In the world of foreclosures there are actually two types, judicial foreclosures and non-judicial foreclosures. Interestingly enough, each state in the US handles foreclosures differently having different rules and different time frames for each process. However, each of them have some type of judicial foreclosure which is explained in general terms below.
The big difference between judicial and non-judicial foreclosures is that the judicial foreclosure goes through the courts. It starts with the lender filing a notice of Lis Pendens along with a complaint. The complaint holds all the information about your impending foreclosure. In it is stated the debt owed and the intention of the lender to seize the property is security for the debt.
In effect, the lender is stating to the court that they loaned you money for the property and you agreed to pay a certain amount each month to repay the loan. Once you become arrears in those payments the lender will start this process. The number of months can vary depending on what state the property is in.
The homeowner will be served notice of this complaint. Typically it is mailed to you and sometimes it as sent is a certified letter. Depending on the laws of the state, however, it may only be published in the newspaper.
As a homeowner, you will have your day in court with a judge who will hear both sides of the story. It will then be decided whether the debt is valid or not. If it is there will most likely be a judgment for the total amount you owe in addition to the cost of the foreclosure proceedings. Once his judgment is recorded, the court will issue a writ that authorizes the sale of the property in what is called a sheriff's sale.
The sheriff's sale is just a fancy term for an open auction. Typically, the property will be advertised in the paper with the date of the auction publicly stated. At this point, anyone can go on the auction day and bid on the property. In some places, this auction might be held on the courthouse steps but in most states is held right on the property itself.
If someone wants to bid on the property, they usually have to have a certain amount of cash as a down payment and then be able to provide the rest of the money within a reasonable amount of time - usually about 30 days. Once again, each state is different and this might not be the case everywhere.
Once the court has confirmed the sale, a sheriff's deed will be prepared for the highest bidder who is now the new owner of the property. While you might think that this gets you out of your debt to the bank, it usually does not. You may still owe the difference between the amount the house sold for and the amount you owe if the owed amount is greater.
