What is Judicial Foreclosure?
Judicial foreclosure refers to foreclosure proceedings on a property where the mortgage lacks a power of sale clause. In this scenario, the foreclosure process is managed through the court system.
Power of sale is a clause written into a mortgage that authorizes the lender to sell the property in the event of a default, bypassing the need for legal proceedings. This clause is permitted in many states and forms a part of the lender’s right to pursue foreclosure.
Key Takeaways
- Judicial foreclosure involves court-supervised foreclosure proceedings.
- This process is used when a mortgage lacks a power of sale clause, requiring more comprehensive legal intervention.
- Judicial foreclosure can be lengthy, often lasting several months to years.
Understanding Judicial Foreclosure
Judicial foreclosure involves cases of property repossession that proceed through the court system. Foreclosure occurs when a property is sold to repay an unpaid debt. The process abides by the jurisdiction’s laws where the property is located, predominantly dictated by state laws.
Numerous states stipulate that foreclosures must be judicial, while in others, both nonjudicial and judicial foreclosure options are available. If a court determines that the mortgage debt is delinquent, an auction can be scheduled to sell the property and gather sufficient funds to repay the lender. This differs from nonjudicial foreclosures, which proceed without court involvement.
Many states endorse judicial foreclosure to protect the remaining equity that debtors might still have in a property and to prevent strategic foreclosures by disreputable lenders. If the auction fails to raise enough funds to cover the mortgage debt, the former homeowner may still be liable for any remaining balance.
120 Days: The typical time period a borrower must be in arrears on a mortgage before a lender can initiate foreclosure proceedings.
How Judicial Foreclosure Works
Judicial foreclosures can span anywhere from six months to around three years, varying by state. To start the foreclosure process, the mortgage servicer, which is the company handling mortgage services, must wait until the borrower’s payments are delinquent for 120 days.
The next step involves the servicer notifying the foreclosing party with a breach letter, informing the debtor of their defaulted mortgage. Generally, the debtor is given 30 days to address the default. If the default is not rectified, the servicer proceeds with foreclosure actions.
Following this, the foreclosing party files a lawsuit in the property’s county, requesting the court to authorize the home’s sale to repay the debt. As part of the lawsuit, a petition for foreclosure is included, detailing why a judge should issue a foreclosure judgment. Generally, the court will issue a foreclosure judgment unless the debtor provides a valid defense for their delinquency.
Depending on state laws, the foreclosing party may also be entitled to a deficiency judgment. This allows the remaining balance after a foreclosure sale, which is less than the outstanding mortgage debt, to be reclaimed from the borrower. The difference between the total mortgage debt and the foreclosure sale price constitutes the deficiency. In many states, lenders can file a personal judgment against the borrower for this amount.
Note: Mortgage lending discrimination is illegal. If you believe you’ve faced discrimination based on race, religion, sex, marital status; public assistance use; national origin; disability; or age, measures can be taken, such as filing a report with the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Related Terms: Foreclosure, Power of Sale, Deficiency Judgment, Mortgage Servicer.
References
- Consumer Financial Protection Bureau. “How Does Foreclosure Work?”
- Cornell Law School Legal Information Institute. “Judicial Foreclosure”.
- Federal Housing Finance Agency. “Management of Deficiency Balances”.
- Consumer Financial Protection Bureau. “Factsheet on Delinquency and the 2016 Mortgage Servicing Rule”, Page 5.
