Every year, hundreds of thousands of people face foreclosure and unfortunately there are a lot of people don’t understand the process.
Foreclosure is the legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments.
There are two types of foreclosure actions used to foreclose on real estate mortgage and deed-of-trust loans: judicial foreclosure and nonjudicial foreclosure.
Judicial Foreclosure
A judicial foreclosure means the foreclosure must be processed through the state’s court system. A public notice of lis pendens or “suit pending,” is filed with the county or public recorder to notify the general public about the pending lawsuit against the property owner.
Sequential Outline of the Judicial Foreclosure Process
- The lender or servicer usually sends out three letters to the borrower about the borrower’s nonpayment at day 30, 60, and 90.
- A lawsuit is filed by the lender in the court system and served to the borrower to officially start the pre-foreclosure process.
- The borrower has to respond to the foreclosure lawsuit before a court hearing date is set. The borrower can raise objections and delay the process. a) Example: procedural foreclosure missteps by the lender. b) Example: active duty objection.
- If the borrower doesn’t respond within a certain number of days, which varies by state, then the court will grant a default judgment which allows the lender to move forward with foreclosure.
- The foreclosure case is heard by a judge in the court and either the lawsuit is dismissed or the judge orders the loan to be foreclosed on by setting a foreclosure auction sale date.
- The public foreclosure sale date is advertised.
- At the auction the property is sold to the highest bidder, or, if nobody bids, then the foreclosing lender takes the property back. The proceeds from a sale satisfy obligations of the borrower in the following order: a) Mortgage holder. b) Other lien holders. c) Any leftover proceeds go to the former owner of the property.
- The borrower may exercise statutory redemption rights after the sale if they exist within the state.
- A certificate of title or sheriff’s deed is given to the winning bidder after the state’s statutory redemption period is over.
Nonjudicial Foreclosure
A nonjudicial foreclosure is also known as a foreclosure by power of sale. This method can be exercised if a power-of-sale clause is included in the mortgage or a deed of trust.
The main difference in this method of foreclosure is that the sale takes place without supervision of the court and the lender can invoke its right to foreclose by filing a notice of default with the county or public recorder’s office.
Sequential Outline of the Nonjudicial Foreclosure Process
- The lender or servicer usually sends out three letters to the borrower about the borrower’s nonpayment at day 30, 60, and 90.
- The trustee files a notice of default with the county or public recorder’s office.
- A date for the trustee sale is set. The length of time between the filing of the notice of default and the public trustee sale will vary according to the state you live in. Check your state statutes for this timeline.
- The trustee’s sale is advertised to the public.
- The trustee’s sale takes place and the property is auctioned off to the highest bidder or taken back by the lender if the lender does not get outbid.
- A trustee’s deed is provided to the highest bidder after any statutory redemption period expires. This time period will vary by state.
The Strict Foreclosure Process
In a just a few states, there is a pre-foreclosure nuance called the strict foreclosure process. Strict foreclosure occurs when the court determines that the value of the property is less than what is owed to the lender.
Once decided, the judge will set a law day, which allows the borrower a specified period of time to pay off the debt required by the court. If the borrower fails to meet this deadline, the mortgage holder automatically gains the title to the property and does not have an obligation to sell it at auction.
State’s Foreclosure Types and Timelines
| District of Columbia | Maryland | |
| Judicial | No | Yes |
| Nonjudicial | Yes | No |
| Process Period Days | 47 | 46 |
| Publish Sale Days | 18 | 30 |
| Redemption Period Days | None | Court decides |
| Sale/NTS | Trustee | Court |
| Comment | Trustee sale only | Judicial only |
Dana Ash-McGinty
Dana is married to the highly esteemed Dr. Dana W. McGinty, a Washington, DC internal medicine physician and medical correspondent. They are often referred to as “The Danas”.
