Two Types of Foreclosures

Knowing about the types of foreclosure is very important. Foreclosures aren’t happy times but they are a necessary part of real estate. This series touches on some of the more important, basic elements.

Foreclosure is the action of taking possession of a mortgaged property when the borrower fails to keep up on their mortgage payments. There are two types of foreclosures:

1. Judicial foreclosure
2. Non-judicial foreclosure

A judicial foreclosure involves filing a lawsuit in civil court to obtain a judgment against the borrower, giving the filer the right to foreclose against the property and force its sale. A judicial foreclosure is typically more expensive than a non-judicial foreclosure and generally takes up a whooooole lot more time and energy. A judicial foreclosure may provide a “right of redemption” after the property is sold at auction, enabling the borrower to repay the lender after the foreclosure sale within a specific time frame—typically six months or less—so he/she can reclaim that property.

A non-judicial foreclosure involves what’s called a Notice of Default (NOD). A NOD is sent to the borrower by the lender’s foreclosure attorney.

“Hey, uh, borrower…you’re way late and the ship’s about to leave the harbor. You got two minutes to get on board!”

The NOD indicates the borrower is in default on their loan and it outlines the time they have to cure the default. If the borrower fails to cure the default, the property is noticed for sale and the successful bidder (at the foreclosure sale) takes ownership of the property.

That successful bidder might be a third party investor or a lender. Regardless, the title is conveyed from the trustee to the new owner through a document called a trustee’s deed. And if there are no bidders at the trustee sale, the property reverts to the lender and the property is considered Real Estate Owned (REO).

We hope that this post helps you understand the two major types of foreclosures better.

Stay tuned for more Foreclosure content.

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