Mortgage Law: Judicial vs. Non-Judicial Foreclosure

Foreclosure is one of the most frightening and stressful experiences you can go through as a homeowner. If you fall behind on your mortgage payments then your lender may have the right to foreclose on your home. However, the process for foreclosure differs substantially depending on which state you live in. While some states have a judicial process for foreclosure, others utilize a non-judicial process. The difference between judicial and non-judicial foreclosure makes a big difference for homeowners since it may determine if and how a homeowner can successfully fight back against a foreclosure.

Judicial foreclosure

Each state has its own mortgage laws and regulations when it comes to foreclosure procedures. Generally speaking, a state that utilizes a judicial foreclosure system requires the lender to go through the courts before proceeding with the foreclosure. Essentially, in these states a foreclosure is a lawsuit that the lender brings against the debtor. Because judicial states involve the courts, the process for foreclosing on a home tends to be strict, meaning that homeowners may be able to buy time by challenging the lender through the courts. The homeowner, for example, may be able to demand that the foreclosing party produce documentation proving that it has the legal right to foreclose on the home. While such a defense may not actually stop a foreclosure–and could, in itself, be very costly–it may at least delay eviction.

How it works

Generally, judicial foreclosure proceedings only begin after the debtor has missed at least three payments and has received a notice giving a timeline for when payment must be made in order to avoid legal action. The notice is sometimes referred to as a “Breach Letter,” “Notice of Acceleration,” or a “Demand Letter.” Once legal proceedings are initiated, the debtor will be served with a summons and the complaint of foreclosure. The debtor can respond to the judgement, which may delay eviction. If, however, the debtor does not respond then a default judgment is issued and the foreclosure sale will proceed. Some states also allow a redemption period during which the evicted party has the option to buy back their foreclosed home. The redemption period occurs before the foreclosure sale can be initiated.

Where is judicial foreclosure used?

Judicial foreclosure is used in quite a few states, some of the largest being Florida, Illinois, Ohio, Pennsylvania, and New York. It tends to be more common in the northeast and Midwest regions, although a smattering of western and southern states also use it. Some states, it should be noted, also use a mix of both judicial and non-judicial processes. Also, when we say a state is a judicial foreclosure state we mean that it requires parties to go through the court system in order to complete a foreclosure. All states have a judicial foreclosure option, but it is only in states that are commonly defined as “judicial foreclosure” states where the creditor is obligated to file a lawsuit against the debtor through the court system.

Non-Judicial Foreclosure

With a non-judicial foreclosure, on the other hand, state mortgage laws do not require lenders to go through the courts in order to begin foreclosure proceedings. However, there are still laws and regulations that the lender must follow before foreclosing on the property. The homeowner, for example, will generally have to be given a notice of default and sale. That notice is usually registered by the county recorder.

Non-judicial foreclosure tends to provide fewer protections to homeowners since the system does not typically involve the courts. Therefore, foreclosures in non-judicial states are typically completed much faster than they are in judicial states. However, most states do have options in place for homeowners to contest a foreclosure or to negotiate new loan conditions with their lender, although these options vary from one state to the next. Additionally, federal protections introduced after the 2008 Subprime Mortgage Crisis may also be of assistance. In some non-judicial foreclosure states, the homeowner is protected by the fact that a lender may not be allowed to pursue a deficiency judgment unless that lender goes through the court system.

How non-judicial foreclosure works

In most non-judicial foreclosure states a mortgage will include a Power of Sale provision. A Power of Sale provision essentially allows the lender to foreclose on the debtor’s home without the need of going through the court system. If the debtor misses a certain number of payments then the lender has the option of foreclosing and selling the home in order to pay off the outstanding debt.

While non-judicial foreclosure does not require the lender to go to court in order to initiate foreclosure proceedings, that does not mean that the court system is entirely uninvolved. In fact, the borrower in a non-judicial foreclosure state is the one who can bring the lender to court. In such a case, the court can still provide oversight and judicial review to the foreclosure process. Furthermore, because each state has its own foreclosure laws, if a case is brought against the lender by the debtor then the court may still be able to stop a foreclosure from proceeding if the lender has failed to comply with its legal and regulatory requirements.

Where is non-judicial foreclosure used?

Non-judicial states include California, Colorado, Virginia, and Washington. While non-judicial foreclosure is more common in western and southern states, a handful of northeastern states, including Massachusetts and New Hampshire, also use non-judicial foreclosure. As stated previously, all states have a judicial foreclosure option. In non-judicial foreclosure states, the lender may even choose to initiate foreclosure through the courts even if the mortgage includes a Power of Sale clause. Choosing the judicial option in a non-judicial state is often done if the lender wants to pursue a deficiency judgment or if there are title issues.

Getting advice

Regardless of whether you live in a judicial or non-judicial foreclosure state, if you are facing the prospect of losing your home then you should find out what options you have. A real estate or consumer protection attorney can discuss with you any potential avenues that may be available so you can hold onto your home longer.

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