Foreclosure happens when you fall behind on your mortgage payments and the owner of your loan (the bank) uses state procedures to sell your house in order to repay the debt. Foreclosure works differently in different states. In some states, the bank has to file a lawsuit to foreclose (judicial foreclosure), while in others, it can choose to foreclose without going to court (nonjudicial foreclosure) instead.
In a judicial foreclosure, the bank must file a lawsuit to get the foreclosure started. A judicial foreclosure typically takes several months or more, giving you time to look for another place to live, and to save some money for the future. Another advantage is that you can raise in court any legal defenses you may have to the foreclosure—without having to file your own lawsuit.
With some exceptions, foreclosures go through court in the following states: Connecticut, Delaware, District of Columbia (sometimes), Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana (executory proceeding), Maine, Nebraska (sometimes), New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma (if the homeowner requests it), Pennsylvania, South Carolina, South Dakota (if the homeowner requests it), Vermont, and Wisconsin.
Here's how a typical judicial foreclosure might proceed.
You get behind in your mortgage payments. Under federal law, in most cases, the bank must wait until you are more than 120 days delinquent in payments before starting a foreclosure, no matter if it is judicial or nonjudicial. (Learn more about federal laws that protect homeowners in foreclosure and how soon a foreclosure may begin.)
The bank sends a letter notifying you of its intent to begin foreclosure. In many cases, as required by the loan contract, the bank 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.
The bank files a lawsuit. If you don't make up the missed payments, the bank will then go to court and file a lawsuit asking the court for the right to sell the home and apply the proceeds from the sale to the debt. If state law allows for it, the complaint might also ask the court to grant a deficiency judgment if selling the property won’t fully pay off the debt. (In some states, a deficiency judgment is allowed after a nonjudicial foreclosure as well.) 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.
You have a chance to respond. The summons and complaint give you a period of time within which you must respond if you choose to contest or argue the lawsuit—usually between 20 and 30 days. Whether or not you file a response is up to you. If you don’t respond, the bank will ask the court for a default judgment and will automatically win the suit. The court then issues a default judgment authorizing the bank to sell your home.
If you do respond to the suit, you'll have the opportunity to tell a judge just why you think you have a legal right to keep your house and that foreclosure is not warranted. The better your defenses, the longer the process will drag out in court. Even if you win, though, it might be a temporary victory if the bank can fix whatever problem caused it to lose this time.
The court enters a judgment in favor of the bank and a foreclosure sale is held. If the court decides in favor of the bank, it will enter a judgment ordering the sale of your home to satisfy the debt. At the sale the bank will likely make a credit bid. (A "credit bid" means that the bank bids the debt that the borrower owes.) If no one makes a higher bid on your home at the foreclosure sale, the bank wins ownership of 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 entire mortgage 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.
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.)
To get an idea about how a typical judicial foreclosure might proceed, see Typical Judicial Foreclosure: Example.