Judicial Foreclosure vs. Non-Judicial Foreclosure

Judicial Foreclosure vs. Non-Judicial Foreclosure

Does it seem like we have more foreclosures on the market these days than ever before?  At The Cummings Company, we list and sell foreclosures and we get lots of questions from our buyers regarding the types of foreclosure. In the United States, individual states follow either a judicial or non-judicial foreclosure process.  This process typically depends upon whether the state is a mortgage state or a deed of trust state.  But all states allow some sort of judicial foreclosure process.

The only difference between a Mortgage state and a Deed of Trust state is the procedures necessary to foreclose on the property.   Do you know which type is the state of Alabama?

Generally, states that use mortgages conduct judicial foreclosures and states that use deeds of trust conduct non-judicial foreclosures.  The principal difference between the two is that the judicial procedure requires court action.

The state of Alabama is both a Mortgage state and a Deed of Trust state. 

Being both in any state (judicial and non-judicial) means that you could have either a mortgage or a deed of trust for that state.   It appears that more and more states are converting to Deed of Trust for reasons of foreclosure convenience.

In mortgage states, the mortgage is, technically, not the loan a homebuyer takes out, but a document that gives the lender a lien on the property. In some states, the lender retains title until the mortgage is paid off, while in others, the borrower holds the title. In any mortgage state, the lender may begin foreclosure to take over the property if the borrower defaults on his loan.

In the deed of trust states, instead of a mortgage, lenders use a trust deed to assign a third party--the trustee--to hold title until the debt is paid off. Some states allow attorneys to serve as trustees; in others, such as California, mortgage loan brokers can be trustees.

"Mortgage states" and "deed of trust states" can't be divided into two neat lists: Some states, such as Alabama, permit both, and sometimes mortgage states switch to allow or favor deeds of trust because of the effect on foreclosures.

Foreclosure is simpler with a deed of trust. When a mortgage is involved, the lender needs to file a lawsuit to start foreclosure proceedings. With a deed of trust, the trustee can put the home up for sale as soon as the lender provides proof that the borrower has defaulted. The trust deed may spell out specific terms required before the sale begins.

So let’s look at the differences between a Judicial Foreclosure versus a Non-Judicial Foreclosure.  There are specific steps to be taken in either type and these steps follow a time-line.

JUDICIAL FORECLOSURE

• The lender seeks to foreclose by filing a civil lawsuit against the borrower.  The borrower is served with a formal summons and foreclosure complaint. 
• The foreclosure process is handled through the local court system.  The court appoints a referee to conduct the foreclosure auction on the courthouse steps. 
• The lender records a lis pendens with the county clerk where the property is located.  This lis pendens becomes a lien on the property.  It also gives notice to all of the pending foreclosure auction.
• The court grants a judgement permitting the lender to conduct the foreclosure auction.
• The Notice of Foreclosure Sale, which announces the date, time and place of the auction is published, usually in the local newspaper.  This Notice of Foreclosure Sale is sometime posted (depending on the locale) for a certain period of time prior to the auction. 
• Generally, the borrower can stop the foreclosure by repaying what he owes up to the moment of the sale.
• The process can take from four to eight months to complete if no one raises any legal objections to the foreclosure.

NON-JUDICIAL FORECLOSURES

• This procedure is followed in Deed of Trust states.  A deed of trust conveys an interest in real property to a third party (the trustee) to hold as security for repayment of a debt.
• The trustee has the authority to initiate foreclosure proceedings by virtue of a power of sale clause included in the mortgage or deed of trust.
• The trustee records a Notice of Default with the county clerk where the property is located.  This document gives notice of an impending foreclosure and also grants the borrower a period of time in which to object to the lender’s claim or pay what he owes.
• The borrower may not stop the foreclosure after the expiration of this time period.
• Following the expiration of a pre-determined amount of time (this varies from state to state), the trustee records a Notice of Trustee’s Sale with the county clerk.  This notice establishes the date, time and place of the foreclosure auction.
• It can take up to 12 months to complete a foreclosure, depending upon the individual state.

So, as you can see, neither process is a fast one.  Many of our clients ask us “how long has this house been empty?” or “why did it take so long for this foreclosure house to be listed for sale?”  We do not have the answers to these questions because it may take months or even years for the house to be released to us to be listed.  We do not set the price of the foreclosure house to be sold either.  This is done by the bank, the asset company or entity that owns the property.  We list and sell the foreclosure house following the guidelines set for us as the listing company.  The Cummings Company has listed and sold hundreds of foreclosure homes over the last 10 years and will be happy to help you. For more information on foreclosure homes for sale in Mobile AL please call us, Kelly Cummings and Ryan Cummings, at 251-602-1941, we are your Mobile Alabama Foreclosure Experts!

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