The key difference between Judicial Foreclosures and Non-Judicial Foreclosures is involvement of the court.

In Judicial Foreclosures, the process is initiated when the lender (the bank) will file a complaint and then record a Lis Pendens against the property. Typically, the complain will state the debt and the reasons why the lender should be allowed to foreclose and take the property. At this time, the homeowner will be notified of this complaint. Next, the homeowner will have the opportunity to be heard before the court. If the court finds that the debt is valid, a judgment will be issued for the total amount owed, including the costs of the foreclosure. Typically, a sheriff's sale will be held after the judgment has been finalized. A sheriff's sale is an auction that is held in a public place where anyone can bid. Bidders must have cash or a substantial deposit that can be paid off within the same day or up to 30 days after the sale. The highest bidder will ultimately become the owner of the property, subject to the court's confirmation of the sale and when the deed has been recorded.

In Non-judicial foreclosures, there is no court involvement. Instead, when the deed of trust is signed, there is usually a provision called the power of sale clause. The Power of Sale Clause allows a trustee to sell the property in order to satisfy the underlying defaulted loan. A trustee serves as a representative of the lender to carry out the sale of the home (usually in the form of an auction). In many states, trustees are appointed by lenders, but in California, trustee companies play a huge role in managing foreclosure sales.

This isn't to say that judicial foreclosures do not occur in California. In fact, they are permitted and do occur when the loan documents do not mention any power of sale.

In terms of which process is more appealing to lenders, the absence of the court involvement make non-judicial foreclosures preferable. Since the courts are not involved, there are no court fees and lenders can take care of the foreclosure right away instead of waiting for the courts to process the complaints.

Labels: foreclosure, judicial, non-judicial, Real Estate