Judicial foreclosure involves a court filing where the owner will be served with a summons (or if summons cannot be delivered, then publication – notice in the newspaper – may be used). Ultimately, a hearing will be held and the presiding judge will issue an order setting the amount due to the lien holder(s)/bank and setting a date for public sale of the property.
Even after the sale has occurred, there is a short right of redemption available to a homeowner for a certain period of time, but the owner will have to pay the full amount due, plus an additional amount of money to redeem the property.
A non-judicial foreclosure is the lender’s preferred method of foreclosing on a property because it is faster, less costly and has no right of redemption for an owner. The mortgage used by the bank must be a Deed of Trust to use the non-judicial foreclosure method.
A Notice of Default will be filed on a property at the registrar of deeds office in the county where the land is located. The Notice grants the owner a period of 30 days to pay any delinquent amounts as set out in the notice. If the default is not cured within the 30-day grace period, the lender or trustor may set the sale date, send a notice of sale and begin the required five weeks of publication of notice of the sale.
On the sale date, the Trustee or Trustee’s attorney will hold the sale by making an opening “minimum bid.” The minimum bid is the lesser of either the amount due to the lien holder or the fair market value of the property. The property will be sold to the highest bidder. If the property is sold for less than the amount due, the lender has three months to file a lawsuit to obtain a deficiency judgment – the difference between the fair market value and the amount due.
It is always best to try and work with your lender, not to ignore or put off dealing with the delinquency. Often, the HAFA or HAMP programs can help avoid a foreclosure. Negotiated settlements like a “deed in lieu” of foreclosure are also possible, but make sure to involve your attorney, so you get the best result and avoid owing a remaining balance.