Highlights:

Judicial/ Non-Judicial Foreclosure: Both

Right of Redemption/ Deficiency Judgment: Not Applicable / Depends on the Process

Timeline: 90 Days, Can vary depending on individual cases

Deed of Trust / Mortgage as Security Instruments: Both are required

 

Judicial Foreclosure Process:

If a ‘power of sale’ clause is not present in the Deed of Trust or Mortgage, the Judicial Foreclosure process is followed. Here, a lawsuit is obtained from the court and a public auction is conducted thereafter. The property is then sold to the highest bidder.

Non-Judicial Foreclosure Process:

The Non-Judicial Foreclosure process is followed when a ‘power of sale’ clause is present in the Deed of Trust or Mortgage. With the ‘power of sale’ clause, the borrower has already authorized the lender (bank) to sell their property in case they default on the repayment of the loan amount. The lender (bank) or their agent is typically referred to as ‘Trustee’. The following processes need to be followed for Non-Judicial Foreclosure of property.

If the ‘power of sale’ document contains the guidelines of the sale, the same should be followed. If the document does not contain any guidelines, the following procedure is followed.

The lender is required to approach the office of the recorder for the particular county where the property is located and record the foreclosure statement. Following this, they should send the copy of the notice (by registered post) to everyone mentioned in the trust document within five days from the date of filing the initial foreclosure statement.

A notice of sale should be advertised in a local newspaper within the county where the property is located. This should be done continuously for four weeks and the last advertisement should appear at least ten days prior to the auction proceedings.

The notice can also be posted somewhere on the property itself or a courthouse or the business premises of the lender (bank) at least twenty days prior to the date of auction.
The highest bidder on the day of the sale/ auction is handed over the property provided they pay the full amount in cash before 5:00 PM on the next business day. If the buyer does not pay the full amount by 5:00 PM on the following day, the sale is canceled and the auction proceedings can be re-initiated on a future date.

The lender (bank) may however decide to give more time for the buyer to come up with the full amount. This decision is however left to the lender. They can very well cancel the sale and re-initiate the auction proceedings after giving a notice about the time and place of the new auction,  in the previous place where the auction was held for the same property. The highest bidder gets the trustee’s deed which offers evidence that the property was foreclosed by the lender (bank).
The borrower is to note that there is no right of redemption for them after the loan was foreclosed by selling the property.

In case the property that was sold to the highest bidder is less than 2.5 acres and was occupied by a single family or a couple of families, the lender cannot bring up a deficiency suite against the borrower if the value offered by highest bidder is less than the total amount owed by the borrower. But if a deficiency suit is brought within 90 days of the power of sale foreclosure for other cases, it is allowed. The amount however is limited to the difference between the fair market value of the property and the balance owed by the borrower.