Fighting a Nonjudicial Foreclosure

A nonjudicial foreclosure occurs when a lender in not using traditional means of foreclosing (judicial) and enters into an agreement directly with the homeowner. The non-judicial term is frequently associated more with commercial real estate than residential. A non-judicial foreclosure differs from a judicial foreclosure in that a non-judicial foreclosure notice does not have to be filed in a courtroom. If homeowners attempt to correct the problem by filing a lawsuit, the lending company has the right to challenge the homeowners claim.

When a home owner fails to make payments on a mortgage loan they are often sent a notice of default. If the borrower doesn't respond the lender then proceeds to repossess the property under the Power of Sale clause of the mortgage. If the borrower contests the repossession, the lending company can enter into what is called a default and pursue judicial foreclosure. When a bank uses this method to repossess a home under the Power of Sale clause of a mortgage the borrower may have the option of a non-judicial or judicial foreclosure.

A nonjudicial foreclosure process may be more difficult for borrowers because it does not involve the opportunity for a trial. Instead the bank files a default and then attempts to sell the home without going to court. In many states the lender must prove that the borrower is in default based upon their proof of financial records. Some states also require the lender to submit additional financial documents.

There are some differences between judicial and non judicial foreclosure. One difference is that borrowers do not have a preliminary hearing before a judge before a non-judicial foreclosure is enacted. In a case where a bank goes to court to attempt to take a property through a court, the borrowers are given a chance to participate in the lawsuit. If the lawsuit is lost the bank does not lose any time and can continue with the foreclosure process.

Borrowers who participate in court proceedings have an opportunity to present evidence in their defense. In many cases they are able to show that the foreclosure was done in error. This evidence will be considered by the judge when determining whether or not the lender should pay the mortgage note. Sometimes the bank is required to reimburse the borrowers for their expenses and any court costs that have been expended.

For borrowers who are unable to participate in the foreclosure process, the Power of Sale clause of the mortgage gives the lender the right to sell the house at auction. The proceeds from the sale go to the lender. The auction begins at the foreclosure process. If the proceeds are insufficient to pay the debt, the foreclosure will continue until all the money has been received.

In many states borrowers who are unable to stop the foreclosure can avoid the trauma of losing the home by contacting the local sheriff's department. sheriffs departments often have pre-eminent rights with respect to foreclosures and can prevent non judicial foreclosure by intervening. Some sheriffs' departments even offer financial assistance to borrowers who qualify for government mortgage assistance. If the homeowners are unable to prevent the foreclosure, the sheriff's department can make arrangements with other financial institutions to try to retrieve some of the money lost during the foreclosure process.

Borrowers should also be aware that although the Power of Sale clause gives the lenders the right to take possession of a property at any time, they only do so if they are lawfully able to do so. Unfortunately this is seldom the case. Borrowers may believe that the Power of Sale clause will give them the right to stop foreclosure and negotiate a repayment plan. This is simply not true. If homeowners believe that they have fallen behind in their payments, the lender will not negotiate because they know that the only way that they will get the money is through a full and final payment.