In a judicial proceeding, a lawsuit is commenced by the lender. Copies of the paperwork must be sent to the borrower and any junior lien holder. The lender must prove that the borrower is in default. The borrower is given an opportunity to respond to the action by answering the lis pendens action (pending action) or requesting that it be dismissed.
If the court finds that there is cause for a foreclosure action, the court will issue an order setting forth the terms and the conditions of the sale. Majority of judicial foreclosures are conducted at the courthouse steps by either the sheriff or auctioneer. After the sale, the court must approve the terms. In some states, prior to the court approval, there is a statutory redemption period in which the buyer may cure the default by paying the amount owed to the lender as well as any other fees incurred and acquire back the ownership to the property. If the borrower does not redeem the property, then the new buyer is issued a certificate of title. Judicial foreclosure processes are lengthy and can take anywhere from six months to one year.
Due to current market conditions, judicial process foreclosures are better choices for lenders because they can also file what is called a deficiency judgment against the former owner to recover the deficiency amount from the sale and what was owed on the loan balance plus fees and costs. Although in practice, this rarely happens.
Bidding Process
Properties purchased at judicial foreclosure sales are usually purchased for cash. The auctioneer will request to see your cashier’s check prior to making a bid. Typically at least a 10% deposit of the purchase price is required. Rules vary from state to state. The property is then sold to the highest bidder. After the sale, the new buyer may be required to pay the entire purchase price. Again, depending on what state the sale is conducted in, some states will allow payments arrangements such as paying the balance within 30 days.
How to Find out About Judicial Auctions
Notices of sales are recorded in the county where the property is located, and the information can be obtained from the local county recorder’s office. There are also online websites that will give you this information. The notices are also posted at the local courthouse advising the date and time of the auction sales. The local newspaper should also have the information.
Foreclosure Auctions
Properties are sold in as is condition on the courthouse steps. There is not much opportunity to have an inspection. These types of properties are difficult to get title insurance on as well.
REO’s
If the property does not sell at the judicial foreclosure auction, it then becomes a bank-owned REO. With REO’s you do have the opportunity to inspect the property and obtain title insurance because by the time the bank puts the property on the market it has already cleaned up any title matters.
Trustee Sales
Real property sold at trustee sales is sold in an “as is” condition and usually for cash. Laws vary from state to state, so it is best to check your state rules first.
How the Trustee Sale Process Works
The process starts once the property goes into foreclosure. The lender records a notice of trustee sale with the County Recorder’s office and sends a copy of the notice to all interested parties on the deed. A copy of the notice is then placed on the property and usually at the courthouse or a public place where the auction will take place. By law, the notice must be published in a newspaper of general circulation in the county where the property is located usually for four consecutive weeks. All properties are issued a trustee sale number. In order to find information and track the property, you will need this number. No information other than the date, time and place of the sale or postponed dates are given out to the public.
Property Liens
Properties that have IRS tax liens or other claims require additional procedures that lenders must take. Bankruptcy properties are under the jurisdiction of the bankruptcy court and cannot be sold at auction until the court so orders. Since there are no real estate commissions paid at trustee foreclosure auctions, no real estate agents are involved.
Generally, no inspections of the property are allowed prior to the sale. There are no guarantees of clear title either, and you cannot get title insurance. If there is a tenant on the property, the new owner is responsible for evicting the tenant. With regard to condo or townhouse properties, lenders are not required to provide the new buyer with any condo or townhouse association documentation either.
Redemption Periods
Keep in mind that even though properties are bought at foreclosure auctions, the buyer may not have a claim if the original foreclosed owner repays the past-due amounts to the lender within the statutory redemption period and regains ownership. Buyers should always consult with their attorney or check the redemption laws in their particular state first. Otherwise buyers could be out any costs and may have absolutely no legitimate ownership claim to the property.
Day of the Auction
Most auctions are held on the courthouse steps and conducted either by the trustee or the sheriff. Typically before the auction starts or before auctioning each property, the auctioneer will inquire who is qualified to bid on the property. In order to qualify, bidders will have to show a cashier’s check to the auctioneer. Each state has different trustee sale rules and regulations. Generally, though bidders will need to bring a cashier’s check of at least 10% of the purchase price. Some states require the buyer to pay for the entire property after the sale if you are the successful bidder. Check your state local rules.
Bidding
The auctioneer will start the bidding process. Final bids are generally accepted after the third call. Bidders may want to discuss the bidding process with an attorney first. It is smart to bid the deficiency amount only so as not to get stuck paying the bank’s attorney fees and costs. Most of the times lenders usually do not accept bids for less than the amounts owed on the loan anyway, and the properties become bank owned (REO’s).
However, if there is a successful bidder who pays for the entire purchase price in full at the end of the sale, the trustee will either give the new buyer the deed to record or some kind of proof that the deed is the buyer’s name which the trustee will record. It takes about two weeks to get proof of the recording from the County Recorder’s Office.
- If you are facing a foreclosure, consult with a foreclosure attorney in your area to discuss your case and your options.
