How Does Foreclosure Work?

So how does foreclosure work? What is the mortgage foreclosure process? Here are the steps for judicial and non-judicial foreclosure that you must know before taking any action to resolve your situation.

When you find yourself in financial trouble and are starting to panic about your situation, the best thing you can do is educate yourself on what you are fearful of so you can tackle the situation in the most rational and logical process.  

It's hard to remain calm and detached from fear when you may be losing your home, but that is exactly what you need to do!  

Foreclosure is one of the most emotional and stressful situations anyone can face, but if you can keep the emotions and fear at bay while you figure out what course of action to take, you will be able to execute your best foreclosure options and have a greater chance of saving your home or your equity, (not to mention your sanity and dignity)  whatever your objective may be.  Really.......I did it and so can you!

Your first step is to find does foreclosure work and exactly what is the mortgage foreclosure process...

2 Kinds of Foreclosure

Judicial or Non-Judicial?

IMPORTANT:  Before you scroll down to read how does foreclosure work in both the judicial and non-judicial processes, you need to know which one is used in your state for filing foreclosures.  This is important because the process is widely different from state to state with regards to time frames and procedures used.  Many people do not know this information and are led the wrong path and waste precious time they couldn't afford to lose while searching for solutions.

To find out the deed of trust or mortgage foreclosure process used in your state, go to Foreclosure Law - All States and click on your state to see what laws apply to you.
  • Foreclosure process used in all states -- Judicial or Non-Judicial
  • Type of instrument - a Deed of Trust (aka Trust Deed) or a Mortgage --used to secure the debt on your real property
  • First Public Notice - the type of first notice made public by the foreclosing lender to initiate the foreclosure process
  • Time Frame - the amount of time it takes from the first public notice until the scheduled public auction sale
  • Redemption Period - the amount of time the borrower is allowed to redeem or purchase back the property after it is sold at the public auction
  • Deficiency Judgment - depending on your state, the lender may be able to file a lawsuit against you and receive a judgment if the proceeds from the public auction does not cover the entire loan amount

I.  Judicial Foreclosure

How does foreclosure work in a Judicial process?  This is a foreclosure process that is initiated through the court system.  It takes more time and costs  more money so lenders generally do not prefer this route unless they must do so according to the laws where the property is located.

  • STEP 1:   Judicial foreclosure starts when the lender files a complaint and a notice of Lis Pendens.  The formal complaint includes details of the debt along with an explanation why the lender should be allowed to foreclose and take possession of the collateral (your property) which was given as security when you first took out the loan.  

  • STEP 2:  You will be served the notice of complaint by mail, an individual server, or publication of the notice.  You will, however, have the opportunity to be heard before the court so you can object to the complaint against you.  Be sure to respond to the notice within the specified period because failure to do so will result in a default judgment by the court in favor of the lender and will give the lender authorization to foreclose on your property.  

  • STEP 3:   If the court rules that your debt is valid and that it is in fact defaulted, a judgment will be issued for the entire amount you owe, plus the costs of the judicial foreclosure process.
  • STEP 4:  Once the judgment is entered, the court issues a writ to authorize a sheriff's sale of your property.  The property is published for sale for a certain number of days (varies from state to state).  The sheriff's sale is basically a public auction at a public place (it could be at the courthouse steps or even in front of the property).  The highest bidder will become the property's new owner, subject to court confirmation.  
  • STEP 5:  A sheriff's deed is created and delivered to the highest bidder.  Lastly, the deed is then recorded (within a certain number of days) to finalize the new ownership. If no one bids at the sheriff's sale, the lender "bids in" for the amount owed and is given the sheriff's deed.
  • STEP 6:  The redemption period, if available in your state, gives you an opportunity to buy back your property within a specified amount of time (varies state to state).  You will be required to pay the sale price plus interest on the mortgage.  You may also have to reimburse the buyer for any payments they made for property taxes, insurance, legal fees, and any other provable and qualifiedd expenses incurred.
  • STEP 7:  If you are not able to buy back your property by the time the redemption period expires, the buyer will serve you with an eviction order (also known as a writ of restitution), forcing you to vacate so they can then take possession of the property.  

