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If you have a mortgage on real property and you fail to make your mortgage payments, you will be in default on your mortgage and the mortgage will be subject to foreclosure. ''Foreclosure'' refers to the enforcement of a deed of trust or mortgage in any manner provided by law. If you have defaulted under the terms of a trust deed or mortgage and the underlying loan, the deed or mortgage will be enforced by the sale of the real property named as security for the loan.

There are two kinds of foreclosure: nonjudicial foreclosure and judicial foreclosure. Nonjudicial foreclosure, which ends with the private sale of the real property, is available only if the trust deed or mortgage securing the obligation contains a clause or provision granting a power of sale. Judicial foreclosure is a lawsuit, and this type of foreclosure must be initiated by filing a complaint for foreclosure in the county in which the property is located.

Nonjudicial Foreclosure

In a nonjudicial foreclosure, the mortgagee (lender) or trustee exercises the power of sale contained in the mortgage or deed of trust after the mortgagor (borrower) breaks an obligation secured by the mortgage or deed of trust, usually by failing to make the loan payments. The process of a nonjudicial foreclosure is as follows:

• The mortgagor enters into a mortgage or deed of trust, which contains a power of sale clause
• The mortgagor breaches an obligation secured by the mortgage or deed of trust, such as by failing to make scheduled payments
• The mortgagee, trustee, beneficiary or their authorized agent sends the mortgagor a notice of default and records the notice of default 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, as specified by law, the mortgagor, trustor or any subordinate or junior lienholder may cure the default and reinstate the loan by paying the amount that is due under the mortgage
• After a period of time specified by law, the mortgagee or trustee must give notice of the sale of the secured property if the default has not been cured
• At the expiration of the notice period, the mortgagee or trustee may sell the secured property, at public auction, to satisfy the delinquent obligation

Pros and Cons of Nonjudicial Foreclosure

In some states, the mortgagee can choose to pursue either nonjudicial foreclosure or judicial foreclosure. The advantages of a nonjudicial foreclosure to the mortgagee under a delinquent deed of trust or mortgage include the following:

• A minimal foreclosure period
• No statutory right of redemption, meaning no right to re-claim the property by paying off the amount due, by the trustor or mortgagor after the sale
• Minimal trustees' fees and sale expenses

The disadvantages include the following:

• No right to recover from the trustor or mortgagor any deficiency on the loan secured by the deed of trust or mortgage
• If there is an irregularity in the sale, the consequences in the case of nonjudicial foreclosure may be more disastrous than in the case of a similar irregularity in a judicial foreclosure action

Judicial Foreclosure

A beneficiary or trustee named in a deed of trust or a mortgagee has the right to file a lawsuit to foreclose the deed of trust or mortgage. Judicial foreclosure is structured by state law, so it is important to know what that law is. The process is generally as follows:

• The mortgagor signs a note and deed of trust or mortgage, in which the real property is named as collateral or security for the loan
• The mortgagor defaults on an obligation of the mortgage or deed of trust, usually by failing to make loan payments
• The mortgagee files a complaint against the mortgagor to foreclose on the mortgage or deed of trust in the county in which the real property is located
• A lis pendens, which is a notice that foreclosure proceedings are pending, may be recorded in the recorder's office, to put others on notice that there is a dispute involving the property
• There is a trial or settlement and a judgment is entered
• A writ of sale is issued by the clerk of the court directed to the levying officer
• The levying officer secures the property, gives notice of sale, and sells the property in the manner provided by law
• If the sale price is less than the amount owed, the mortgagee may be able to obtain a deficiency judgment against the mortgagor
• The mortgagor can redeem the property within the time allowed by law, which will vary, depending on state law

Questions for Your Attorney

• Can there be a nonjudicial foreclosure of a mortgage if there is no power of sale clause in the mortgage documents?
• What are the advantages of a nonjudicial foreclosure?
• Where does a lawsuit to foreclose a mortgage have to be filed?

Related Resources on Lawyers.com^sm

- Residential Real Estate articles and information
- Homeowner's Options When Facing Foreclosure
- When to Hire a Foreclosure Attorney
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