How Foreclosure Works in Nonjudicial States

In nonjudicial foreclosure states, lenders can put a home in foreclosure to be auctioned without going to court. Borrowers have to bring a lawsuit against the bank to have the process stopped in court. States that have a nonjudicial foreclosure process typically use deeds of trust to show a lien on a home. In a few small cases, mortgages may be used that contain a specific Power of Sale clause. But in the majority of states that used nonjudicial foreclosure, deeds of trust are used instead of mortgages.

Deeds of trust act very similar to mortgages in that they record a lien against a property when homeowners take out a loan to purchase a home. However, they contain what is known as a Power of Sale clause, which gives the lender the right to sell the house if the loan goes into default.

The deed of trust will typically include the exact terms that must be met for the homeowners to be in default. It also describes exactly when and where the trustee's sale of the property will take place, if necessary. Homeowners who are facing foreclosure can learn a lot of the procedures the mortgage company will use to take the home back just by reading the original loan documents.

The state foreclosure laws in nonjudicial states also determine, to a great extent, how the foreclosure itself will proceed. Numerous notices may have to be given to the homeowners, posted on the house, posted on the courthouse itself, posted in other public gathering areas, and published in local newspapers.

Names of the notices may differ by state: notice of default, notice of sale, notice of intent to foreclose and sell, among many others. But the state laws will dictate how the homeowners must be notified of the impending sale of the home. This is extremely useful information for borrowers to pay attention to, as any deviations the trustee or lender take from the law can result in the entire process being overturned. If this happens, the bank has to begin the foreclosure all over again from the very start.

In nonjudicial foreclosure states, there will be no foreclosure lawsuit, and the owners will have no opportunity to defend against the charge of breach of contract of the deed of trust. The bank simply declares the owners to be in default and proceeds to have the trustee of the deed of trust send out notice requirements as required by law until it is able to have the house auctioned off.

To defend against an unjust foreclosure or to postpone it in court, homeowners will have to bring their own lawsuit against the bank. And then, the burden of proof is on the borrowers to show why the foreclosure should not be allowed to move ahead. This process also costs homeowners more money than in judicial states because they will be responsible for filing fees and potentially posting a bond with the courts.

In fact, the borrowers may have to post a bond of several thousand dollars to get a restraining order against the bank. But the three orders that the owners must get from the court to successfully defend nonjudicial foreclosure are a Temporary Restraining Order, a Preliminary Injunction, and a Permanent Injunction.

The Temporary Restraining Order will bar the lender from selling the home until the courts have determined whether the owners have a case or not. The preliminary injunction prevents the bank from going forward with the foreclosure until the case has been heard by the court. And a permanent injunction bars the lender from taking the house back at all.

Many real estate professionals feel that this type of foreclosure is supremely unfair, in that borrowers are given no chance to defend against a foreclosure that may have been initiated improperly. In a pile of complicated loan documents, they give up their right to a day in court and due process in the case of foreclosure. This is one more reason borrowers should learn about their rights in foreclosure and which exact laws and procedures the bank must follow to take the property through foreclosure.
Nick publishes articles on the ForeclosureFish website to provide foreclosure help and information to homeowners in need of assistance. The site describes numerous ways to save a home, including deed in lieu, filing bankruptcy, short sales, fighting foreclosure in court, and more. Visit the site for an e-book explaining the basics of foreclosure and how to stop the process: http://www.foreclosurefish.com/