Explanation

Although mortgages are seldom encountered in some states, such as California, deeds of trust are foreclosed judicially "like a mortgage" if the lender is seeking a deficiency judgment. A judicial foreclosure is a court action. A complaint is filed and judge supervises the entire process.

A judicial foreclosure begins with a lawsuit filed in the proper court in the county in which the property is located. In California, the foreclosure is initiated in a Superior Court.

A complaint is filed with the county clerk and served on all the parties. Usually a legal document called a lis pendens is recorded. A lis pendens is common in lawsuits involving real estate. It provides notice to any person interested in the real property that their rights in the property will be subject to the outcome of pending litigation.

A lis pendens puts a cloud on the title to the property and makes it extremely difficult to market.

Generally, an attorney prepares the complaint. In order to determine who to name as defendants, the attorney will order a foreclosure guarantee report or a report entitled a litigation guarantee from a title company. The title report shows who need to be named in the lawsuit. If you are on the title to property and are not named in the foreclosure lawsuit, the suit does not affect your interest.

If a junior lender is not named, that lender’s lien is not affected by the lawsuit and the lien remains attached to the property. If a husband is named and his spouse is not, only the husband’s interest is foreclosed.

With a judicial foreclosure you have the right to reinstate the loan by paying back payments and interest until the time that a court judgment is rendered that orders sale of the property.

Because a foreclosure action that is contested can take well over a year to makes its way through the court system, you will have plenty of time to cure your default.

Right of Redemption

You also have the right of redemption after the sheriff’s sale. This requires you to pay the full outstanding loan amount with costs, interests and other charges. The right of redemption is not used that often, because it requires full payment of the loan and because the right to reinstate the loan runs to the time of judgment.

Notice of Sale

If the lender does not seek a deficiency judgment, then the lender cannot begin to take your house away until after you have been notified that the suit is filed. After the statutorily mandated number of days has elapsed of the notice of sale is published for three to four weeks, depending on your state. Because of these statutory time constraints the minimum time from the filing of a judicial foreclose lawsuit until the sale can be substantial.

Default Judgment

A default judgment can be heard within a couple of months. A contested hearing can take six months to eighteen months or longer to get to trial.

Deficiency Judgment

Where the lender has not sought a deficiency judgment, the sheriff’s sale is final. There is no redemption period, and the sheriff issues a deed to the purchaser.

If the lender seeks a deficiency judgment when the lender initially files the lawsuit, the sheriff follows a special levy procedure. There is no waiting period after the levy, but in many states you get a period to redeem the property by paying the purchase price plus fees, cost, etc.

At the sale, the buyer receives only a certificate of sale, not a deed.

If the lender sought a deficiency judgment, but it turns out that there is not one because the winning bid exceeds the loan amount, the redemption period can be short or nonexistent.

California Example

• If the lender seeks a deficiency judgment and there is a deficiency the redemption period is one year.
• If the lender seeks a deficiency judgment and there is no deficiency the redemption period is three months.
• If the lender did not seek a deficient judgment, there is no redemption period whether there is a deficiency of not.

If your primary residence is foreclosed, you might be able to continue living there during the redemption period depending on your state’s rules.

If you do not, or cannot, redeem the property during the redemption period, the sheriff issues a deed to the buyer.