Understand Foreclosure Laws

Foreclosure Laws

If you want to find a great deal on a property when home-buying, you need to first understand how foreclosure laws vary between states. For example, do you know the difference between judicial foreclosures and non-judicial foreclosures? The state's foreclosure process directly impacts how the home will be sold. Here we will help you navigate through foreclosure procedures so you can better find the home of your dreams.

Foreclosure Procedures by State

The first step to finding a great home is to conduct a foreclosure laws comparison. Pick a state and look up the foreclosure process under state law. Illinois, for example, is a judicial foreclosure state only. Like with other judicial foreclosure states, most contracts in Illinois are mortgages and go through the courts. In non-judicial foreclosure states, like Michigan, most contracts are deeds of trust, and the process avoids the courts.

Of the fifty states, 25 have both a non-judicial and judicial foreclosure process. Only four states - Michigan, New Hampshire, Tennessee, and West Virginia - do not require courts. Twenty states - such as California, Florida, New York, and New Jersey - are strictly mortgage states.

Only two states - Connecticut and Vermont - use strict foreclosure, which means the property goes back to the lender instead of an auction.

States also vary by right of redemption. This is the right of the borrower to pay off the default amount to keep the home, and involves a window of opportunity called the redemption period. Most states that have a right to redemption are non-judicial foreclosure states.

Now that you know that state laws differ, we can examine the two processes.

Judicial Foreclosure Process

Of the two foreclosure methods, judicial foreclosure is the most common and involves legal action conducted by the owner of the mortgage against the holder of the mortgage. Mortgages are contracts between a lender and the mortgagor (homeowner). If the homeowner does not pay the mortgage, a mortgage lien is placed on the home and the matter is taken to court.

The legal action begins with a notice of lis pendens filed with the local county government by the lender's attorney. This is a pending action that serves as a legal complaint. With a lawsuit pending, the property is in the pre-foreclosure stage. The owner can still sell the home or try for a deed in lieu of foreclosure with the lender. Barring this, the case is argued before a judge, who determines if the mortgage foreclosure sale is to proceed. Should a court action be ordered for the foreclosure, the home is sold at a public auction, commonly called a sheriff sale. Court decisions on eviction are based off of the circumstances of the case so each situation varies. Foreclosure lien priority (such as between the IRS and other creditors) is also established in the court.

Non-Judicial Foreclosure Process

In non-judicial foreclosure states, lenders act without a court's approval. This is because in these states, most transactions involve deeds of trust instead of mortgages. A deed of trust is between a lender, a borrower (or trustor), and a third party - the trustee. It includes a power of sale clause which gives the trustee the power to revoke the property. This out-of-court process is much faster than going through the courts.

The lender begins the process by sending a default letter to the borrower in default. After a certain period of time, a Notice of Sale - a sale publication issued to the borrower - is sent. This establishes the date of the sale at a public auction. As mentioned, non-judicial foreclosure is the faster of the two foreclosure methods.

How Foreclosure Laws Influence Foreclosure Sales

To go along with foreclosure laws, there are several types of foreclosures that you have available in your state.

Government foreclosures - such as HUD homes or VA homes - constitute one common type. Another, more common category is bank foreclosures, responsible for most of the listings you'll see.

One category that many people miss comes with pre-foreclosures, a category that is directly impacted by foreclosure laws. These include short sales (homes that are worth less than what is owed) and for sale by owner (FSBO) homes. In order to avoid foreclosure, homeowners facing foreclosure will often try to sell their home to buyers like you (or go through bankruptcy). The foreclosure timeline determined by your state's laws determines how long you have to find and buy a pre-foreclosure before it is lost to auction.

What to do Now?

Once you've identified the state law and local laws that apply to you, and know the foreclosure procedures of the state you're in, you can begin the exciting process of searching for bargains in the market. Whether you live in mortgage states or trust states, you can approach the home-buying process with efficiency, confidence, and understanding.

State Judicial Non-Judicial Process Period (Days) Sale Publication (Days) Redemption Period (Days) Sale/NTS
Alabama 49-74 21 365 Trustee
Alaska 105 65 365* Trustee
Arizona 90+ 41 30-180* Trustee
Arkansas 70 30 365* Trustee
California 117 21 365* Trustee
Colorado 145 60 None Trustee
Connecticut   62 NA Court Decides Court
Delaware   170-210 60-90 None Sheriff
District of Columbia   47 18 None Trustee
Florida   135 NA None Court
Georgia 37 32 None Trustee
Hawaii 220 60 None Trustee
Idaho 150 45 365 Trustee
Illinois   300 NA 90 Court
Indiana   261 120 None Sheriff
Iowa 160 30 20 Sheriff
Kansas   130 21 365 Sheriff
Kentucky   147 NA 365 Court
Lousiana   180 NA None Sheriff
Maine   240 30 90 Court
Maryland   46 30 Court Decides Court
Massachusetts   75 41 None Court
Michigan   60 30 30-365 Sheriff
Minnesota 90-100 7 180 Sheriff
Mississippi 90 30 None Trustee
Missouri 60 10 365 Trustee
Montana 150 50 None Trustee
Nebraska   142 NA None Sheriff
Nevada 116 80 None Trustee
New Hampshire   59 24 None Trustee
New Jersey   270 NA 10 Sheriff
New Mexico   180 NA 30-270 Court
New York   445 NA None Court
North Carolina 110 25 None Sheriff
North Dakota   150 NA 180-365 Sheriff
Ohio   217 NA None Sheriff
Oklahoma 186 NA None Sheriff
Oregon 150 30 180 Trustee
Pennsylvania   270 NA None Sheriff
Rhode Island 62 21 None Trustee
South Carolina   150 NA None Court
South Dakota 150 23 30-365 Sheriff
Tennessee   40-45 20-25 730 Trustee
Texas 27 NA None Trustee
Utah     142 NA Court Decides Trustee
Vermont   95 NA 180-365 Court
Virginia 45 14-28 None Trustee
Washington 135 90 None Trustee
West Virginia   60-90 30-60 None Trustee
Wisconsin 290 NA 365 Sheriff
Wyoming 60 25 90-365 Sheriff
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