Judicial foreclosure involves the filing of a lawsuit by the creditor against the debtor and is characterized by judicial oversight of the entire process. The power of sale method, by contrast, is a nonjudicial foreclosure process that is permitted in 29 U.S. states. This method involves the sale of mortgaged property by the mortgage holder without the supervision of a court.
Judicial Foreclosure is a Lawsuit Against the Debtor
With judicial foreclosure, the creditor files a complaint in court against the debtor alleging:
- There is a debt owed.
- The debt is in default.
- The debt is secured by real property given in a mortgage.
- The creditor is entitled to relief in the form of an order mandating that the real property be sold to satisfy the debt.
The Debtor May Present Foreclosure Defenses
The debtor has an opportunity to respond to the complaint and present any defenses he or she may have. A foreclosure attorney can advise the debtor regarding any available foreclosure defenses. In some jurisdictions, if the foreclosure is contested, the matter proceeds to a nonjury trial. In any event, a hearing is held, and if the court agrees that the creditor has a right to foreclose, the court will order the property sold in a public sale.
Foreclosed Property is Sold at Public Auction
The foreclosure sale typically takes place at a public auction after proper notice has been given to all interested parties, including holders of junior mortgages. The court must approve any sale for it to become final. All rights and obligations of the parties are determined by the court in a judicial foreclosure, including who is entitled to excess funds or who is responsible for the deficiency when the foreclosure sale does not cover the amount borrowed.
The Power of Sale Foreclosure
A slight majority of U.S. states follow the power of sale foreclosure procedure. These are states that utilize either a deed of trust or a security deed form of mortgage. The process is generally initiated by the provision and publication of a notice of foreclosure sale to interested parties, including the debtor and any other mortgage holders.
Lack of Judicial Oversight
There is usually no judicial oversight of the power of sale foreclosure. The security instrument has provided that, in the event of a default, the creditor has a right to conduct a sale of the property in order to recoup the funds. The power of sale foreclosure method is less time-consuming because it does not involve a lawsuit, but it is also ripe for abuses.
Anti-Deficiency Laws Protect Debtors
Because there is no judicial oversight for power of sale foreclosures, many states have enacted legislation to protect the debtor against overreaching on the part of the creditor. Anti-deficiency laws exist in many states to protect debtors against unscrupulous lenders who would buy the mortgaged property themselves at the public auction, but at prices far below the market value, and then sue the debtors for the difference between the sale price and the amount owed on the mortgage.
Anti-deficiency laws prevent this sort of abuse. If the property sells for an amount less than what was owed on the mortgage, anti-deficiency laws provide that the creditor cannot sue the debtor for the deficiency unless the creditor can prove to a judge in a confirmation proceeding that the purchase price was for the approximate fair market value of the property.
Foreclosure Attorneys
The type of foreclosure a debtor faces may depend upon the state in which the mortgaged property is located. Foreclosure law is largely governed by state law, and the laws vary from state to state. Because of the complexities involved in defending against foreclosure, one should seek the assistance of an experienced foreclosure attorney.
Additional Resource: How to Hire an Attorney
Source: Parsons, Stephen P. The ABCs of Debt. N.Y.: Aspen, 2009.
Disclaimer: This article is in no way intended as legal advice. For help with specific legal issues, one should contact a licensed attorney in one's local area.
Jessie Vanwinkle - Jessie Vanwinkle is an attorney in practice since 1998. View her full profile for more information.
Join the Conversation