial foreclosure sale will first go towards satisfying the original debt, with any leftover proceeds going to second lien holders and, in some cases, even back to the borrower.
What Is a Non-Judicial Foreclosure?
In a non-judicial foreclosure, the lender will not go to court to start the process but will pursue a foreclosure with the assistance of a foreclosure trustee. This neutral third party may be listed in the deed of trust attached to the home. The process of a non-judicial foreclosure varies more widely from state to state than a judicial foreclosure.
Sometimes, the lender or the trustee will give the homeowner time to catch up with the missed payments on the loan or negotiate with the lender before proceeding with a foreclosure. In other cases, a lender simply sends a notice of default with a notice of sale, or it might send only a notice of sale. Sometimes, a lender only needs to publish the notice in the newspaper and post it on the property.
If you have a defense to a non-judicial foreclosure, you will need to file a lawsuit in court to raise the defense, while if it were a judicial foreclosure, you would simply raise the defense in your response to the complaint.
What Are Some Differences Between Judicial and Non-Judicial Foreclosures?
Non-judicial foreclosures do not require a court to direct the process. This generally means that non-judicial foreclosures are typically quicker and less expensive than judicial sales. By not tying up the court, they also use fewer community resources.
On the other hand, foreclosure by judicial sale is more easily enforced because it has the court’s stamp of approval. It is harder for a borrower to contest the foreclosure sale in a judicial sale. The borrower must persuade a court to change its previous decision (which is rare) or file an appeal. This is just one of the many reasons that makes judicial foreclosure sales more appealing to lenders.
From the point of view of a borrower, a judicial foreclosure sale might be preferable because a court oversees the sale, and the court may be able to prevent any instances of mortgage fraud.
Do I Need a Lawyer for Assistance With Non-Judicial Foreclosure?
As discussed above, the laws and legal requirements for judicial and non-judicial foreclosures will vary according to state laws. This fact can sometimes complicate matters, especially when a lender forecloses upon multiple properties in different states. The lender or the lender’s attorney may not be aware of all of the foreclosure requirements in your state and may make critical mistakes in the process.
Therefore, if you need assistance with a non-judicial foreclosure or have questions about a foreclosure by power of sale, you should contact a local foreclosure attorney as soon as possible. A local and experienced foreclosure attorney will already be familiar with the foreclosure laws in your area and can help you navigate the non-judicial foreclosure process.
Your attorney will also be able to spot any instances of mortgage fraud and can make sure that your lenders are not violating your rights as a property owner. In addition, your attorney can try to stop your house from being foreclosed on by your lender and can assist you in filing any relevant legal documents in court to prevent a non-judicial foreclosure from happening.
Finally, if you have any questions or concerns about a foreclosure by power of sale, your attorney can offer accurate legal advice regarding your foreclosure issue. Also, should a dispute arise over a non-judicial foreclosure, your attorney can provide representation in court.
