What Is Judicial Foreclosure?

Judicial foreclosure refers to foreclosure proceedings on a property in which a mortgage lacks the power of sale clause and so proceeds through the courts. Power of sale is a clause written into a mortgage authorizing the mortgagee to sell the property in the event of default in order to repay the mortgage debt. Power of sale is permitted in many states as part of a lender's rights to seek a foreclosure.

How Judicial Foreclosure Works

Judicial foreclosure refers to foreclosure cases that go through the court system. Foreclosure occurs when a home is sold to pay off an unpaid debt. Many states require foreclosures to be judicial or to be processed through the state court system, but in some states foreclosures can be either non-judicial or judicial.

If the court confirms that the debt is in default, an auction is held for the sale of the property in order to acquire funds to repay the lender. This differs from non-judicial foreclosures, which are processed without court intervention.

Many states require judicial foreclosure to protect equity the debtor may have in the property. Judicial foreclosure also serves to prevent strategic disclosures by unscrupulous lenders. In instances where the sale of the property through the auction does not generate enough funds to repay the mortgage lender, the former homeowner will still be held liable for the remaining balance.

Key Takeaways

  • Judicial foreclosure is when foreclosure proceeding on a property take place through the court system.
  • This type of foreclosure process often occurs when a mortgage note lacks a power of sale clause, which would legally authorize the mortgage lender to sell the property if a default occurred.
  • Judicial foreclosure is a long process, lasting several months to years to complete.

Judicial Foreclosure Process

Judicial foreclosures can last anywhere from six months to about three years depending on the state.

To begin the foreclosure process, the mortgage servicer, or the company to which mortgage services are paid, must wait until the borrower is delinquent on payments for four months. At this point the servicer will notify the foreclosing party with a breach letter, letting the debtor know they are in default on their mortgage. In most cases, the debtor then has 30 days to cure the default, and if they are not able to, the servicer will move forward with foreclosure proceedings. At this point, the foreclosing party files a lawsuit in the county where the property is located and requests the court allow the home to be sold to pay the debt. As part of the lawsuit, the foreclosing party includes a petition for foreclosure that explains why a judge should issue a foreclosure judgment. In most cases, the court will enter a judgment of foreclosure unless the borrower has a defense that justifies the delinquent payments.

Depending on the state, the foreclosing party may also be entitled to a deficiency judgment. A deficiency judgment allows the house to be 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 most states, the foreclosing party can get a personal judgment against the borrower for the deficiency.