Title: Foreclosure Laws: The Differences Between Judicial And Non-Judicial Foreclosures
1Foreclosure Laws
- The differences between judicial and non-judicial
foreclosures
2Foreclosure 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.
3Foreclosure 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.
4Judicial 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.
5Judicial 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.
6Judicial 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.
7Bankruptcy 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.
8Non-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.
9Non-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.
10Non-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.
11Auction 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.
12Auction 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.
13Let's 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.
14Let's 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.
15Let's 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.
16Let's 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.
17Let's 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.
18Let's 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.
19Let's 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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