Identifying the Foreclosure Process in Your Area

The end result of foreclosure is that the homeowners lose ownership and ultimately lose possession of their property. That’s true no matter where you’re buying foreclosure properties. However, different states and counties follow different foreclosure procedures. The two main procedures are:

• Foreclosure by trustee sale or foreclosure by advertisement
• Foreclosure by judicial sale or judicial foreclosure

The following sections describe these two types of foreclosure. To find out which process your state follows, check the appendix at the back of this book. Counties may also have their own local rules for how the sale is actually carried out, so visit your county courthouse (the Register of Deeds office), and ask them to explain the rules and regulations. I also recommend that you sit in on a few auctions before bidding on anything.

Foreclosure by trustee sale
A few more than half the states follow the trustee style route. When the homeowners purchase a property in one of these states, the county issues a sheriff’s deed that the trustee (which may be the sheriff in some areas) holds in trust until the mortgage is paid in full. After paying off the mortgage, the trustee releases the deed to the homeowners.
If the homeowners default on the payment, the lender can notify the trustee to initiate foreclosure proceedings. The trustee can then sell the property and transfer proceeds to the lender as payment of the loan. Because the foreclosure does not need to progress through the courts, foreclosure by trustee sale is typically much faster than foreclosure by judicial sale.

Foreclosure by judicial sale
Fewer than half the states follow a judicial foreclosure process. As you’ve probably guessed, judicial foreclosure passes through the justice system —the state (circuit court) or district court. When the homeowners default on their mortgage, the lender files a claim to recover the unpaid balance of the loan from the borrowers. The courts decide the case, which typically takes a long time to resolve — typically 4 to 6 months, but sometimes up to a year. During this time, unless the homeowners work out a payment plan or some other solution with the lender, they’re almost guaranteed to lose their home.