Foreclosure Procedure: Judicial and Non Judicial Sales

Every state is different to some degree, which is why you can’t take this post to court with you and assume that you have the right legal information. Checking local laws, rules and practices is essential in any foreclosure defense, defense of eviction or making claims against the lenders, mortgage brokers and other parties before or after the sale.

Many people have asked the difference between the kinds of sales and procedures. This will give you a general idea. In my opinion the non-judicial sale is equivalent to a taking of property without due process. I believe it is against basic black letter law of the U.S. Constitution.

Judicial Foreclosures

Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint and recording a notice of Lis Pendens. 

  • The complaint will state what the debt is, and why the default should allow the lender to foreclose and take the property given as security.  
  • The homeowner will be served notice of the complaint, either by mailing, direct service, or publication of the notice, and will have the opportunity to be heard before the court.  IT IS RIGHT HERE THAT YOU SHOULD FILE YOUR CLAIMS, DENIALS, AFFIRMATIVE DEFENSES ETC. A Motion to Dismiss claiming the Plaintiff has failed to plead or attach proof that it is the owner of the mortgage and note and still possesses the right to pursue foreclosure. In a fair number of cases they won’t have the documentation and the foreclosure will be dismissed because the Plaintiff “lacks standing.”
  • You should file for discovery — interrogatories, requests for admissions and requests to produce relating to the accounting for your payments, the schedule of payments received and when they were posted, and the names and addresses of people who have original documentation including the note, mortgage, assignment of the mortgage and note, sale of the loan, or other instruments showing that some third party, who is NOT party to the action, is the actual party in interest. Then you can show the court that the wrong person is before the court suing you, or at least that an indispensable party is not present. 
  • If that is the case, summary judgment will probably be denied, judgment could be entered in your favor (unlikely but possible) and/or the action will be dismissed without prejudice (which means they can get their act together and sue you again. The probability is that once dismissed, it will go to the bottom of their pile and they will pursue the “low handing fruit” which are people who don’t know the their rights or how to fight back.
  • If the court finds the debt valid, and in default, it will issue  a judgment for the total amount owed, including the costs of the foreclosure process.  
  • After the judgment has been entered, a writ will be issued by the court authorizing a sheriff’s sale.  
  • The sheriff’s sale is an auction, open to anyone, and is held in a public place, which can range from in front of the courthouse steps, to in front of the property being auctioned.   
  • Sheriff’s sales will generally require either cash to be paid at the time of sale, or a substantial deposit, with the balance paid from later that same day up to 30 days after the sale.  Check your local procedures carefully.  
  • At the end of the auction, the highest bidder will be the owner of the property, subject to the court’s confirmation of the sale.  
  • After the court has confirmed the sale, a sheriff’s deed will be prepared and delivered to the highest bidder, when that deed is recorded, the highest bidder is the owner of the property. Contesting eviction after this point is highly problematic, but you still retain rights to sue the lender for TILA, Fraud and other violations and claims. TILA is NOT generally regarded as a compulsory counterclaim and so the theory is neither is fraud. The safest route is to bring your claims when your first responses are due. 

Non-Judicial Foreclosures

Non-judicial foreclosures are processed without court intervention, which means that the notice of sale and the actual sale can take place without the lender proving to the court that it has a right to do so. The burden is shifted to YOU the borrower to bring a lawsuit agaisnt the the Lender to stop the sale. Obviously this precious piece of legislation was established through aggressive lobbying and campaign contributions to the states which allow this patently wrong procedure, which unfairly puts the burden on the least sophisticated player (you) who has the least resources to start a legal action. Where is the ACLU when you need them?

The sale takes place with the requirements for the foreclosure established by state statutes. 

  • When a loan default occurs, the homeowner will be mailed a default letter, and in many states, a Notice of Default will be recorded at approximately the same time.   The fact that, like many of our readers, you are NOT in default and that the lender has made multiple errors, committed many violations of the Truth in Lending Act (TILA) is not in issue because the state only requires the Lender to post notice. The fact that the real lender, the one who actually put up the money for the mortgage and note and who owns it now does not appear on the Notice, or that the Trustee no longer has the authority to proceed are issues that the Lender sidesteps in states that permit this awful procedure.
  • If the homeowner does not cure the default (the borrower is presumed to be in default upon the filing of the notice, which immediately screws up your credit and makes certain you cannot refinance because you already “in foreclosure”), a Notice of Sale will be mailed to the homeowner, posted in public places, recorded at the county recorder’s office, and published in area legal publications.  
  • After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property, subject to their receipt and recordation of the deed. Showing up at this sale and announcing that you are contesting the sale and the foreclosure generally will stop anyone from bidding. 
  • Auctions of non-judicial foreclosures will generally require cash, or cash equivalent either at the sale, or very shortly thereafter.

It is important to note that each non-judicial foreclosure state has different procedures.   Some do not require a Notice of Default, but start with a Notice of Sale.   Others require only the publication of the Notice of Sale to announce the sale, with no direct owner notification required.  You need to know the specific procedure for your state.

4 Responses

  1. Q: what is my rights as title holder of a real estate property that was transfer to me by grant deed. Mortgage Company foreclosed on the seller 6 months later. The loan was still in his name. Before the trustee sale the seller and myself show on title as owners of the same house. After the trustee sale when I check, it only name appears as owner was mine.

    Q: What option do I have?

    Are they legal or not? If a note is lost or destroyed where is the proof of ownership?

  3. […] Read the rest of this great post here […]

  4. […] Boots and Sabers – The blogging will continue until morale improves… wrote an interesting post today on Foreclosure Procedure: Judicial and Non Judicial SalesHere’s a quick excerptWhere is the ACLU when you need them? The sale takes place with the requirements for the foreclosure established by state statutes. […]

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