Update: It’s difficult to predict how judicial (and nonjudicial foreclosure) processes might change in the future as a result of coronavirus. Many courts are closed to non-essential matters because of the COVID-19 emergency and won't accept certain pleadings, like those related to foreclosures, or conduct hearings about such matters. Maybe in upcoming foreclosures, pleadings will always have to be filed electronically rather than at the courthouse. Hearings that used to be held in courtrooms might take place over video, or they might be restricted to essential parties only. Perhaps all sheriff's sales will be conducted online—as some currently are—rather than on the courthouse steps. Exactly how foreclosure procedures in different states will transform due to coronavirus, and whether those changes will be temporary or permanent, is up in the air at this point.
Foreclosure is the process where a home is sold to pay off an unpaid, secured debt. In some states, foreclosures are always judicial, which means they go through the court system. In other states, foreclosures are typically nonjudicial (out of court), although these states permit judicial foreclosures as well.
Read on to learn the specifics about how judicial foreclosures work, what type of notice you’ll get in this type of foreclosure, how you can raise objections to a judicial foreclosure, and which states use a judicial foreclosure process.
Judicial foreclosures usually take longer than nonjudicial foreclosures, generally lasting from a few months to several years, depending on the state. Below are the steps in a typical judicial foreclosure.
The mortgage servicer—the company that you make your payments to—usually can't begin foreclosure procedures if you miss just one or two payments. Under a federal law that went into effect January 10, 2014, in most cases, the servicer must wait until the borrower is more than 120 days' delinquent on the loan before officially starting the foreclosure. This is to ensure that you have time to apply for loss mitigation (an alternative to foreclosure), like a loan modification, short sale, or deed in lieu of foreclosure.
The servicer can still send you notices informing you that you're late in payments, like a breach letter (see below), and provide information about legal aid, counseling, or other resources. In fact, in most cases, federal law requires the servicer to inform you about various loss mitigation options that might be available to you.
To officially begin the foreclosure, the lender or subsequent owner of the loan files a lawsuit in state court. You will learn about the suit when you are served papers called a complaint and summons.
The complaint for foreclosure, sometimes called a "petition for foreclosure," sets out the reasons why the judge should issue a foreclosure judgment. The summons will notify you about your rights and state how many days you get to respond to the complaint by filing an "answer" with the court. Usually you'll get 20 to 30 days. If you want to object to the foreclosure, you must file your answer within the applicable time period. It’s easier to raise defenses in a judicial foreclosure than a nonjudicial foreclosure because you automatically get a chance to go in front of a judge.
If you don't respond to the lawsuit, the foreclosing party will probably get a default judgment authorizing the sale of the home. A default judgment means that you automatically lose the case because you didn’t respond to the suit. On the other hand, if you file an answer, the foreclosing party can’t get a default judgment. Instead, it will likely file a motion of summary judgment (where the court grants judgment in favor of the foreclosing party if there's no dispute as to the important facts of the case). If the court denies summary judgment, the case will proceed to trial. Ultimately, the court will enter a judgment of foreclosure against you unless you have some defense or counterclaim that justifies or excuses your delinquent payments, or you're able to show that the lender or servicer didn't properly follow state or federal law in the foreclosure process.
When a house is sold at a foreclosure sale for less than the outstanding mortgage debt, the difference between the debt and the foreclosure sale price is called the deficiency. In many states, the foreclosing party can get a personal judgment, called a "deficiency judgment," against the borrower for the deficiency as part of a judicial foreclosure or by filing a suit thereafter. (Learn how lenders collect deficiency judgments.)
After the court issues a judgment, a foreclosure sale is set. At the foreclosure sale, if a third party makes the highest bid on the home, that person or entity will then become the new owner of the property. But in most cases, the foreclosing party will be the high bidder. At the foreclosure sale, the foreclosing party typically bids on the property using a "credit bid." A credit bid means that the bank bids the debt that the borrower owes.
Sometimes, the court must confirm the sale afterward.
You might not have to move out of the home right away after the foreclosure sale. Depending on state law, the homeowner might be able to remain in the home until the court confirms the sale or, perhaps, until the redemption period expires.
In some states, the homeowner gets the right to live in the home during what’s called the "redemption period." A redemption period is an amount of time when the foreclosed homeowner may redeem (repurchase) the home after the foreclosure.
After the foreclosure sale, confirmation of the sale, or the expiration of the redemption period (depending on state law), the foreclosed homeowners must vacate the home or the new owner will take steps to evict them.
Foreclosures are generally judicial in the following states: Connecticut, Delaware, District of Columbia (sometimes), Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana (executory proceeding), Maine, Nebraska (sometimes), New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma (if the homeowner requests it), Pennsylvania, South Carolina, South Dakota (if the homeowner requests it), Vermont, and Wisconsin.
If you're facing a foreclosure and want to learn about potential defenses, whether the foreclosing party can get a deficiency judgment against you, or how to avoid a foreclosure by working out an alternative, consider talking to a foreclosure attorney. Contacting a HUD-approved housing counselor is also a good idea.