Foreclosure is the process wherein a lender sells the real estate property of a buyer, who has defaulted on the loan, in order to recoup their money. The foreclosure process differ from one state to another. There are two types of foreclosures, judicial and non-judicial.

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Judicial foreclosure takes place as a result of a court proceeding wherein a lender sues the borrower for possession of the property to satisfy the unpaid loan. Primarily, a mortgage is the loan instrument that allows a judicial foreclosure. While a deed of trust is designed to facilitate a non-judicial foreclosure, lender may choose to foreclose a trust deed in a judicial process in order to obtain a deficiency judgment.

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Non-judicial foreclosure or trustee’s sale takes place when the trustee, a neutral party acting on behalf of the lender, initiates a foreclosure after the lender informs the trustee that the borrower has defaulted on the loan. Primarily, a deed of trust is the loan instrument that has a “power of sale” clause that allows a non-judicial foreclosure or a trustee’s sale. For a mortgage to be foreclosed in a non-judicial process, the mortgage instrument needs to contain a “power of sale” clause wherein the lender can foreclose without going to court.

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Deficiency Judgement is the legal action sought by the lender to make claim against the borrower when the proceeds on sale of foreclosed property are not sufficient to cover loan(s) and accrued interest. Private mortgage insurance may help in paying the shortfall and may avoid deficiency judgement. Please check to see if deficiency judgement is legal in your state.

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