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Types of Foreclosure

In the United States there are two common types of foreclosure: Judicial Foreclosure and Non-Judicial Foreclosure.

Judicial Foreclosure

Judicial foreclosure happens when the lender files a civil lawsuit against the borrower, with the entire process being handled by the court and is allowed in all states. There are two types of Judicial foreclosure: foreclosure by sale and strict foreclosure. In a foreclosure by sale the home is auctioned to the highest bidder with the lender placing the first, or opening, bid. These auctions are known as sheriff sales. With a strict foreclosure, the court sets a date by which the owner is required to pay the mortgage, and if the owner fails to pay, the court awards ownership of the home to the lender with no auction taking place.

The judicial foreclosure process starts when the lender files their lawsuit, at this time they also file a lis pendens (LIS) on the property. The lis pendens is a document recorded with the County Recorder's office, to let potential buyers, lenders, and others know of the pending foreclosure lawsuit. Once the court has set the auction time and bid amount a second notice, the Notice of Foreclosure Sale (NFS), is usually filed.

Non-judicial Foreclosure

A non-judicial foreclosure process does not involve the court. It enables a lender to advertise and sell the property at a public auction by following a process specified by the state. Since the non-judicial foreclosure process is laid out in state laws, or statutes, it can be known as Statutory Foreclosure. A prerequisite for non-judicial foreclosure is that the borrower agreed to the process when they were given the loan. Typically a power of sale clause is added to the mortgage, or deed of trust, which gives a third-party trustee the right to sell the property in the event the borrower does not make their payments. Therefore a non-judicial foreclosures can also be known as foreclosure by power of sale.

In nearly all non-judicial foreclosure states, the foreclosure procedure begins when the lender files a Notice of Default with the County Recorder's office that the loan may be foreclosed on. A second notice, the Notice of Trustee Sale is typically filed 30 to120 days later, depending on the state. This notice sets the auction date and time. In some states, only the Notice of Trustee Sale is recorded.