When mortgage borrowers fail to make their monthly house payments, their property will eventually enter foreclosure. This is a process that allows lenders such as banks or financial institutions to recover the balance of defaulted loans by selling or repossessing the properties.
The process varies from state to state, but generally takes one of two paths: judicial foreclosure or nonjudicial foreclosure. In a judicial foreclosure state, the lender has to file a lawsuit in court in order to foreclose. In a nonjudicial foreclosure state, the lender can foreclose without going through the court system. Either way, the final step in the foreclosure process is a foreclosure sale.
A quick rule of thumb is that in judicial states, home loans are secured by a mortgage, whereas in nonjudicial states, home loans are typically secured by a deed of trust.
HOW JUDICIAL FORECLOSURE SALES WORK
In a judicial foreclosure, once the lender files a foreclosure lawsuit in court, the homeowner receives a summons and a copy of the foreclosure complaint. The homeowner can either let the foreclosure happen or contest it in court. If he or she does the latter, the court holds a hearing and a judge decides whether to let the sale proceed and, if the sale is approved, sets the date for it. If the homeowner doesn’t contest the foreclosure, the court issues a default judgment and authorizes the sale.
A sheriff, judge or officer of the court usually conducts a live auction held inside the courthouse or on the courthouse steps. (Some counties offer the option to bid online.) The properties for sale at these public events are called “foreclosures” because they’re still going through the foreclosure process and have not yet been foreclosed upon.
If no one buys the property at the auction, or if no bids meet the asking price, it’s then sold back to the bank and becomes a bank-owned (also known as Real Estate Owned or REO) property.
HOW NON-JUDICIAL FORECLOSURE SALES WORK
In nonjudicial states, the deed of trust used to buy the property authorizes a “trustee” to foreclose on the property if the homeowner defaults on their loan. State law determines the milestones in the foreclosure process, including how much notice the trustee must give the homeowner and how the home will be sold.
Even after the lender serves the homeowner with a notice of default, the homeowner may have up to 120 days to reinstate (make up) the missed payments. If the homeowner can’t make up the payments or work out a payment plan with the lender, they’ll receive a notice of intent to sell the property on a specific date.
A nonjudicial foreclosure auction does not have to be conducted by court-appointed officers; the lender typically appoints a third-party sales agent (like Auction.com) to conduct the auction. These auctions can be held in various places: on the courthouse steps, at the property, or in a convention center or ballroom. If no one meets the minimum bid at the auction, the home is sold back to the bank and becomes a bank-owned property.
HOW LONG DO JUDICIAL AND NONJUDICIAL FORECLOSURES TAKE?
Another difference between judicial and nonjudicial foreclosures is their timelines. Although it can take as little as three and a half months, a judicial foreclosure process can take several months—even years—from first notice to auction, especially if the homeowner files a response to the foreclosure summons and complaint and delays the court’s judgment. Some states allow a redemption period even after the foreclosure sale, during which a homeowner can buy back their property.
Nonjudicial foreclosures happen much faster, often in a matter of months, because the trustee doesn’t need the court’s involvement to auction off the property. In Georgia, for example, the entire process can take as few as 37 days.
FORECLOSURE PROCEDURES BY STATE
The best way to find out whether the state follows a judicial or nonjudicial process is to check with the local county government. Some states allow both processes, but tend to primarily follow one or the other. Check with the local county government to find out which process your state follows. In addition, Auction.com has compiled a list of foreclosure sale frequently asked questions by state.
| State | Judicial (Mortgages) | Nonjudicial (Deeds of Trust) |
| Alabama | ✓ | ✓ |
| Alaska | ✓ | ✓ |
| Arizona | ✓ | ✓ |
| Arkansas | ✓ | ✓ |
| California | ✓ | ✓ |
| Colorado | ✓ | ✓ |
| Connecticut | ✓ | |
| Delaware | ✓ | |
| Florida | ✓ | |
| Georgia | ✓ | ✓ |
| Hawaii | ✓ | ✓ |
| Idaho | ✓ | ✓ |
| Illinois | ✓ | |
| Indiana | ✓ | |
| Iowa | ✓ | √ |
| Kansas | ✓ | |
| Kentucky | ✓ | |
| Louisiana | ✓ | |
| Maine | ✓ | |
| Maryland | ✓ | |
| Massachusetts | ✓ | |
| Michigan | ✓ | |
| Minnesota | ✓ | ✓ |
| Mississippi | ✓ | ✓ |
| Missouri | ✓ | ✓ |
| Montana | ✓ | ✓ |
| Nebraska | ✓ | |
| Nevada | ✓ | ✓ |
| New Hampshire | ✓ | |
| New Jersey | ✓ | |
| New Mexico (sometimes) | ✓ | |
| New York | ✓ | |
| North Carolina | ✓ | ✓ |
| North Dakota | ✓ | |
| Ohio | ✓ | |
| Oklahoma | ✓ | ✓ |
| Oregon | ✓ | ✓ |
| Pennsylvania | ✓ | |
| Rhode Island | ✓ | ✓ |
| South Carolina | ✓ | |
| South Dakota | ✓ | ✓ |
| Tennessee | ✓ | |
| Texas | ✓ | ✓ |
| Utah | ✓ | |
| Vermont | ✓ | |
| Virginia | ✓ | ✓ |
| Washington | ✓ | ✓ |
| Washington D.C. | ✓ | |
| West Virginia | ✓ | |
| Wisconsin | ✓ | ✓ |
| Wyoming | ✓ | ✓ |
Source: RealtyTrac
At any rate, if you want to become a serious real estate investor, it’s a good idea to understand the difference between the two types of foreclosure sales. This will prepare you for the live auction—and give you the patience to delay with unexpected delays. It pays to learn as much about the process as you can.
About the Author:
Cynthia Badiey is a writer and author who has written about everything from real estate to cloud computing, private aviation and educational technology. She has written blog posts for Ten-X, Auction.com, XOJET, NetSuite and Sun Microsystems. An experienced marketing professional, Badiey is the principal of Comma Writer, LLC, which specializes in content creation and strategy, marketing communications and writing. You can reach her on Twitter at @cynthiabadiey.