Nonjudicial foreclosures take place outside the court system, which means the lender does not have to go to state court to get one. Not all states allow a nonjudicial foreclosure process. To find out if you live in a state that permits nonjudicial foreclosures, check our Summary of State Foreclosure Laws.
If you are facing a nonjudicial foreclosure, it's important to understand the basic steps in the process and when they occur.
The Power of Sale Provision in Nonjudicial Foreclosures
When you take out a loan in a state that primarily uses a nonjudicial foreclosure process, you sign a deed of trust or mortgage that typically contains a power of sale clause. If you have a power of sale provision in your mortgage contract, the lender can foreclose without going to court. For more information, see our article What is a Power of Sale Foreclosure?
Nonjudicial Foreclosure Timeline
While foreclosure procedures vary by state, here's how the nonjudicial foreclosure process generally goes:
Your First Missed Payment
The first month that you don’t make your monthly mortgage payment, the loan servicer will probably call you to inform you that you are late on your payment and ask when you will be sending in funds. The loan servicer may also send a notice of delinquency.
Your Second Missed Payment
If you skip a second payment, the loan servicer will continue to make collection calls and inquire why you have not made the payments. They make ask you to make a payment over the phone at the time they call.
Your Third Missed Payment
Generally, if you miss three payments the loan servicer will then send you a letter (referred to as a “Breach Letter”, “Demand Letter”, or “Notice of Acceleration”) informing you that you have 30 days to bring your mortgage current or the loan will be accelerated. When a loan is accelerated, you have to immediately pay the entire balance of the loan, not just the past due amounts. This sets the stage for the nonjudicial foreclosure procedure to begin.
To avoid foreclosure, you will have to bring the loan current by paying the full past due amount shown in the letter before the 30 days expires. If you send a partial amount, the lender will most likely send it back to you.
Breach Letter Expiration
If the 30-day time period expires and you haven’t paid the specified amount to bring the loan current, the loan servicer will refer your file to a third party, known as the trustee, to begin foreclosure proceedings. (The deed of trust that you signed when taking out the loan gives this third-party trustee the right to sell the home if you stop making payments.)
Foreclosure Notice Provided to the Borrower
Generally speaking, the nonjudicial foreclosure process begins when the trustee records a notice of default at the county recorder's office, sends notice to the borrower and any junior lienholders, and publishes the notice of default in a local newspaper, though the actual procedure varies widely from state to state. If you’re in a nonjudicial foreclosure state, you may receive:
- a notice of default followed by a notice of sale
- a combined notice of default and sale
- a notice of sale stating that the property will be sold on a certain date, or
- notice by publication in a newspaper and posting on the property.
For the specific procedure in your state, check our Summary of State Foreclosure Laws.
The foreclosure sale will take place on the designated time and date and the property will be sold to the highest bidder. The foreclosing lender can credit bid up to the total amount of the debt, plus foreclosure fees and costs, while any other parties must bid in cash or a cash equivalent, like a cashier's check. In the majority of cases, the lender will be the highest bidder at the foreclosure sale.
Certain states provide for a redemption period following a nonjudicial foreclosure sale. A redemption period is a specific time period given to borrowers in foreclosure during which they can buy back, or “redeem,” their property. (Learn more about redemption periods.) To find out if there is a redemption period for your state, check ourSummary of State Foreclosure Laws.
Once the property is sold at auction, the ownership of the property is transferred to the new owner with a Trustee’s Deed. If you have not already vacated the home, an eviction will be started to remove you from the property. See our article Foreclosure Timeline: After You Get Notice to Leave to learn more about eviction following foreclosure.
For More Information
Nonjudicial foreclosures typically only take a few months to complete. In fact, in some states, nonjudicial foreclosures are extremely quick. For example, in Georgia, a nonjudicial foreclosure can be completed in as little as about 37 days. In Michigan, a foreclosure can be done in around 60 days. To learn more about foreclosure timelines, see our articles Foreclosure Timeline: After You Receive a Formal Notice of Intent to Foreclose and How Foreclosure Works.