Judicial and Non-Judicial Foreclosure Sales: What’s the Difference?

Foreclosures come about when borrowers fail to make payments on mortgaged assets. The assets are auctioned off to allow lenders such as banks or agencies to recoup the debts of the defaulted loans. For those entering into the foreclosure industry, it’s important to know what to expect and what your options are when dealing with borrowers who have defaulted on a loan. 

There are two main ways to go about an asset foreclosure when a borrower fails to make payments on an asset – judicial foreclosure and non-judicial foreclosure. The difference between the two lies in the involvement of the local court system, but both processes end in a foreclosure sale of the assets. The legal accessibility of each process can vary in a state by state basis.

What are they and what’s the difference?  

The difference between judicial and non-judicial foreclosures is in the necessity of having to go to court or not before assets can be auctioned.  In a judicial foreclosure, the defaulting borrower will be sued by the lender in a state court before the auctioning of assets can take place to recover outstanding debts. In a non-judicial foreclosure, the lender is not required to go to court before auctioning off assets to pay the debts. In both scenarios, the foreclosure ends with a foreclosure sale. 

Process and timelines

Now that you have a better understanding of the difference between judicial and non-judicial foreclosure, here is a look into the process of each. Judicial and non-judicial foreclosures also have very different timelines. It’s important to be aware of how long the process can take when entering a foreclosure as it can take between 2 months…and over 2 years! 

In a judicial foreclosure, the lender must prove to the court that the borrower has not made the agreed upon payments. If the borrower is found guilty and cannot pay the debt, the assets will be auctioned off in a judicial sale by the county sheriff or another county official. The deed then goes to the highest bidder. If the assets are not purchased at the judicial sale, the deed goes to the lender. 

The timeline of a judicial foreclosure can vary drastically. It’s possible to complete the process in as little as 4 months but more often it takes much longer before the process is complete. From the first notice of foreclosure to the closing of the judicial sale, a judicial foreclosure can take several months and sometimes even years. Involving the court system slows down the process and gives the borrower more opportunities to the delay motions through court-filed responses and complaints to influence the court’s judgement.  Dependent on the state, it is possible for the borrow to be issued a redemption period to give them time to attempt to buy back the defaulted assets. All in all, when dealing with a judicial foreclosure, be prepared for a long wait. 

Non-judicial foreclosures are generally not as lengthy, taking between 2 to 12 months. Negating the need for court involvement allows the lender to quickly arrange the auction and finish the process sometimes in as little as 6 weeks! These foreclosures occur when the mortgage agreement includes a power of sale clause. This allows the lender to initiate a foreclosure without court action. The lender will notify the borrower of the foreclosure and then auction off the assets. The highest bidder obtains the deed.  

Why you need to know the difference

Anyone interested in the foreclosure industry should educate themselves on the difference between judicial and non-judicial foreclosure to avoid hassle, frustration, and delays. Knowing your state’s regulations and including the power of sale clause in your mortgages can save you years of court dealings and get you into the auction stage quickly and painlessly. 

State by state rules

Judicial foreclosures are an available option in almost every US state with the exception of Michigan, New Hampshire, Tennessee, Utah, West Virginia and the District of Columbia.

Non-judicial foreclosures are available in a little over half of the US states. 

The states allowing non-judicial foreclosures include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Georgia, Hawaii, Idaho, Iowa, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, North Carolina, Oklahoma, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, Wyoming and the District of Columbia.

If a state allows both types of foreclosure, non-judicial foreclosures are issued if the lender included the power of sale clause in the mortgage signed by the borrower stating that the lender can sell assets to recover the balance of unpaid debts. If this clause was not included in the signed mortgage, the lender must use judicial foreclosure.