Advantages (For You) of a Judicial Foreclosure

  • The lender HAS to sue, which means they have to file a complaint and serve you, and then the court has to review the filing.  This takes time!  And if the courts have a huge backlog, you just bought yourself more time to act.
  • The lender has to hire an attorney to represent them in court.  The attorney has to attend the court proceedings, make the motion before the judge, and argue as to how and why the lender finds you in default.  This multi-stepped process opens the lender up for mistakes and loopholes which you can use to your advantage.
  • You or your attorney have the opportunity to show up in court and challenge the judgment for the purpose of buying more time to find a solution.  You can present a reasonable objection and convince the judge to want to hear and see more evidence.  Your hope is to get another court date.  It'll take time to get back on the court's calendar and you may just have bought yourself more time.  (Note:  The most common challenge borrowers make is if the bank has a history of accepting late payments in the past and now refuses to do so  without notifying the borrower of the change in policy -- this could invalidate their right to foreclose).  It is very important that you must consult with an experienced foreclosure attorney to represent you.
  • If your property is in a state with a redemption period, the bank has to wait even longer to recover its losses because it cannot sell the property until the redemption period expires (varies from state to state).  Some people use the redemption period to live rent-free in the property.

II.  Non-Judicial Foreclosure

How does foreclosure work in a NON-Judicial process?  As the name says, this type of foreclosure does not go through the judicial or court system.  It does not require court intervention in order for the lender to proceed with the foreclosure process.   It is a simpler process than judicial foreclosure.

At the time you purchased your property, you signed a Promissory Note ( or more commonly known as the note), which was secured by either a "mortgage" or a "deed of trust" also known as trust deed.  The note is your promise to pay back the loan to the lender under the terms and conditions you agreed to.  

The mortgage or the deed of trust is the security instrument used to guarantee the promissory note.  Whichever document is used, the purpose of both types of documents is to secure the note and protect the lender.

Click here to learn the difference between a Mortgage vs Deed of Trust.

  • STEP 1:  When you start missing your loan payments, you are said to be in default.  If you do not reinstate your loan and become current on your loan payments again, the lender will file a Notice of Default, which is recorded at your county recorder's office.  Note: The lender can file a Notice of Default from the first payment you miss, but in reality, most lenders wait a few months before they file it.  

IMPORTANT:  Each state who practices non-judicial foreclosure has different procedures.  Some states do not require a Notice of Default, but start with a Notice of Sale right away.  Others only need to make a publication of the Notice of Sale to give public notice, without being required to notify the property owner.  Again, you will need to know the exact procedure and foreclosure law for your state.

  • STEP 2:  After a certain amount of time specified by your state law (ex:  In California, the Notice of Default period lasts 90 days, meaning you have the ability to reinstate your loan within that period).  After the Notice of Default period expires, the lender files a Notice of Sale (also known as Trustee Sale Notice).  A date is scheduled (ex: in California, the Notice of Sale period is 21 days, meaning your sale date is 21 days after the Notice of Sale is filed) for the sale of your property at a public auction.  You are notified through regular and certified mail, and in some cases, a notice tacked on or near your front door. 
  • STEP 3:  The lender is required to publicly advertise their intent to foreclose within a certain number of days or weeks before the auction sale date.  The Notice of Sale is usually advertised in the local newspaper in the county where the property is located and /or in a legal newspaper.  This varies in every state, so again, please check the spreadsheet for information on your state.  
  • STEP 4:  Trustee Sale (Auction) - The sale takes place most often at the courhouse steps.  It varies by state who conducts the auction in non-judicial states.  Most often it is an auctioneer from a third party auction company.  The highest bidder becomes the new owner of the property, subject to the deed being recorded and delivered to them.  Bidders at non-judicial foreclosure trustee sales generally are required to pay cash or cash equivalent for the entire amount either at the time of the sale, or very shortly after.  The auctioneer checks that each bidder has the cash before they can place their bids.
  • STEP 5:  Redemption Period - You will have the opportunity to buy back your property if your state allows a redemption period.  Just as with judicial foreclosures above, you will have to pay the price paid at auction, plus any qualified fees and expenses paid by the auction buyer.  Please check redemption period information on the state foreclosure laws page.

Do not hesitate to contact us via email if you have additional questions you would like answered or any comments on the deed of trust or mortgage foreclosure process....or just how does foreclosure work in general.  We will do our best to respond as soon as we receive your query.

Related Topics:

Foreclosure Options

Timeline for Foreclosure

Foreclosure Questions

Foreclosure Law - All States

California Foreclosure Law

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