Non-judicial foreclosure: a foreclosure executed without a court order when the mortgage contains a power of sale provision.
Non-judicial foreclosure: A non-judicial foreclosure is when banks are allowed to foreclose on property without a court order. It is usually only available for deeds of trust with power-of-sale clauses not traditional mortgages. Before the foreclosure sale, banks must give notice and wait for a specified period of time before auctioning off the property.
What to Expect in a Non-Judicial Foreclosure
A non-judicial foreclosure can be executed without a court order if the mortgage contract contains a power of sale clause.
After missing three or four mortgage payments, the bank will typically send a homeowner a breach or demand letter, informing them that they have 30 days to bring their mortgage current or they may face acceleration. Failure to pay the outstanding balancing can result in the bank demanding full payment.
When a mortgage account becomes 120 days past-due, the bank will typically initiate the foreclosure process by recording a notice of default at the county recorder’s office and sending the homeowner a copy. The bank will also publicize the non-judicial foreclosure in a local newspaper.
The notice of default will be followed by a notice of sale, which advises the homeowner that their property will be sold at a public auction. In a non-judicial foreclosure, the bank is allowed to credit bid at the auction up to the total amount of the debt, including foreclosure fees and costs. Other buyers are allowed to bid in cash or a cash equivalent, such as a cashier’s check. Ultimately, the property will go to the highest bidder, which oftentimes is the bank.
Some states allow for a redemption period after a non-judicial foreclosure sale during which the homeowner can redeem or buy back their home. Once sold, the property will be transferred to the new homeowner with a trustee’s deed, which allows the buyer to start the eviction process if the former homeowner does not vacate the premises.
Homeowners facing non-judicial foreclosure have several options to avoid foreclosure.
In Oregon, for example, the Department of Consumer & Business Services advises homeowners to consider several solutions, including:
The Making Home Affordable Program – “The federal Making Home Affordable Program includes programs for homeowners who occupy their houses and use them as their primary residence. The Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), the Home Affordable Foreclosure Alternative (HAFA), and other relief programs have other conditions homeowners must meet to qualify.”
The Home Equity Conversion Mortgage (HECM) – “For homeowners age 62 or older, another option may be a loan program called reverse mortgage. The most common is the Home Equity Conversion Mortgage (HECM), administered by the Federal Housing Administration. This type of loan, unlike a regular mortgage, does not have to be paid back unless the house is no longer occupied as the primary residence or is sold.”
The agency also advises homeowners to beware of scams when facing non-judicial foreclosure.
“Many scammers contact homeowners offering to “save” their house. Information about your property is public record and accessible by anyone. In addition to the information recorded with the county when you bought your house, notifications of default filed by the servicer or a lien holder, or if the house is subject to an auction or to be foreclosed, are all public record. Scammers can use this information to take advantage of homeowners in distress,” says the Oregon Department of Consumer & Business Services.