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Judicial Foreclosure
Mark Cappel
UpdatedDec 1, 2010
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    3 min read
Key Takeaways:
  • Understand the definition of foreclosure.
  • Examine the judicial foreclosure process.
  • Review how to avoid foreclosure.

Foreclosure is a complicated and intimidating process, so make sure to do your homework to understand your rights.

foreclosure is one of the most severe and difficult financial processes for any consumer. unfortunately, foreclosures are also peaking, meaning thousands of american families are now facing this dire consequence. what does it mean, and what can you do to avoid foreclosure?

what is foreclosure?

foreclosure is the legal process through which a lender (most typically a mortgage lender) claims an asset from the consumer borrower. foreclosure is almost always the result of default on payment. a very important consideration for mortgage payment is that lenders cannot take partial payment on the mortgage monthly payment. what that means is that, unlike a credit card, you cannot mail in a portion of your payment. a mortgage payment is all or nothing. this also means that if you miss one payment, the next month you have to re-pay the current month and all arrears! this, in addition to exotic mortgage products and rising rates, can drive many otherwise financially stable people into foreclosure.

there are two types of foreclosure: judicial and non-judicial foreclosure.

judicial foreclosure:

a judicial foreclosure means that the foreclosure is a court-ordered legal process. the lender must file an action — a lawsuit — against the homeowner. this process is time consuming and subject to a sequence of events and calendar that consumes months or years. a judicial foreclosure helps by buying the homeowner time to make alternative housing arrangements.

non-judiciary foreclosure, or statutory foreclosure:

the non-judicial process is made possible by a legal document called a deed of trust. many western states use deeds of trust in creating home loans. this system avoids a judicial foreclosure, and speeds the foreclosure process. because the mortgage loan terms specify that default kicks off the sale process right away (without going through the court system), the lender can start the foreclosure process quickly. the the borrower has a fixed period of time (which varies state by state) to either sell the home, or negotiate to solve the financial problem. if the consumer does not accomplish this on their own, the lender then can seize the property and auction off the home to the highest bidder..

how to avoid foreclosure:

although it is a stressful time, it is important to be aware that there are options to avoid foreclosure. it is also important to know: lenders hate to foreclosure! a foreclosure is almost always a last ditch option for your mortgage company. foreclosures cost money, and it is a lot of work to manage the foreclosure process.

so, to try to minimize the number of homes that get foreclosed on, many lenders have loss mitigation departments. a mortgage company’s loss mitigation group will work with consumers to "re-age" and rehabilitate the borrower. this can be done by loan modification (where the actual loan terms change), forbearance (where missed payments are allowed and frequently tacked on to the end of the mortgage term) or other payment plans to get you back on track.

what that means is that you need to start planning and get smart to avoid foreclosure. assess the value of your home. is there equity that you can refinance? if you want a free refinance quote to see if you can save your home, visit the mortgage refinance savings center.

if you cannot refinance, can you sell the home and get more out of it? if there is no equity, then you should start thinking about negotiating with your lender. the two key variables are time and money. so figure out if you are in a judicial foreclosure or non-judicial foreclosure state — and how many days you have left until the foreclosure auction. also, start saving up all the cash you can to try to make-up the missed payments or to use to negotiate loan forbearance with your lender’s loss mitigation department.

you should also explore bankruptcy, which stalls the foreclosure process. learn more about bankruptcy.

foreclosure is a complicated and intimidating process, so make sure to do your homework and start planning to make the best of the situation.


LLon, Jul, 2012
I have owned three rental properties in Indiana for the last 6 and a half years, all of which are slightly under water now in terms of their loan-to-value ratios. In addition, I have been losing on the average $500-$1,000/month each year. I can't refinance them, nor can I modify them. I earn $100K a year and have a FICO score of 800, so I hate to ruin my credit. I also hate to lose so much money on properties that even in the best of times don't appreciate well, and even when fully rented still cost me money almost every month due to miscellaneous expenses. I think my best option is to just stop making payments at this point and let them go into foreclosure if necessary. What do you think I should do?
BBill, Jul, 2012
What you propose is a last resort.

First, learn your state's anti-deficiency law to learn what, if any, protections your state has for homeowners who default. Second, consult with a lawyer to learn how Indiana's collections law will impact you if you do elect to strategically default on your investment properties. Finally, talk to your mortgage servicers about short sales and deeds in lieu of foreclosure.
mmp, Feb, 2012
hi - I live in NY and have a Ft. Lauderdale (investment) condo that was purchased in 2006. It is now worth 100k - current mortgage on it is 250k. I tried to modify it three times and was denied three times. I tried to short sell it in August 2011 but buyer changed mind - law firm handling it did not offer me any other choices, so my only option was to let it foreclose. It is set to sell in an auction in less than 2 weeks. I have a good income, some money socked away. Question - reinstate and continue paying an upside down apt that will never come up in value (and not to mention, the mortgage company is horrible with customers, so no chance of getting different mortgage terms) OR allow it to foreclose and then negotiate a payment with the mortgage company to "buy back" the deficiency judgment. Any ideas will be appreciated (time is of the essence). Thank you
BBill, Feb, 2012
There is no easy answer to your situation. Each choice has drawbacks. Reinstating will tie you to a property that you feel will never regain its value. Letting it foreclose subjects you to collection for the deficiency balance. Negotiating with the lender to settle the debt may be the best solution, but there is no guarantee that the lender will settle. It may demand a full financial disclosure and then, upon exmaning your assets, feel you can pay in full. A lot depends on your lender's attitutde, which I have no way of guaging, aside from you saying that it treats its customers horribly. Sadly, there is no option that leaves you free from potential harm.
SShirley, Apr, 2011
I have a 89000.00 equity home loan that is now coming to the end of the 10 years.I have never missed a payment have a credit scora of 774,I have no other debts but now only have social security to live on I also own another home I rent out but have no contract for. I can pay my loan and more but have no proof that I can I think they are not going to renew it what are my options.
BBill, Apr, 2011
I am perplexed by your question. You can prove you receive a Social Security benefit. You can prove the income history on your rental property. You probably have records of your other assets. You mentioned your high credit score. The only thing missing from your message is your debt-to-income ratio, which I infer is low because you stated you can afford more than the HEL loan payment. There is no use in wringing your hands over what might happen without applying for a new loan.

If, for some reason I cannot see, you do not qualify for a loan, then your best option is to sell the property and move into the rental. Or, sell the rental and apply whatever equity you have in the rental to the $89,000 loan balance.