Judicial Foreclosure

Posted by admin

April 16, 2008

What is a Judicial Foreclosure?

Also called foreclosure by judicial sale, Judicial Foreclosure occurs when the courts handle all the proceedings of the foreclosure and make sure that there won’t be any more problems for the purchaser of the property. It is a more lengthy process taking up to a year versus approximately 3 months for a Non-Judicial Foreclosure. Judicial Foreclosure is also more expensive than Non-Judicial Foreclosure.

Though this type of foreclosure is rather expensive and time consuming since the court will conduct investigation regarding the said foreclosure; the court will also make sure that all the persons connected to the transaction will be duly informed of the said hearing. It still has its advantages as since less problems will likely crop up especially to the new owner of the foreclosed property.

When does a judicial foreclosure occur?

Usually, a judicial foreclosure occurs when there is no power of sale between the lender and the borrower in the trust or mortgage deed. For a more detailed discussion of the difference between judicial and non-judicial foreclosure and when a particular applies - read this article.

How does it work?

In a judicial foreclosure, the court will handle all aspects of the foreclosure. The mortgage lender will first file a complaint regarding the mortgage to the court, and recording of a Lis Pendens (lawsuit pending). In a nutshell this points out to the public and courts that the property is under litigation and is cannot be sold unless the court releases it from the proceedings.

The complaint will contain details about the debts, the terms and conditions stated in the agreement, and information regarding the security used in the mortgage. The court will review the complaint whether it has sufficient grounds for the property to be foreclosed.

Once the decision is in that foreclosure is imminent, then the court will now inform the concerning parties; this includes the lender, the borrower, or any other persons that are connected with the transaction. A notice will be sent to all participants with information regarding the time and place of the hearing for the foreclosure, and the court will provide an opportunity for the borrower to be heard regarding their reason for not satisfying the agreement with the lender.

If the court finds the foreclosure valid, then it will give out a judgment regarding the total amount owed, interests and the cost of the foreclosure process. Once the sale has been made then the court will now distribute the earnings to first satisfy the debt, other concerning parties, costs and finally the borrower.

Sheriffs Sale

After the court finds the foreclosure valid then it will issue a Sheriffs Sale notice, which gives the authority for the foreclosed property to be sold via public auction. The notice will include the date and time of the said auction, which take place anywhere that the court deems appropriate from the court house to any designated areas deemed worthy by the court, such as the property itself.

The term of the sale would be auctioning the property to the highest bidder. If the price cannot be paid in full by the buyer, then an initial deposit is required wherein the remaining balance will need to be paid within 30 days after the sale. The Sheriffs sale will be delivered to the new owner of the property as well as the deeds or any documents pertaining to it.

Distribution of the proceeds

The court will make sure that all claimants will receive their share. The costs of the judicial foreclosure which includes the advertising, legal fees of the lender and the auctioneers fees are distributed first. The claims of the lender and other claimants will also be paid off, with the surplus (if any) going to the borrower.

If the price of the property at the auction is less than the actual price stipulated by the court, then by legal means the court can refuse to ratify the sale to prevent the lender from profiteering from invalid or strategic foreclosures.

If the property is not sold during auction, then the lender will gain full ownership of the property and it will be sold accordingly under their own terms and agreement to pay off the debt owed to them by the borrower.

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