Foreclosure Investing: An Introduction to Judicial and Non-Judicial Foreclosures

When getting started in foreclosure investing, it is good to get to know the terminology. In this article, I am going to cover, judicial foreclosures, non-judicial foreclosures, deficiency judgments and the reinstatement period.

In states that use trust deeds, we have non-judicial foreclosures. What this means is that there is no need for a court ruling to complete a foreclosure. Instead the trust deed contains what is known as a power of sale clause. This clause permits the trustee to sell the property in the event of default without having to go through a judicial process. This is advantageous to lenders and not as good for debtors.

While in states that use mortgage contracts instead of trust deeds, lenders need to go through a judicial process to foreclose. In these states, the lender has to ask the court to start the foreclosure process and this takes a lot more time an effort than a non-judicial foreclosure. Obviously this benefits the borrower as it gives them more time to try to cure their default.

A deficiency judgment occurs when the foreclosure auction fails to bring in a bid that is high enough to pay off the lender completely. When this occurs the lender can ask the court to give them a deficiency judgment for the remainder that is still owed. This means that the borrower is still on the hook for paying this money despite having lost his home.

The time between when a default has occurred and the gavel falls on the foreclosure auction is called the reinstatement period. During this time the debt might be able to reinstate their loan if they are able to jump through all of the hoops set by the lender. Essentially, they will have to pay all amounts that are past due and all late fees and penalties. If they are able to do this, then they can exit the foreclosure process and get their loan reinstated.

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