How Foreclosure Works
by Attorney Stephen R. Elias
How foreclosure procedures work, in both judicial and nonjudicial 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.
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:
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
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
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 Nonjudicial Foreclosure
|Arizona (sometimes)||New Mexico (sometimes)|
|California||Oklahoma (unless homeowner requests judicial foreclosure)|
|District of Columbia||Rhode Island|
|Georgia||South Dakota (unless homeowner requests judicial foreclosure)|
|Missouri||West Virginia (sometimes)|
The Nonjudicial 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 Nonjudicial 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.