In many states, the mortgage company can pursue either of two different types of foreclosure. A judicial foreclosure involves a lengthier legal process and requires a lawsuit to be brought against the homeowners in a county court, while a nonjudicial foreclosure avoids the lawsuit and proceeds directly to the sale of the property under specific circumstances. Homeowners should understand the differences between each version in their own state so they can predict what course of action the bank will follow to take the house back.
Since the foreclosure crisis has hit California harder than any other state in the nation, this article will discuss how each of the foreclosure processes work there. With the enormous differences between states, however, homeowners absolutely need to look up their foreclosure laws before working on any solution to the problem. Without understanding how everything should proceed, property owners can find themselves in the dark more often than not.
The most important aspect of either type of foreclosure that homeowners need to be aware of is the “power of sale” clause in the original mortgage documents. This clause determines whether the lender can use nonjudicial foreclosure to sell the house right away or if they will have to initiate a lawsuit in the local court system. Homeowners facing foreclosure should have their mortgage paperwork readily available to review, and this is one of the first pieces of information they should look for.
The lender’s “power of sale” refers to the clause in the original mortgage documents that authorizes the bank to take a house to a public auction without going through the whole formal lawsuit process. It is used only in nonjudicial foreclosure settings, which is the predominant type of foreclosure proceedings in California. Homeowners facing foreclosure will most likely have this clause in their mortgage if their property is located in this state.
The other type of foreclosure, judicial foreclosure, is rarely used in California and only when the loan documents do not have the power of sale clause, or if the bank wants to pursue a deficiency judgment against the owners after the sheriff sale. Since most homeowners have little other assets than the house, it is usually not worth it for the bank to go after another judgment after foreclosure. They know that there is little chance of getting anything more after the house has been sold, so it is easier to rely on the type of foreclosure that involves the least time and expense.
The power of sale clause, to be accepted most easily, needs to specify the time, date, and place that the public sale of the foreclosure property will be conducted. Obviously, it does not have to go so far as to name specific months, days, or years, so following the general procedures of sheriff sales in the county will usually suffice. If these are not mentioned in the documents, then additional guidelines would have to be followed in order to use nonjudicial foreclosure.
In addition, there are still notice requirements for the lender to be able to sell the foreclosed house in this manner, and there is no redemption period after the auction. Homeowners have 90 days after the initial notice of default is sent to cure the default, but if they are unable to do so and the house is auctioned, the lender can not sue them for a deficiency judgment afterwards. Although the house may be sold quicker than in a judicial foreclosure, the loss of the bank’s power to pursue a judgment after the sale can be quite reassuring to homeowners.
Again, homeowners need to put together two pieces of information before they decide on any plan of action to stop foreclosure. First, they should look up their state foreclosure laws in order to understand which type of foreclosure the lender will use and what the general requirements are in either case. Second, they need to find their original mortgage documents to discover what type of foreclosure the bank will follow and if there are specific requirements that are not being met. Only after they have a general understanding of the process can homeowners work on realistic solutions.