Foreclosure Laws: The Differences Between Judicial And Non-Judicial Foreclosures

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Foreclosure Laws

• The differences between judicial and non-judicial
  foreclosures

2
Foreclosure Laws

• The only way for homebuyers to know for sure
  which foreclosure laws apply to them is to
  research the foreclosure laws in their state.
• The type of home loan the homeowner defaulted on
  may also be an indicator of which foreclosure
  laws are being followed. For example a judicial
  foreclosure may involve a mortgage while a
  non-judicial foreclosure may involve a deed of
  trust.

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Foreclosure Laws

• Some states practice both foreclosures. In these
  states the type of foreclosure process depends
  on whether the homeowner signed a loan containing
  a Power of Sale clause.
• When a homeowner signs a deed of trust containing
  a power of sale clause the homeowner is waiving
  the right to a judicial process if the home loan
  goes into default.

4
Judicial Foreclosures

• There are 20 states that practice judicial
  foreclosures only
• Connecticut Delaware Florida Illinois
  Indiana Kansas Kentucky Louisiana Maine
  Maryland Massachusetts Nebraska New Jersey
  New Mexico New York North Dakota Ohio
  Pennsylvania South Carolina and Vermont.

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Judicial Foreclosures

• The judicial foreclosure process begins when the
  homeowner fails to make mortgage payments. The
  lender issues a Lis Pendens which alerts the
  homeowner of its intent to sue in order to
  foreclose on the property.
• To stop foreclosure homeowners may pay back
  their loans in full apply for loan
  modifications file for bankruptcy or sell their
  homes as foreclosure short sales.

6
Judicial Foreclosures

• If the homeowner does not alleviate the defaulted
  mortgage within a reasonable amount of time the
  lender sues the homeowner.
• If the lender is able to sufficiently prove that
  the homeowner defaulted on the mortgage the
  judge will issue a Notice of Foreclosure Sale
  (NFS). This allows the home to go into
  foreclosure and be listed for sale at auction.

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Bankruptcy Foreclosures

• The judicial foreclosure process is not the only
  type of foreclosure sale processed by a court.
  Bankruptcy foreclosures may also require
  homebuyers to work with court officials to buy
  homes.
• Bankruptcy homes are heavily governed by
  bankruptcy courts and court-appointed trustees
  so buying a bankruptcy property may require court
  approval.

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Non-Judicial Foreclosures

• There are only five states that practice
  non-judicial foreclosures exclusively. These
  states include Michigan New Hampshire
  Tennessee Utah and West Virginia.
• Washington D.C. also practices non-judicial
  foreclosures. However the bordering state of
  Maryland practices judicial foreclosures only.

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Non-Judicial Foreclosures

• Similar to the judicial foreclosure process the
  non-judicial foreclosure process begins when a
  homeowner defaults on the deed of trust.
• The lender issues a Notice of Default (NOD)
  which alerts the homeowner of the defaulted loan.
  This allows homeowners time to alleviate their
  defaulted loans or sell their homes as short sale
  foreclosed homes.

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Non-Judicial Foreclosures

• If the homeowner fails to alleviate the default
  in the allotted amount of time the lender will
  issue a Notice of Trustee Sale (NTS). This alerts
  the homeowner that the lender has allowed a
  trustee to list the home for sale at auction.
• At this stage of the foreclosure process the
  home has officially gone into foreclosure.

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Auction and REO Foreclosures

• Keep in mind that some judicial foreclosure
  states require homebuyers to prove their ability
  to pay in court before their home sales can be
  finalized. Homebuyers who do not plan on buying
  foreclosure homes entirely in cash should try to
  get pre-qualified for home loans.
• In both judicial and non-judicial foreclosure
  states auction homes that do not sell become REO
  properties.

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Auction and REO Foreclosures

• A foreclosure may not sell at auction if it fails
  to meet an adequate minimum bid or the lender
  itself purchases the home.
• Some lenders such as major banks and government
  agencies have departments dedicated to selling
  REO properties. Lenders that dont have REO
  departments may turn to third party real estate
  agents to sell their REO homes.

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Lets Review

• The foreclosure process practiced in each state
  may be either judicial non-judicial or both
  depending on state and local laws. A judicial
  foreclosure usually deals with a defaulted
  mortgage while a non-judicial foreclosure is
  over a defaulted deed of trust.
• If the home loan contains a power of sale clause
  the homeowner forfeits the right to a judicial
  foreclosure process.

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Lets Review

• There are 25 states that practice both judicial
  and non-judicial foreclosures
• Alabama Alaska Arizona Arkansas California
  Colorado Georgia Hawaii Idaho Iowa
  Minnesota Mississippi Missouri Montana
  Nevada North Carolina Oklahoma Oregon Rhode
  Island South Dakota Texas Virginia
  Washington Wisconsin and Wyoming.

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Lets Review

• There are 20 states that practice judicial
  foreclosures exclusively. The judicial
  foreclosure process begins when the homeowner
  defaults on the mortgage. The lender issues a lis
  pendens which alerts the homeowner of the
  default and the lenders intent to sue.
• Homeowners have a few options to alleviate their
  defaults including selling their homes as pre
  foreclosures.

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Lets Review

• If the homeowner in a judicial foreclosure
  proceeding fails to alleviate the defaulted loan
  within a reasonable amount of time the lender
  sues the homeowner. If the lender is successful
  in proving the homeowners default in court the
  judge issues a notice of foreclosure sale.
• Similar to judicial foreclosures bankruptcy
  foreclosures may also be heavily regulated by
  court officials.

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Lets Review

• In addition to Washington D.C. there are only
  five states that practice non-judicial
  foreclosures exclusively. The non-judicial
  foreclosure process begins when a homeowner
  defaults on a deed of trust.
• The lender issues a notice of default. If the
  default is not alleviated during the
  pre-foreclosure period a notice of trustee sale
  is issued and the home is listed at auction.

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Lets Review

• Once a notice of foreclosure sale or notice of
  trustee sale has been issued the home is
  scheduled for a sale date at auction.
• Auction foreclosures that fail to sell become the
  properties of their lenders as REO homes. Some
  homes that are REOs were purchased directly by
  their lenders.

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Lets Review

• REO properties that were purchased by their
  lenders may be sold as bank foreclosures or
  government foreclosures if these lenders have
  departments dedicated to selling REO houses.
• Real Estate Owned properties that are owned by
  smaller lenders may instead be sold by third
  party real estate agents.

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