There are two common types of foreclosure used in the United States: Judicial Foreclosure and Non-Judicial Foreclosure.
Judicial Foreclosure
Judicial foreclosure is allowed in all states and occurs when the lender files a civil lawsuit against the borrower, with the entire process being handled by the court. Judicial foreclosures can be further divided into two types: foreclosure by sale, and strict foreclosure.
Foreclosure by sale requires the home to be auctioned to the highest bidder with the lender placing the first, or opening, bid. These auctions are commonly referred to as sheriff sales.
In a strict foreclosure, the court sets a date by which the owner must pay the mortgage, and if the owner fails to pay, the court awards ownership of the home to the lender with no auction taking place.
The judicial foreclosure process begins when the lender files their lawsuit, at which time they also file a lis pendens (aka notice of pendency of action) on the property. The lis pendens is a document recorded with the County Recorder’s office, to let potential buyers, lenders, and others know of the pending foreclosure lawsuit. A second notice, the Notice of Foreclosure Sale (NFS), is typically filed once the court has set the auction time and bid amount.
Non-judicial Foreclosure
The non-judicial foreclosure process allows a lender to advertise and sell the property at a public auction, without court involvement, by following a process specified by the state. As the process is laid out in state laws, or statutes, the non-judicial foreclosure process is sometimes also referred to as Statutory Foreclosure.
A key requirement for non-judicial foreclosure is that the borrower agreed to the process when they took the loan. To accomplish this, a power of sale clause is added to the mortgage, or deed of trust, which gives a third-party trustee the right to sell the property in the event the borrower does not make their payments. Given this clause, non-judicial foreclosures are sometimes referred to as foreclosure by power of sale.
In most non-judicial foreclosure states, the foreclosure process is started when the lender files a Notice of Default (NOD) with the County Recorder’s office, putting the homeowner and anyone else who is interested on notice that the loan may be foreclosed on. A second notice, the Notice of Trustee Sale (NOTS) is typically filed 30 to 120 days later, depending on the state; and sets the auction date and time. In some states, only the Notice of Trustee Sale is recorded, and the names of the notices sometimes vary as well.
Important Notes
There are two important things to keep in mind about both foreclosure processes:
Foreclosures happen to loans, not properties. As such, it is quite possible to have more than one active foreclosure on a single property at the same time. More importantly, buying a foreclosure at a state-mandated auction doesn’t necessarily mean that you have purchased the property free and clear of other liens. For example, the buyer of a foreclosure is almost always responsible for any past due property taxes.
Foreclosure laws vary a great deal by State and are subject to change. One should never assume that anything they learn about the foreclosure laws of one state will apply to another.
Summary of Key Differences by State
State: California
Foreclosure Type: Nonjudicial
Number of Months: Four
Deficiency Judgement: Prohibited
Redemption Period: None
State: Arizona
Foreclosure Type: Nonjudicial
Number of Months: Three
Deficiency Judgement: Allowed
Redemption Period: None
State: Nevada
Foreclosure Type: Nonjudicial
Number of Months: Four
Deficiency Judgement: Allowed
Redemption Period: None
State: Oregon
Foreclosure Type: Nonjudicial
Number of Months: Five
Deficiency Judgement: Allowed
Redemption Period: None
State: Washington
Foreclosure Type: Nonjudicial
Number of Months: Four
Deficiency Judgement: Allowed
Redemption Period: None
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