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Judicial Foreclosure: An Overview

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In a Nutshell

If you are facing foreclosure, the bank’s options will depend on the terms of your mortgage and state law. The most common process is referred to as judicial foreclosure. This occurs when the lender files a lawsuit against the owner with the local court system to take possession of the real property. This process can take many months, even years, and provides some protections for the property owner.

Written by Attorney Cody J. Harding
Updated July 25, 2023

When a homeowner misses multiple mortgage payments, the lender can exercise rights under the mortgage contract. Often this involves pursuing foreclosure - an attempt to take ownership of the real estate because of an owner’s default.  

If you are facing foreclosure, the bank’s options will depend on the terms of your mortgage and state law. The most common process is referred to as judicial foreclosure. This occurs when the lender files a lawsuit against the owner with the local court system to take possession of the real property. This process can take many months, even years, and provides some protections for the property owner.

What Is Judicial Foreclosure?

In a judicial foreclosure, a mortgage lender attempts to become the new owner of the property because the current owner has stopped paying their mortgage. The lender’s long-term goal is likely to resell the property. But, an owner has rights when facing this process and, as a result, lenders are not always successful in retaking property that has become the subject of a foreclosure action. 

Unless the terms of the mortgage provide otherwise, a lender must begin the foreclosure process by taking formal action. It’s also likely that state law requires a foreclosure to proceed through the local courts. This kind of formal, court-based process is the backbone of judicial foreclosure actions.

Alternatives to Judicial Foreclosure

If you have missed multiple mortgage payments, your property may or may not be subject to a judicial foreclosure. Some homeowners have a ‘deed of trust’ instead of a traditional mortgage. These often contain a 'power of sale clause' that allows the lender to sidestep the judicial process. 

Deeds of trust are allowed in the following states: Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. In these states, when a borrower gets a loan to purchase a property, a neutral third party (called a “trustee”) holds the deed of trust during the repayment period. If the borrower defaults, the third-party trustee may initiate a sale of the property. The proceeds are then used to pay the outstanding mortgage. This nonjudicial foreclosure approach allows for a quicker resolution than a judicial foreclosure does.

But because deeds of trust are not permitted in a majority of states, the most common situation is that a defaulting homeowner will be subject to judicial foreclosure.

The Judicial Foreclosure Process

A judicial foreclosure can be a slow process, often taking months or even years. The lender must notify you of the default to give you an opportunity to make up delinquent payments. If the delinquent payments are not made, the lender will process the foreclosure through the courts, filing a lawsuit and seeking a judgment. A judgment grants them a right to take over ownership of the property, after which they often sell the property to recover the balance. 

Generally, a judicial foreclosure will proceed as follows: 

  • Notice. The mortgage servicer provides the homeowner a notice of default after missing a mortgage payment. Under federal law, they must provide notice of delinquency within 45 days.

  • Filing Lawsuit. The lender files a foreclosure lawsuit if the homeowner does not resolve the missed payments after a set amount of time - usually after 30 days from notification or 120 days from the default. 

  • Judicial Notice. The lender must provide a foreclosure notice by serving you with legal papers. 

  • Answer. You have a chance to respond to the lawsuit, including stating any defenses you might have. 

  • Judgment. If you don't have any valid defenses or are not able to pay the balance the Court will enter judgment in favor of the bank. If you don’t dispute their claims they may be granted a default judgment.

  • Right to Redeem. Even if the lender gets a judgment against you before any sale occurs you have the right to redeem the mortgage by paying the delinquent amount along with any fees or costs. 

  • Foreclosure Auction or Foreclosure Sale. The property may be sold at public auction to the highest bidder or listed for sale as a bank-owned property (often called REO sale). The lender must provide the homeowner a notice of sale.

  • Leaving Property. If the property is sold at foreclosure you will be forced to leave either by your own will or by forced eviction. 

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Foreclosure Timeline: How Long Does It Take?

A lender can’t initiate the foreclosure process as soon as a homeowner misses a mortgage payment. Generally, an owner must be delinquent for more than 120 days before a bank can begin to foreclose. Even before that happens, most mortgages and state laws require the lender to notify the owner that they are in default. They’re likely required to send a breach letter providing 30 days notice before trying to foreclose on the property. The lender may also be obligated to post a prominent notice on the property. 

This notice establishes a time period for the owner to make up missed payments or negotiate with the lender. Only after the 30 days have passed without any resolution may the lender then begin foreclosure proceedings. 

If you’ve never missed a payment before and don’t expect you’ll have any issues making your payments going forward, you should take the opportunity to contact your lender to discuss available options. These may include a modified payment schedule or temporarily suspending payments. What you should not do is ignore their demand letter. 

Homeowners’ Rights During Judicial Foreclosure

Once a foreclosure action begins, you still have rights. State law may provide specific statutory defenses and rights. If your payments became delinquent because of an error by the mortgage servicer, you can fight the foreclosure proceeding in state court by presenting your defenses. You might also have a right to mediation (basically a negotiation with a neutral facilitator), based on the terms of your mortgage.

State law often grants owners a ‘right of reinstatement’ - an opportunity to make up the delinquent payments and resume their mortgage payments. Many lenders prefer this option because it is more efficient than proceeding with a lengthy foreclosure proceeding. Even after a property is foreclosed upon, state law often provides a redemption period. This grants owners a ‘right of redemption’ - retaking ownership by paying the delinquent amounts and any fees owed. 

Alternatives to Foreclosure

Once a foreclosure proceeding begins, it may be best to discuss your options to try and keep your house with your lender. Options might include: a loan modification, scheduling a repayment plan, refinancing, or even resolving mortgage arrears through a Chapter 13 bankruptcy

If you aren’t able to keep your house, you may seek a buyout from the mortgage company - sometimes called ‘cash for keys.’ A lender negotiates a payment to the owner in exchange for the owner leaving the property. Such a payment might range from $500 to $5,000 dollars to cover moving expenses.  

A similar option involves executing a deed in lieu of foreclosure. You would relinquish your rights in the real estate to avoid any mortgage debt. By executing such a deed, you would hand over your rights to the property and skip the foreclosure process. By doing this, you would avoid harm to your credit and having a formal foreclosure proceeding against you recorded in state court records.

Another option is to sell the property. The details will be determined by the mortgage debt and sale price. If the property is sold for more than the mortgage balance, you get the excess. If the house is worth less than what is owed, you can try a short sale instead. In a short sale, the property is sold for less than the amount owed, and the proceeds all pass to the lender. In exchange, the owner is often excused from the remaining mortgage debt. This option, like the others above, would not hurt your credit score as much as a full foreclosure proceeding would. Under some circumstances, when there is a balance remaining, an owner may be subject to a deficiency judgment, with the lender pursuing the unpaid balance. 

Let’s Summarize...

No one wants to experience foreclosure. It can be a lengthy and stressful process. If you’re facing mounting mortgage debt you can’t pay, explore all of your options. The sooner you act, the more options will be available. 

By taking initiative and starting a discussion with your lender before they initiate a judicial foreclosure, you can take advantage of all possible options, whether they involve making up missed payments or relinquishing your ownership to avoid a growing problem.

Written By:

Attorney Cody J. Harding


Cody J. Harding is a Brooklyn-based attorney who supports startups and local businesses. His law firm serves growing companies, specializing in commercial transactions, intellectual property, and business consulting. Before starting his private practice, Cody served as a Deputy A... read more about Attorney Cody J. Harding

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