Judicial/ Non-Judicial Foreclosure: Both are Available
Right of Redemption / Deficiency Judgment: No / Depends
Timeline: 90 Days, Can vary depending on individual cases
Deed of Trust / Mortgage as Security Instruments: Deed of Trust, Mortgage
Judicial Foreclosure process:
If a power of sale clause is not present in the Deed of Trust/ Mortgage documents, a Judicial Foreclosure process is followed. In this process, the lender is required to file a lawsuit against the borrower in case the latter happens to default on the mortgage payments. If the default is proved, the court issues a foreclosure order and the property is sold off to the highest bidder through a public auction.
The value of the property is appraised before the sale unless the borrower waives their right to appraisal, which is rare. The property should not be sold for less than two thirds of the appraised value during the foreclosure sale.
The borrower cannot re-claim their property once the property has been sold. So, they cannot exercise their right of redemption. But the lender can file for a deficiency judgment against the borrower, if the value offered by the highest bidder is less than the total amount due by the borrower.
Non-Judicial Foreclosure process:
When a power of sale clause is present in the Deed of Trust/ Mortgage documents, a Non-Judicial foreclosure process is followed. The power of sale authorizes the lender or their authorized representative (referred to as Trustee) to conduct the foreclosure sale proceedings if the borrower happens to default on their mortgage payments. The following guidelines can be followed for the Non-Judicial foreclosure process.
If the power of sale document contains the details of the foreclosure sale like time, location and other terms for the foreclosure sale, the same can be followed. Otherwise, the following procedure is followed.
The lender communicates their ‘intent to foreclose’ through a notice to the borrower at their last known address. This notice should give all the details of the loan / property and mention that the borrower has a time of up to 35 days to pay up all their dues to stop the foreclosure process. If there has been three such defaults from the borrower’s side, a further notice need not be sent. If there have been four such defaults for the last two years and one notice has already been sent, no further notice needs to be sent.
Within ten days after the above mentioned 35 day notice period, a foreclosure notice should be recorded at the recorder’s office in the county where the property is located in case the borrower has not paid their dues.
The foreclosure sale notice should be advertised in a local newspaper on at least one day for four consecutive weeks and the first such ad should be published at least thirty days before the actual foreclosure sale date.
This notice should contain all the details of the borrower/ lender, their correspondence details, property location and details, foreclosure sale details like date, time, location, foreclosure sale terms, etc.
The property is then sold off to the highest bidder through a public auction on the foreclosure sale date at the venue mentioned in the notice. The highest bidder should pay 10% of their bid amount immediately through cash/ certified funds during the auction. If they are not able to pay the same, the lender needs to consider the bid offered by the next highest bidder.