What is the Difference between a Judicial and Non-Judicial Foreclosure?

One of the biggest factors in local laws regarding foreclosures is the difference between judicial and non-judicial foreclosures. Some states only allow judicial, and others only allow non-judicial. Depending on the custom in your area, there can be a big difference in how the foreclosure process works and what you will need to do in order to buy a foreclosed home.

Judicial foreclosure means that the foreclosure process must be overseen by the court. Usually this means that in order to issue a Notice of Default, the lender will have to schedule a court hearing. They will show evidence at the hearing that the homeowner has defaulted on their mortgage, and the court will issue the Notice of Default if it finds their case to be valid.

The same process occurs when the lender seeks to issue the Notice of Sale.

Buyers should be aware that in many states the court will have to confirm a foreclosure sale once it has taken place. There will be a hearing at which the results of the sale will be laid out, and the lender will ask the court to approve the sale. As the buyer, you will likely be obligated to attend; the court's ruling will be based on your ability to pay. Bring mortgage loan documents or other proof of your ability to pay.

In a judicial foreclosure, the presiding judge may issue the original homeowner a "period of redemption". The period of redemption is a specific period of time after the sale has occurred during which the original homeowner may have the opportunity to regain control and ownership of the property if they can raise the total amount owed on their unpaid mortgage loan.

In almost all cases the homeowner will have had many chances to do this before a sale occurs, so this does not have to be a major concern of the buyer. However, it is worth finding out whether your local law or custom provides the original homeowner with this right.

Non-judicial foreclosure is more common than judicial and often a more straightforward process. Even in states where local laws call for judicial foreclosures, it comes down to whether the mortgage has a "Power of Sale" clause. This gives lenders the right to pursue foreclosure without a court oversight. They can issue a Notice of Default, Notice of Sale and carry out a foreclosure auction on their own.

Most mortgages carry Power of Sale clauses these days, and that's why the majority of foreclosures are non-judicial. A non-judicial foreclosure means you won't have to prepare for or attend a court hearing and you'll deal solely with the lender, which some buyers prefer.

This is one of those important details that you should learn not only about your local state law, but about the individual mortgage you are dealing with when looking at buying a foreclosure home.

Some buyers aren't comfortable with buying a judicial foreclosure and would rather deal only with the lender selling the home. Others would rather have the sale overseen by a court in order to make the process move a little more slowly. No matter what your preference, doing your research and understanding the benefits of each type of sale can make a world of difference.

Choose the style that's best for you, and you'll be a more effective foreclosure investor.