Judicial vs. Non-judicial Foreclosure

• Whether a homeowner is subject to a judicial or non-judicial foreclosure process depends upon whether the deed of trust or mortgage has a "power of sale clause." A power of sale clause pre-authorizes the sale of a property to pay off the balance on a loan in the event of a borrower default. Generally, in states that allow the use of a power of sale clause, most foreclosures are non-judicial because they are significantly faster and less costly then if a judicial foreclosure process was used. A homeowner can determine which foreclosure process they would be subject to by reviewing their mortgage or deed of trust and determining if this clause exists in the contract.
  
  

Conveyance by Judicial Process

• If a homeowner is subject to a judicial foreclosure, then the lender files a civil lawsuit against the borrower and records a notice of lis pendens -- Latin for "suit pending" -- with the entire process being handled by the court. With judicial foreclosure, the borrower is served a notice of the lawsuit and has the opportunity to be heard before the court. If the court finds the debt valid, and in default, it issues a judgment for the total amount owed and a sheriff sale of the property will be scheduled at the first available opportunity. A sheriff sale is an open auction that is held in a public place. At the end of the auction, the highest bidder will be conveyed a sheriff's deed -- a deed that, if applicable, may permit the defaulting borrower to redeem the property for a reasonable period of time. If no one meets the minimum bid, the property goes to the lender.
  
  

Conveyance by Non-judicial Process

• If a homeowner is subject to a non-judicial foreclosure, the lender exercises the right to foreclose on the property without going through the court system. This is because the mortgage or deed of trust most likely contains a power of sale clause. Once a borrower is in default, the lender sends a notice of default to the borrower informing them of how to cure the default and that if it is not cured, a foreclosure sale will be scheduled. If the homeowner does not cure the default within a specified time frame, the lender will then send a notice of sale letter to the borrower and generally post a sales notice in local legal publications and possibly have it recorded at the county recorder's office. After a legally required time period has expired, a public auction will be held, with the highest bidder being conveyed the deed of trust. If no one meets the minimum bid, the property goes to the lender.
  
  

Deed in Lieu

• A homeowner can skip either the judicial or non-judicial process by offering the lender a deed in lieu of foreclosure. This is a disposition option in which a borrower voluntarily conveys a property's title to the lender in exchange for a release from all -- or a portion -- of a borrower's obligations under the mortgage. This is sometimes referred to as a "friendly" foreclosure and can be done within either a judicial or non-judicial process. Typically in this type of transaction, the borrower must vacate the premises and must leave the property in a broom-clean condition, free of interior and exterior trash, debris or damage, and all personal belongings must be removed from the property.