What Are Non-Judicial Foreclosures?
June 30, 2008
Each state has foreclosure laws that dictate the manner of foreclosure in that state.
One of the most important distinctions in a foreclosure process is whether the foreclosure is conducted through the court system (judicial) or outside the court system (non-judicial).
State law governs whether judicial or non-judicial foreclosure is used. Some states allow both types of foreclosure, but each state usually has one type that is more commonly used.
A deed of trust allows for non-judicial foreclosure while a mortgage allows for judicial foreclosures.
Non-judicial foreclosures are handled without court intervention, with the requirements for the foreclosure established by state statutes.
When a loan default occurs, the homeowner will be mailed a default letter, and in many states, a Notice of Default will be recorded at approximately the same time. If the homeowner does not cure the default, a Notice of Sale will be mailed to the homeowner, posted in public places, recorded at the county recorders office, and published in area legal publications.
After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property, subject to their receipt and recordation of the deed. Auctions of non-judicial foreclosures will generally require cash, or cash equivalent either at the sale, or very shortly thereafter.
It is important to note that each non-judicial foreclosure state has different procedures. Some do not require a Notice of Default, but start with a Notice of Sale. Others require only the publication of the Notice of Sale to announce the sale, with no direct owner notification required. You need to know the specific procedure for your state.
When a person becomes late on their monthly house payment, eventually the lender will begin foreclosure proceedings which in most cases will start with a notice of default or a lis pendens recorded with the county where the property is located.
A non-judicial foreclosure allows the lender to use the "power of sale clause" in the mortgage document to force sale of the property without a court order.
Because the non-judicial foreclosure uses powers granted to the lender in the mortgage document, which is executed by the borrower at the time the loan is made, the property sale is, in essence, already "authorized" by the borrower.
When you sign a mortgage document, you are agreeing in advance to sell your property at public auction if you do not pay the debt as agreed in the note.
Non-judicial foreclosure is almost always faster and cheaper for the lender than a judicial foreclosure. Most of the time, when there is a choice, the lender chooses the non-judicial option for that reason. The big benefit to the the lender of a judicial foreclosure is that the lender can ask the court, when appropriate, to enter a "deficiency judgment" against the borrower; this makes the borrower liable for any difference between the proceeds of the sale and the debt owed.
As we have mentioned in earlier articles seek professional help with your foreclosure investments.
Ray Caran has owned and operated a multitude of businesses over the years. He has been buying and selling real estate for over 20 years. For more tips go to: Property Money Making Secrets.
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