The judicial foreclosure process outlined here is a broad overview of the general steps and procedures typically involved in various states. The general steps involved are usually the same, but the duration and the exact manner in which each procedure is carried out differs from one state to another. It is better to review the respective foreclosures laws and statutes of each state to get an in depth view of the foreclosure process involved.
Judicial foreclosure process is carried out through the courts system. In states that allow judicial foreclosures process on mortgage and deed of trust loans, the lender files a lawsuit to foreclose against the borrower and other lien holders who held any interest in the property prior to the lender recording mortgage or deed of trust. All the interested parties, primarily the borrower (mortgagor or trustor) are given notice of the pending lawsuit.
In addition, a lis pendens (suit-pending) is immediately filed with the local county to notify the general public about the pending foreclosure lawsuit filed against the property owner. A time period of at least 20 days is typically given to the property owner and other concerned parties to respond formally to the filed foreclosure lawsuit. In the event of non reply, the presiding judge by default rules against the defendants and orders the sale of property at a public action to satisfy the lender’s claim, according to the state’s procedure.
Steps involved in the judicial foreclosure of a residential property :
- Borrower is at least 30-90 days (2-3 months) behind on their mortgage payments.
- In the court with the jurisdiction, the lien-holder files a lawsuit to foreclose on the property whose payments are in default.
- All the parties named in the lawsuit are formally notified of the filed foreclosure lawsuit. They are given due time to formally respond to the pending lawsuit
- A Lis Pendens that notifies the general public of the pending foreclosure lawsuit against the property owner is filed.
- If the Borrower responds to the lawsuit, then a hearing date is set.
- At the hearing date, if there is any merit to the borrower’s argument, the judge may decide to dismiss/delay the lawsuit or may order the loan to be foreclosed. If foreclosure judgment is granted, the property will be scheduled for foreclosure auction sale.
- The foreclosure auction sale is advertised. Local newspapers carry these advertisements on predetermined dates.
- At the foreclosure auction, the property will be auctioned off to the highest bidder if it meets lender’s expectaions. If the bid is not sufficient, the lender may choose to take back the property. Such unsold foreclosure properties that are retained by the lender are called REOs (Real Estate Owned).
- If the bid accepted by the lender is below the foreclosure judgment amount, the lender can approach the court to get a deficiency judgment issued against the borrower.
- If the state allows for redemption rights, the borrower may payoff the amount owed to the lender and claim the property back within the allowed redemption period.
- Once the statutory redemption period expires, the highest bidder at the auction will be given the sheriff’s deed or certificate to give complete legal possession of the property.
In states that follow the non-judicial foreclosure process, the steps outlined may not be applicable.