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How
Foreclosure Works
How
foreclosure procedures work, in both judicial and
non-judicial foreclosure states.
Foreclosure happens when
you fall behind on your house payments and your lender uses
state procedures to sell your house. Foreclosure works
differently in different states. In some states, the lender
has to file a lawsuit to foreclose (judicial foreclosure),
while in others, it can foreclose without going to court
(non-judicial foreclosure).
Here’s a rundown of the
basic procedures for each type of foreclosure.
Judicial Foreclosure
In a judicial foreclosure,
the lender must go to court to get the foreclosure started.
A judicial foreclosure typically takes several months or
more, giving you time to look for another place to live, and
to save some money for the future. Another advantage is that
you can raise in court any legal defenses you may have to
the foreclosure (without having to file your own lawsuit).
States Using Judicial
Foreclosure
With some exceptions,
foreclosures go through court in these states:
| 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 |
|
Wisconsin |
Procedures in a Judicial
Foreclosure
Here’s how a typical
judicial foreclosure might proceed.
You get behind in your
mortgage payments. A mortgage holder can begin
foreclosure procedures if you miss just one payment, but
usually will wait longer -- much longer in many states.
The lender sends a
notice of intent to begin foreclosure. In many states,
the lender sends a ten-day notice of intent to begin
foreclosure proceedings. The notice informs you that the
proceedings can be avoided if you make up the missed
payments, plus costs and interest.
The lender files a
lawsuit. If you don’t make up the missed payments, the
lender will then go to court and file a lawsuit.
The lender gives you
notice of the lawsuit. The lender does this by
delivering a
Summons and
Complaint to you (called “serving you with” a
Summons and Complaint in legalese).
You have a chance to
respond. The Summons and Complaint give you a period of
time within which you must respond if you choose to contest
or argue the lawsuit (usually between 15 and 30 days).
Whether or not you file a response is up to you. Either way,
your lender will have the burden of proving to the judge
that the foreclosure is justified under the terms of the
mortgage.
- If you don’t respond,
the chances are excellent that the foreclosure will go
through. The court will issue a default judgment that
authorizes the lender to sell your home.
- If you do respond,
you’ll have the opportunity to tell a judge just why you
think you have a legal right to keep your house and that
foreclosure is not warranted.
The better your defenses, the longer the process will
drag out in court. Even if you win, however, it may be a
temporary victory if the lender can fix whatever problem
caused it to lose this time.
The lender sends a
notice of intent to sell. Once the judge issues a
judgment, the lender typically will send you a ten-day
notice of intent to sell the property. At this point, in
many states you can avoid the foreclosure sale if somehow
you can “redeem” the mortgage (pay it off in full, as well
as the foreclosure costs and attorney's fees).
The auction is held.
If no one buys your home at the auction, ownership goes to
the lender. Up to this point, the entire process, from the
first notice to the auction, typically takes three months
-- more, if you file a response to the Summons and
Complaint.
You are allowed to stay
or get evicted. Even when you lose ownership of your
home, most state laws don’t require you to move out right
away. The lender may just let the house sit, waiting for the
market to improve. You can remain in the home payment-free
until you receive an official, written
eviction notice.
Non-Judicial Foreclosures
If you live in a
non-judicial foreclosure state, your lender does not have to
go to court in order to foreclose on your home. This means
that the foreclosure can proceed more quickly.
If your property is in one
of these states, you most likely signed two core documents
when you bought or refinanced your home: a promissory note
and a
deed of trust. The deed of trust turns the
promissory note into a debt secured by a lien (legal claim)
on your home. The deed of trust authorizes the lender to
foreclose on the property if you default. The deed of trust
typically allows the foreclosure to proceed outside of
court, under state law.
States Using Non-Judicial
Foreclosure
| Alabama |
|
Nevada |
| Alaska |
|
New Hampshire |
| Arizona
(sometimes) |
|
New Mexico
(sometimes) |
| Arkansas |
|
North Carolina |
| California |
|
Oklahoma (unless
homeowner requests judicial forclosure) |
| Colorado |
|
Oregon |
| District of
Columbia |
|
Rhode Island |
| Georgia |
|
South Dakota
(unless homeowner requests judicial foreclosure) |
| Idaho |
|
Tennessee |
| Maryland |
|
Texas |
| Massachusetts |
|
Utah |
| Michigan |
|
Vermont
(sometimes) |
| Minnesota |
|
Virginia |
| Mississippi |
|
Washington |
| Missouri |
|
West Virginia
(sometimes) |
| Montana |
|
Wyoming |
The Non-Judicial
Foreclosure Process
Your state’s law sets out
the specifics of the foreclosure procedure, including how
much notice you get, how the property will be sold
(typically at a public auction), and what rights (if any)
you have to reinstate the loan before the foreclosure date
or recover title to the property after it’s sold.
Time may be short. You
have to be on your toes when a foreclosure looms in a
non-judicial state. That’s because you'll be given very
little notice of the foreclosure sale, and once it happens,
you may be permanently out of luck.
Notice of sale.
In most states, your first notice of the proceeding will be
the notice of sale. Depending on the state, this notice will
be either served on you personally, published in the local
newspaper, posted in the courthouse and on the property
itself, or by some combination of the above.
Notice of default
and notice of sale. Some states provide you with
two notices -- a formal written notice that you are in
default (usually about 30 days, but sometimes more and
sometimes less) and another formal notice that your house
will be sold at auction (again, usually about a month, but
it can be as little as 15 days -- in Georgia, for example,
and a few other states).
Right to reinstate.
Between the notice of default and notice of sale, you
typically are allowed to reinstate the mortgage by paying
off what you owe, plus fees and costs (which can be very
high). With a couple of exceptions, however, once the sale
occurs, your house is gone.
The auction is held.
If you don’t reinstate the mortgage, the home will be sold
at auction. As with judicial foreclosures, if no one meets
the minimum bid, the property goes to the lender.
Right to redeem. A
few states give you some time after the foreclosure auction
to redeem the property (to recover ownership of the property
by paying off the successful bidder).
Challenging a Non-Judicial
Foreclosure in Court
Because you don’t have the
opportunity to raise defenses to the foreclosure in a
non-judicial foreclosure, if you wish to contest the
foreclosure, you will have to file a lawsuit yourself. When
you do this, you ask the court to temporarily stop the
foreclosure so that you can resolve the legal issues in
court (and possibly at trial). Once you are in court, you
can raise the same defenses you would have raised in a
judicial foreclosure proceeding.
In these lawsuits, you
typically ask the court for three things, in the following
order:
- a temporary
restraining order (which lasts about ten days)
- a preliminary
injunction (which, in foreclosure actions, will last
until the court decides the case) and
- a permanent injunction
(which will be issued if the judge decides in your
favor).
To learn more about the ins
and outs of foreclosure, both judicial and non-judicial,
see Nolo's Bankruptcy and
Foreclosure Blog or the bestselling Foreclosure
Survival Guide, now available online at
no charge. Both are written by practicing attorney Stephen
R. Elias, president of the National Bankruptcy Law Project.
