If you have a mortgage on real property and you don't make your mortgage payments, you'll be in default on the loan. The loan is then subject to foreclosure. Foreclosure is the legal mechanism for enforcing a mortgage (or deed of trust). Generally, foreclosure involves the bank taking the mortgaged property - like your home - to pay off the loan.

There are two kinds of foreclosure: Nonjudicial foreclosure and judicial foreclosure.  

Nonjudicial Foreclosure

Nonjudicial foreclosure is available only if the mortgage gives the bank or lender (the mortgagee) a power of sale. The bank may exercise this power of sale after you (the mortgagor or borrower) default. In other words, you don't live up to your obligations under mortgage. Failing to make the loan payments is the most common example.

Here are the typical steps in a nonjudicial foreclosure. After you default:

• The bank sends you a notice of default and records the notice in the county recorder of deed's office
• At any time after the notice of default is recorded until a few days before the sale (the time is specified in your state's foreclosure laws), you may cure the default and reinstate the loan by paying the amount due under the mortgage, plus the bank's foreclosure-related expenses 
• After a certain amount of time (again set by state law), and if the default hasn't been cured, the bank must give you notice of the sale of the property covered by mortgage
• At the end of the notice period, the bank may sell the property, at public auction, and use the money to pay off the mortgage

Pros and Cons of Nonjudicial Foreclosure

In some states, the bank may choose to use either nonjudicial or judicial foreclosure. A nonjudicial foreclosure has advantages and disadvantages for the bank. Advantages include:

• There's no lawsuit. The bank doesn't need a court order allowing it to sell your property
• Speed. From start to finish, a nonjudicial foreclosure may take only a month or two
• Depending on the laws in your state, there may not be a statutory right of redemption. That means you can't reclaim the property by paying off the mortgage after it's sold at the foreclosure sale
• Minimal legal fees and sale expenses  

A major disadvantage to a nonjudicial foreclosure is that, usually, the bank can't recover any deficiency from you. In other words, it can't get a court order requiring you to pay any difference between the foreclosure sale price and what you owed on the mortgage.

Judicial Foreclosure

At the heart of the foreclosure is the security interest the bank has in your property. When you signed the mortgage, you promised or pledged the property as collateral for the loan.

The rules for judicial foreclosure are strict, and they're different in each state. In general, the process begins when you default on your mortgage. Then: 

• The bank sends you a notice of default
• If you don't cure the default, the bank files a lawsuit against you by filing a complaint in a court in the county where the property is located. Judicial foreclosure requires a lawsuit 
• A lis pendens usually is recorded in the recorder's office. It basically lets anyone who's interested in the property know that foreclosure proceedings started  
• There's a trial (or settlement) and a judgment is entered
• A writ of sale is issued by the court
• The property is sold, usually by public auction
• If the sale price is less than the amount owed, the bank may get a deficiency judgment against you for the difference
• You usually have the right to redeem the property within a certain period of time set by the laws in your state

Questions for Your Attorney

• Can there be a nonjudicial foreclosure of a mortgage if there's no power of sale clause in the mortgage documents?
• Can I bid on my property at the foreclosure sale?
• My ex-spouse never told me about foreclosure notices she was getting while I was living out of state. A sale has been ordered. Can I stop it?

Related Resources on Lawyers.com^sm

- Contact a Real Estate Law Lawyer or Foreclosure Law Lawyer in your area for specific legal advice, and read about Selecting a Good Real Estate Lawyer
- Need a form? Access hundreds of Legal Forms, including a Home Evaluation Worksheet
- Read Bankruptcy, Foreclosure or Mortgage Relief and Homeowners Options When Facing Foreclosure, or access more Real Estate Law or Bankruptcy-Foreclosure Law articles and information
- Legal Dictionary
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Related Web Links

- Bankruptcy Information and Resources from US Courts.gov
- Mortgage Foreclosure Resources from the Federal Reserve Board
- US Department of Housing & Urban Development (HUD)