Bank Rights in Home Foreclosure
Lender rights and remedies with residential foreclosures are primarily defined by laws in the state in which the home is located. State laws differ with foreclosure process falling into two general categories: judicial and non-judicial.
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Judicial Foreclosure vs. Non-Judicial Foreclosure
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Judicial foreclosure can best be described as a court-supervised foreclosure process initiated by the lender with the commencement of a civil action by filing of a foreclosure complaint. Non-judicial foreclosure involves the following of a statutory process without having to file a court action, and when available is often the preferred lender method of foreclosure because it can be completed in a more timely manner.
Steps for Judicial Foreclosure
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The lender initiates the judicial foreclosure by filing a written complaint with the court, identifying the facts that establish the borrower is behind in payments on their mortgage. The borrower files an answer admitting or denying the allegations in the lender's complaint. Eventually there is a trial where the court issues it's ruling. In its decision, the court can order that the property be sold at a public foreclosure sale. After the foreclosure sale, the borrower generally has a period of time (up to 1 year) to pay the debt in full and get their property back. This ability is referred to as a "right of redemption."
Steps for Non-Judicial Foreclosure
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The lender begins this process usually by recording a document that defines the property in question, the nature of the borrower's default, and the monetary amount that needs to be paid to cure the default and end the foreclosure (equity of redemption). The content and form of this notice are defined in state laws where the property is located, along with prescribed time periods for conducting the foreclosure. Thereafter there are other specified steps that must be completed in a timely manner and eventually a time and date for a public foreclosure sale is set. State laws require that the sale be advertised to ensure that the sale is conducted in a manner to bring the highest price. Generally, there is no borrower "equity of redemption" after the foreclosure sale.
Why Will a Lender Select Judicial Foreclosure?
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Many states do not have a non-judicial foreclosure process available, thereby forcing the lender to initiate a judicial foreclosure. In states that allow the choice, lenders will often follow the judicial foreclosure path where they will seek, after the foreclosure sale, to collect a shortfall (the difference be the amount owed on the loan and the foreclosure sale price) from the borrower. This shortfall is referred to as a "deficiency," and the lender will ask the court to issue a deficiency judgment. Once the deficiency judgment has been issued the lender will use collection remedies (attachments, wage garnishments, etc.) to enforce payment of the debt.
Why Will a Lender Select Non-Judicial Foreclosure?
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The rationale in selecting this foreclosure path is it is viewed as being speedier and less expensive than following the judicial foreclosure processes. The downside is that in most states that allow non-judicial foreclosures, the right to a deficiency judgment for any lender shortfall is extinguished once the non-judicial foreclosure sale has been completed. This is good news for borrowers because they are no longer liable for the debt.
Importance of Pre-Foreclosure Professional Advice
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The foreclosure process can have a lasting effect on a borrower's life that extends beyond losing their home. What can happen is largely dependent upon the laws of the state in which the home is located. It is imperative for those facing the prospect of foreclosure to seek the advice of an attorney skilled specifically in their state's real estate laws and debt collection practices. Knowing potential downside ramifications also can help guide you toward a possible settlement with your lender designed to reduce your potential liability.
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