Types of Foreclosures

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Courtesy of ForeclosureRadar.com

Judicial Foreclosure

Judicial foreclosure is allowed in all states, and occurs when the lender files a civil lawsuitagainst the borrower, with the entire process being handled by the court. Judicial foreclosures can be further divided into two types: foreclosure by sale, and strict foreclosure. Foreclosure by sale requires the home to be auctioned to the highest bidder with the lender placing the first, or opening, bid. These auctions are commonly referred to as sheriff sales. In a strict foreclosure, the court sets a date by which the owner must pay the mortgage, and if the owner fails to pay, the court awards ownership of the home to the lender with no auction taking place.

The judicial foreclosure process begins when the lender files their lawsuit, at which time they also file a lis pendens (LIS) on the property. The lis pendens is a document recorded with the County Recorder's office, to let potential buyers, lenders, and others know of the pending foreclosure lawsuit. A second notice, the Notice of Foreclosure Sale (NFS), is typically filed once the court has set the auction time and bid amount.

Non-judicial Foreclosure

The non-judicial foreclosure process allows a lender to advertise and sell the property at a public auction, without court involvement, by following a process specified by the state. As the process is laid out in state laws, or statutes, the non-judicial foreclosure process is sometimes also referred to as Statutory Foreclosure. A key requirement for non-judicial foreclosure is that the borrower agreed to the process when they took the loan. To accomplish this, a power of sale clause is added to the mortgage, or deed of trust, which gives a third-party trustee the right to sell the property in the event the borrower does not make their payments. Given this clause, non-judicial foreclosures are sometimes referred to as foreclosure by power of sale.

Important Foreclosure Notes

There are two important things to keep in mind about both foreclosure processes:

Foreclosures happen to loans, not properties.

As such, it is quite possible to have more than one active foreclosure on a single property at the same time. More importantly, buying a foreclosure at a state mandated auction doesn't necessarily mean that you have purchased the property free and clear of other liens. For example, the buyer of a foreclosure is almost always responsible for any past due property taxes.

Foreclosure laws vary a great deal by State.

While there is national goverance all states fall under, one cannot accurately assume that what they learn about the foreclosure laws of one state will apply to another. If you own property in another state as well, such as a winter home in Florida or Arizona, each home will be under the foreclosure laws of that state.

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As well as various types of foreclosures, the three stages of foreclosure are as follows: pre-foreclosure, foreclosure and post-foreclosure. If at all possible, get help in the pre-foreclosure stage. Investors will likely be able to do the most good for the distressed homeowner and for themselves. Pre-foreclosure is where further damage to the home owner's credit rating can be prevented or forestalled and the home may be transferred at a mutually-agreed-upon price before it is necessary to get the lender involved.

U.S. Treasury guidelines regarding Short Sales are intended to help homeowners avoid foreclosure.

Treasury Program Facilitates Short Sale Program Is Many-faceted:

Whether you’re a homeowner with concerns about making your mortgage payment or a renter facing the possible loss of your residence, there are resources and information that can help you sort through the types of foreclosures available or the effects of one. The earlier you take action to prevent a foreclosure or need for a short sale, the more options will be available to you.