In a nonjudicial foreclosure, a lender does not have to go to court in order to foreclose on your home. This means that the foreclosure typically proceeds more quickly than a judicial foreclosure. (In some states, foreclosures go through court. These are called "judicial" foreclosures.)
(Learn the do's and don'ts when you're in foreclosure.)
If you're facing a nonjudicial foreclosure, you most likely signed two core documents when you bought or refinanced your home: a promissory note and a deed of trust (or similar document).
Deeds of trust: Creating a security interest in the home. The deed of trust turns the promissory note into a debt secured by a lien (legal claim) on your home, and authorizes the lender to foreclose on the property if you default by not making the payments or violating the loan contract in some other way. The deed of trust also typically allows the foreclosure to proceed outside of court, under state law. (Learn more about the difference between a promissory note and a deed of trust.)
States where nonjudicial foreclosures are the norm. 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 homeowner requests judicial), Oregon, Rhode Island, South Dakota (unless homeowner requests judicial), Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming.
State law sets out the specifics of a nonjudicial foreclosure procedure, 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 date or recover title to the property (redeem the home) after it's sold.
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. (Learn more about federal laws that protect homeowners in foreclosure and how soon a foreclosure may begin.)
You'll get a letter notifying you of the lender's intent to begin foreclosure. In many cases, as required by the loan contract, the lender sends a letter (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 pre-foreclosure period.
Nonjudicial foreclosure notices. Depending on what state law requires, you may get:
Right to reinstate. 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 prior to a foreclosure sale. With some exceptions, however, once the sale occurs, your house is gone.
The auction is held. 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 subsequent owner of the loan) when no one else bids on the property.
Right to redeem. A few states give you some time after the foreclosure auction to redeem the property (to recover ownership of the property by paying off the successful bidder or paying off the full loan debt).
You leave voluntarily 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 will receive an official, written notice to leave the property. (Learn more about what happens if you don't leave the home.)
Deficiency judgment. The lender might—if allowed by state law—later file a suit against you to get a deficiency judgment if selling the property 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.
(To get an idea about how a typical nonjudicial foreclosure might proceed, see Typical Nonjudicial Foreclosure: Example.)
Because you don't have the opportunity to raise defenses to the foreclosure in court as part of a nonjudicial foreclosure, if you wish to contest the foreclosure, you will 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 (and possibly at trial). Once you are in court, you can raise the same defenses you would have raised in a judicial foreclosure proceeding.
In these lawsuits, you typically ask the court for three things, in the following order:
If you're facing a foreclosure and want to learn about potential defenses, 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. (Learn more about the benefits of talking to a HUD-approved housing counselor.)