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Nonjudicial Foreclosures

If your loan is secured by a deed of trust—as is the custom in the states listed below—the foreclosure will probably be nonjudicial. This means a court will not oversee the procedure (except in a few states, where a judge signs off of the foreclosure). If, however, your loan is secured by a mortgage, the foreclosure will likely be judicial. See your state’s page for information about your possible right to choose a judicial foreclosure.

States Where Nonjudicial Foreclosure Is Customary

Alabama	New Hampshire
Alaska	New Mexico (sometimes)
Arizona (sometimes)	North Carolina
Arkansas	Oklahoma (unless homeowner requests judicial)
California
Colorado	Oregon
District of Columbia	Rhode Island
Georgia	South Dakota (unless homeowner requests judicial)
Idaho
Maryland	Tennessee
Massachusetts	Texas
Michigan	Utah
Minnesota	Vermont (sometimes)
Mississippi	Virginia
Missouri	Washington
Montana	West Virginia (sometimes)
Nevada	Wyoming

If your property is in one of these states, you most likely signed two core documents when you bought or refinanced it: a promissory note and a deed of trust. The deed of trust (when it was recorded in your county’s land records office) turned the promissory note into a debt secured by a lien (legal claim) on your home. The deed of trust also authorized the entity named as trustee in the deed of trust to foreclose on the property if you ever defaulted. The deed of trust typically allows the foreclosure to proceed outside of court, under state law.

Your state’s law sets out the specifics of the foreclosure procedure, including how much notice you get, how the property will be sold (typically at a public auction), and what rights (if any) you have to reinstate the loan before the foreclosure date or recover title to the property after it’s sold.

Time may be short. You have to be on your toes when a foreclosure looms in a nonjudicial state. That’s because you have very little notice of the foreclosure sale, and once it happens you may be permanently out of luck.

Here’s how a typical nonjudicial foreclosure might proceed.

When Jason and Emilia bought their home for $400,000 two years ago, it seemed like a great deal—but now it’s worth only about $350,000, less than they owe on their loan. Jason and Emilia live in California, where nonjudicial foreclosures are the norm. Like most California homebuyers, they signed a promissory note and a deed of trust when they bought.

The deed of trust authorizes the trustee (a California title insurance company) to “accelerate” the entire loan (declare the whole enchilada due immediately) and sell the property at a public auction if Jason and Emilia default on their monthly payments or fail to maintain the insurance and pay property taxes. However, California law requires the lender to first give the homeowner some time to get current on the loan—this is called reinstating the loan by making up the missed payments plus costs and interest. (See Ch. 1.)

After they miss three payments, Jason and Emilia receive (by certified mail) the mandatory Notice of Default. It gives them 90 days to reinstate the mortgage by making up the missed payments plus interest and costs. (In most nonjudicial foreclosure states, the notice of default gives homeowners from 15 to 90 days; a few provide up to 120 days, and a few provide only notice by publication.) Jason and Emilia don’t have the cash to make up the payments, and they are unable to work out a repayment plan with their lender. After the 90 days pass, they receive another document: a 21-day notice of intent to sell the property at an auction on the courthouse steps at a specific time.

At the auction, no one meets the minimum bid, and the property ends up with the lender. Because the lender doesn’t take immediate action to have Jason and Emilia evicted, they continue living there payment free for another six months, until the house is sold to a new owner who wants to take possession. The new owner first tries to negotiate a move-out date with Jason and Emilia, but that doesn’t work. So the owner follows the California eviction laws for taking possession from former homeowners, and serves Jason and Emilia with a 30-day “notice to quit."

Although Jason and Emilia are legally entitled to stay until the new owner goes to court and gets an eviction order (about a two-month process), they decide to move out to avoid having the eviction case on their credit record. Even so, Jason and Emilia have remained in their home for one year without making a payment, and have managed to save most of the money they would have paid for shelter during that period—which will make it easier for them to move out and find a new place to live. (See Ch. 9 for more on coming out of a foreclosure with some serious cash in your pocket.)