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Q.What is Foreclosure?
A.Foreclosure is the legal process by which a lender can legally repossess (take over) a property if the borrower falls behind on the monthly payments and cannot bring the loan current within a specified period of time. In California, the lender can use either judicial foreclosure (foreclosure by judicial sale) or non-judicial foreclosure (private sale) to repossess a property.
Judicial foreclosure is a legal process overseen by a court, and is typically only used when the lender wants the ability collect a deficiency judgment against the property owner. When the property is sold at auction, the proceeds are used to reduce the debt owed by the borrower to the lender, and the lender can seek a deficiency judgment for the balance owed. Judicial foreclosure is used less often because: (1) certain loans are subject to anti-deficiency protection which prevent the lender from seeking a deficiency judgment; and (2) when judicial foreclosure is used, the homeowner has the right of redemption for between 3 months a 1 year after the auction. Although most borrowers don't redeem the property, the possibility of redemption often results in a much lower auction price because the prospective buyer at the auction won't receive clear title.
Non-Judicial Foreclosure, which is much more prevalent in California, involves a private trustee sale. In California and other Deed of Trust states, when you take out a mortgage, the title to the property remains in trust until the borrower pays off the underlying loan in full. If the borrower defaults on the loan, the lender (trustee) has the right to foreclose using its power of sale. If the lender uses the non-judicial foreclosure method, the lender is prohibited from later seeking a deficiency judgment against the borrower.
Under both types of foreclosure, the sale proceeds go first to satisfy the mortgage, then to other lien holders, and if anything is left to the borrower.
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