Distinctions of nonjudicial and judicial foreclosures

A: The simple answer is that in one type of foreclosure, you have to go to court and get a judicial order authorizing the foreclosure, and in the other, a private auction company, or even the local sheriff, can conduct the sale.

When someone buys property — be it a condo, co-op or private home, or even commercial property — they sign a large number of documents. The most important one for the lender are the promissory note (stating how much a person owes) and the deed of trust (or mortgage). A deed of trust conveys the property — in trust — to a third party trustee who, if there is a default, has the authority to sell the property at an auction.

The law differs from state to state. Some states allow lenders to opt for either remedy; some only allow judicial foreclosure. For example, I believe that Illinois allows only judicial foreclosures, while California allows both. You can type “does (my state) allow non-judicial foreclosures” online to get a response.

Interestingly, those states that only allow judicial foreclosures use a mortgage document, while those states allowing nonjudicial typically use deeds of trust.

In both situations, however, there are strict procedures to follow. The borrower must be given notice and ample time to cure the default. The lender must have real proof that notice was sent. An announcement of the pending foreclosure must be placed in a local newspaper of general circulation and run for a set number of days and weeks.

There is one significant difference between the two types of foreclosure. A nonjudicial sale will take between three and five months; a judicial sale can take years. That is why most lenders prefer the nonjudicial and lobby the legislatures on that issue. Consumer advocates, on the other hand, obviously prefer the judicial.

I can offer only general information. You should consult a real estate attorney. You will also need to run a title search to determine who else has a claim against the property. If you are in first trust position, you should be able to collect. But the IRS — and many condo associations — have liens that may take priority over your loan.