What is foreclosure?
Judicial foreclosure refers to foreclosure proceedings on a property in which a mortgage does not have the power of sale clause and therefore goes through the courts. Power of sale is a clause in a mortgage authorizing the mortgagee to sell the property in the event of default in order to repay the mortgage debt. Sales power is allowed in many states as part of a lender’s rights to request a foreclosure.
How foreclosure works
Judicial foreclosure refers to foreclosure cases that go through the judicial system. Foreclosure occurs when a home is sold to pay off an unpaid debt. Many states require seizures to be judicial or to be dealt with by the state judicial system, but in some states, seizures can be non-judicial or judicial.
If the court confirms that the debt is in default, an auction is organized for the sale of the property in order to acquire funds to repay the lender. This differs from non-judicial seizures, which are processed without judicial intervention.
Many states require a court attachment to protect the equity that the debtor may have in the property. Foreclosure also serves to prevent strategic disclosures by unscrupulous lenders. In cases where the sale of the property by auction does not generate enough funds to pay off the mortgage lender, the former owner will still be responsible for the remaining balance.
Key points to remember
- Foreclosure is when foreclosure on property takes place through the court system.
- This type of foreclosure process often occurs when a mortgage note does not have a power of sale clause, which would legally authorize the mortgage lender to sell the property in the event of default.
- Foreclosure is a long process that lasts several months to several years.
Seizures can last from six months to about three years depending on the state.
To begin the foreclosure process, the mortgage service, or the company to which the mortgage services are paid, must wait until the borrower is in default for four months. At this stage, the service agent will notify the seizing party of an offense letter, informing the debtor that he is in default on his mortgage. In most cases, the debtor then has 30 days to remedy the default, and if they fail to do so, the service agent will continue the foreclosure procedure. At this point, the foreclosed party takes legal action in the county where the property is located and asks the court to authorize the sale of the house to pay the debt. As part of the legal action, the foreclosure part includes a foreclosure motion that explains why a judge should make a foreclosure judgment. In most cases, the court will issue a foreclosure judgment unless the borrower has a defense that justifies the overdue payments.
Depending on the state, the seized party may also be entitled to a default judgment. A default judgment allows the home to be sold at a foreclosure sale for less than the current mortgage debt. The difference between the debt and the sale price of the foreclosure is called a shortfall. In most states, the foreclosure party can obtain a personal judgment against the borrower for the shortfall.