Foreclosures in any given state are generally either judicial, which means they go through the state court system, or nonjudicial, a process usually carried out without any court involvement or supervision. (To get an idea about how a typical judicial or nonjudicial foreclosure might proceed, see Typical Judicial Foreclosure: Example and Typical Nonjudicial Foreclosure: Example.)
Sometimes, though, due to the circumstances, a lender in a state where foreclosures are ordinarily nonjudicial—an easier and faster process—might elect to foreclose through the courts instead.
Foreclosures: Judicial or Nonjudicial
Again, foreclosures take one of two paths: judicial or nonjudicial. In some states, foreclosures are exclusively judicial. In others, the lender can proceed using either a judicial process or a nonjudicial process that requires it to follow various out-of-court steps outlined in state law.
In states where a nonjudicial process is available, lenders almost always choose this route because it's quick and inexpensive. But sometimes, depending on the circumstances, the lender decides to use the judicial process.
When a Lender Might Pick a Judicial Foreclosure
A lender that otherwise could go forward with a nonjudicial foreclosure under state law might opt to foreclose through the courts in any of the following situations.
- The mortgage or deed of trust wasn't recorded. After you sign a mortgage or deed of trust, the lender records it in the land records to establish lien priority. Priority determines who gets paid first out of the proceeds after a foreclosure sale. But if the mortgage or deed of trust isn't recorded, the lender will likely have to foreclose judicially to establish its priority.
- Priority isn't clear. Similarly, if the land records aren't clear about which lien has priority—say a first mortgage was inadvertently recorded after a second mortgage—the lender might file a lawsuit to foreclose. The court will then determine the correct priority.
- The legal description isn't correct. If the mortgage or deed of trust contains an incorrect legal description for the home, the lender usually files a lawsuit so a court can ensure that the right property is being foreclosed.
- Change in boundaries. If the property's boundaries changed after the deed of trust or mortgage was recorded, again, the lender might file a lawsuit so a court can clear up the matter.
- The lender filed a release or reconveyance by mistake. If the lender accidentally released or reconveyed the mortgage or deed of trust—say, the loan wasn't actually paid off—it will have to foreclose through the courts. (Generally, a lender files a document called a "release" or "reconveyance" in the land records after the borrower pays off the loan to clear the lien off the official record.)
- The lender omitted a junior interest in the prior nonjudicial foreclosure. If the lender forgot to include a junior lienholder in the nonjudicial foreclosure, it would have to file a suit to eliminate that lien.
- Changes in laws sometimes drive lenders to foreclose judicially. In some places, like Hawaii and the District of Columbia, changes in the nonjudicial foreclosure laws—specifically, a law requiring the lender to offer foreclosure mediation to borrowers—drives lenders to opt for the judicial process. That way, the lender can avoid the mediation requirements under the state's nonjudicial foreclosure laws.
- To get a deficiency judgment. In some states, like Washington, if the lender chooses a judicial foreclosure rather than a nonjudicial one, it can get a deficiency judgment against the borrower. (To get basic information about the most commonly-used foreclosure procedure in your state, whether state law allows a deficiency judgment, and other foreclosure information, see our Key Aspects of State Foreclosure Law: 50-State Chart.)
Talk to an Attorney
If you're behind in your home loan payments and want to find out if an upcoming foreclosure is likely to be judicial or nonjudicial in your situation, talk to an attorney. If you've already received notice that the lender has started a foreclosure and you want to learn about potential defenses or get specific information about foreclosure laws in your state, again, consider contacting a foreclosure attorney.
If you want to learn more about different alternatives to foreclosure, including loan modifications, short sales, and deeds in lieu of foreclosure, make an appointment to talk with a HUD-approved housing counselor.