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Judicial Foreclosure Action

DEFINITION

Legal proceeding whereby the lender, trustee, lien holder, or mortgagee requests for the court to execute the sale of the debtor’s real property to recover an unpaid debt, most commonly a mortgage.

EXPLANATION

There are two kinds of foreclosure proceedings: judicial foreclosure and nonjudicial foreclosure. Although both lead to the forfeiture of a non-paying debtor’s property, a Judicial foreclosure is one that requires court approval prior to the execution of the foreclosure. For this reason, a judicial foreclosure will typically take longer to execute. Under a judicial foreclosure, the courts will order the property to be sold to the highest bidder. In the event the property is not sold, the court may order the property to be auctioned later or put on the open market as an R.E.O.

Once the bidder is awarded, the bidder must pay $5,000 towards the purchase. Because the process of administering a foreclosure is costly and time consuming, the court will always require a deposit for the purchase.   Should the winning bidder not have the funds to purchase the property within the 10-day period, the bidder will forfeit his or her right to the deposit and the property at which point the property will likely be auctioned again. Once the winning bidder pays the full amount, the commissioner or sheriff will award him or her with a certificate of sale. This certificate will then be recorded with the county recorder’s office.

Judicial Foreclosure Process

Once the property is sold after foreclosure, the first lien holder (usually bank) will first be entitled to the proceeds from the sale. The difference between the sale amount and loan amount will then be awarded to junior lien holders (second or third mortgage holders). A deficiency judgment may be placed on the original mortgagor.

As stated, judicial foreclosures involve the foreclosure process going to a court.

If the loan was a trust deed and did not include the power of sale provision, the lender could foreclose using a judicial foreclosure. This occurs when the borrower defaults on debt obligations and the lender sues for the amount owed.

When a Foreclosure Can be Rescinded

In California, a borrower cannot appeal a court’s decision to foreclosure unless the borrower has evidence indicating the lender made errors producing or servicing the loan or if the lender made errors during the foreclosure process.

Common errors that the borrower could cite are:

Foreclosure took place based on factually incorrect information

Foreclosing party didn’t follow the required legal steps to foreclose

The lender engaged in unfair lending and/or servicing practices that violate state or federal law

Foreclosing party is the junior lien holder and does hold senior interest in the property

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