How Nonjudicial Foreclosures Work

In a nonjudicial foreclosure, the lender (or subsequent loan owner, called an "investor") doesn't have to go to court to foreclose your home. So, the process typically goes more quickly than a judicial foreclosure, which is through court.

Foreclosures are usually nonjudicial in the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia (sometimes), Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico (sometimes), North Carolina, Oklahoma (unless the homeowner requests a judicial foreclosure), Oregon, Rhode Island, South Dakota (unless the homeowner requests a judicial foreclosure), Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming.

In these states, the state statutes set out the specifics of the nonjudicial foreclosure process, including how much notice you get, how the property will be sold (typically at a public auction), and what rights, if any, you have to reinstate the loan before the foreclosure sale or redeem the home after it's sold.

The Nonjudicial Foreclosure Process: Different From State to State

While the nonjudicial foreclosure process varies from state to state, generally, here's how the process works.

You Get Behind In Your Payments

Under federal law, in most cases, the servicer must wait until you are more than 120 days delinquent in payments before starting a foreclosure. During this 120-day period, you'll get information about various loss mitigation options that might be available to you.

You'll Usually Get a Letter Notifying You of the Lender's Intent to Start a Foreclosure

If the loan contract requires it, the lender sends a letter, called a "breach" letter, informing you that a foreclosure will begin unless you make up the missed payments, plus costs and interest. The letter may be sent during the 120-day preforeclosure period.

Notices You Might Get In a Nonjudicial Foreclosure

Depending on what state law requires, you might get:

• A notice of default and a notice of sale. A "notice of default" gives you time to reinstate your loan by making up all the back payments, and might be followed by a notice of sale (if you haven't reinstated your mortgage by the deadline in the notice of default).
• A combined notice of default and sale. A combined notice of default and sale states that the property will be sold on a certain date unless you make up the missed payments.
• A notice of sale. Some states require only one notice—a notice of sale announcing that the property will be sold on a specific date unless you pay off the loan.
• Notice through publication and posting. In a couple of states, the borrower gets notice only by publication and posting.

Right to Reinstate the Loan

State law often provides a right to reinstate the loan by getting caught up on what you owe, plus fees and costs by a certain deadline prior to the sale. The deed of trust might also provide a certain amount of time to reinstate before a foreclosure sale. With some exceptions, however, once the sale occurs, your house is gone.

The Auction Takes Place

If you don't reinstate the loan, the home will be sold at auction. As with judicial foreclosures, the property often goes to the lender or investor when no one else bids on the property. The property is then known as "Real Estate Owned" (REO).

Right to Redeem In Some States

A few states give you some time after the foreclosure auction to redeem the property and recover ownership of the property by reimbursing the successful bidder for the amount paid at the foreclosure sale or paying off the amount you owe on the loan.

You Voluntarily Leave or Get Evicted

If you don't leave the property when your legal right to remain in the home ends, which depends on state law, you'll receive an official, written notice to get out or face an eviction.

You Might Face a Deficiency judgment

The lender might, if allowed by state law, later file a suit against you to get a deficiency judgment if the proceeds from the foreclosure sale didn't fully pay off the debt. If granted, you remain responsible for the outstanding balance left on the loan after the foreclosure sale. Some states don't allow deficiency judgments under certain circumstances.

Challenging a Nonjudicial Foreclosure in Court

Because you don't have the opportunity to raise defenses to the foreclosure in court as part of a nonjudicial foreclosure, if you want to contest the foreclosure, you'll have to file a lawsuit yourself. When you do this, you ask the court to temporarily stop the foreclosure so that you can resolve the legal issues in court. Once you're in court, you can raise the same defenses you would have raised in a judicial foreclosure proceeding.

In this kind of lawsuit, you typically ask the court for three things, in the following order:

• a temporary restraining order
• a preliminary injunction (which, in foreclosure actions, will last until the court decides the case), and
• a permanent injunction (which will be issued if the judge decides in your favor).

Getting Help

If you're facing a foreclosure and want to learn about potential defenses that you could raise in court, whether you're likely to face a deficiency judgment, or how to avoid a foreclosure by working out an alternative, like a loan modification, consider talking to a foreclosure attorney. Contacting a HUD-approved housing counselor is also a good idea.