Judicial Foreclosure: A Guide for Borrowers and Investors

Put simply, “judicial foreclosure” is the legal term used for a foreclosure that goes through the local court system. However, there is much more to this type of foreclosure than just knowing that courts are involved. With that in mind, we’ve created a guide to the process below. Keep reading to learn what you need to know about the judicial foreclosure process.

What is judicial foreclosure?

At its core, the simplest judicial foreclosure definition is one that defines judicial foreclosures as foreclosure proceedings that are settled by the court system. Notably, in order for these foreclosure proceedings to occur, the mortgage note must lack a power of sale clause, which allows the lender to bypass the court system and to sell the property in order to recoup unpaid mortgage debt. 

The type of foreclosure used is usually determined by state law. In general, the following states typically use a Judicial foreclosure method: Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin.

How the judicial foreclosure process works

The foreclosure court process is fairly straightforward. To start, After a borrower defaults on the loan, the mortgage servicer must wait 120 days before starting foreclosure proceedings. Usually, they will notify the borrower that they are in default by sending something known as a “notice of default” letter. Then, the borrower will have 30 days to cure the default before the proceedings can move forward.

If the borrower does not rectify the situation in time, the mortgage servicer will move forward by filing a lawsuit against the borrower in the county where the property is located. During the lawsuit, the servicer makes an argument for why the home should be sold in order to repay the debts. Typically, the court will authorize a court order to do so unless the borrower can provide a defense that proves financial hardship and the property is then sold at auction.

What is the difference between judicial foreclosure and nonjudicial foreclosure?

Luckily, the difference between a judicial foreclosure and a nonjudicial foreclosure is simple. In judicial foreclosure states, the loan servicer has to take the borrower to court and convince a judge to authorize a foreclosure sale. Once the judicial foreclosure sale is authorized, it typically takes place in the form of an auction that is held at the courthouse or online. If no buyer is found during the auction, the property is sold to the lender and becomes a real estate owned (REO) property.

In contrast, mortgage notes and deeds of trust in nonjudicial foreclosure states are equipped with a power of sale clause, which allows the lender to sell the property without obtaining a court order first. Typically, the lender will hire a trustee to send the borrower a notice of default and, if necessary, to follow through with the foreclosure proceedings.

Unlike a judicial foreclosure sale, a non-judicial foreclosure auction does not need to be conducted by court appointed officers in order to take place. With that in mind, it can take place anywhere, including the property itself. During the auction, if an acceptable bid is made, the property is sold to the highest bidder. However if not, it also is sold to the bank and becomes an REO property.

How long does a judicial foreclosure take?

Another big difference between foreclosure on a judicial deed and a nonjudicial deed is the amount of time that the process will take. Put simply, if your state’s foreclosure type is judicial, the process is likely going to take longer because you are at the mercy of your local court system.

The legal website, Nolo, estimates that the entire timeline for a judicial foreclosure takes several months to a year to complete. In contrast, it estimates that the timeline for a nonjudicial foreclosure only takes a few months to complete from start to finish.

Do you get any money if your house is foreclosed?

Lastly, people often want an answer to the question, “Do you get any money if your house is foreclosed?” Unfortunately, the answer is, “It depends.

At its core, foreclosure is meant to help you pay off an existing debt, specifically the money you owe to your mortgage servicer. If the home is sold at a foreclosure sale for more than the amount of money you owe your loan servicer, you do get to keep the excess proceeds.

However, if it sells for less than what you owe, in some cases, the mortgage servicer is able to file a deficiency judgment against you for the rest of the amount that they are owed.

The bottom line 

The important thing to know about judicial foreclosure is that this process is guided by the court system. As a result, it usually takes longer than nonjudicial foreclosure. Whether you’re a homeowner looking to save your home or an investor who is hoping to cash in on foreclosure opportunities, you’ll benefit from knowing the basics about this type of foreclosure proceeding.

Cited article sources

1. Nolo: “Timeline for a Nonjudicial Foreclosure” https://www.nolo.com/legal-encyclopedia/timeline-nonjudicial-foreclosure.html