The Truth about Nonjudicial Foreclosures

With all the bad news in the media about the housing market and foreclosures, it might be helpful to know that there is a difference between a judicial foreclosure and a nonjudicial foreclosure.

In a nonjudicial foreclosure, know as a “trustee’s sale,” the trustee exercises the power of sale given by the deed of trusst. Nonjudicial foreclosure is cheaper and faster then judicial foreclsure because it does not have to be looked over by the court system. In addition no appraisal or judicial determination of fair value is required and the debtor has no postsale right of redemption. The creditor may not seek a deficiency judgment.

Further, if there is no irregularity in a nonjudicial foreclosure sale and the purchaser is a bona fide purchaser for value (defined as: one who pays a valuable consideration, has no notice of outstanding rights of others, and acts in good faith concerning the purchase) a large difference between the value of the property and the sales price is not grounds to set aside the sale.

If you choose a nonjudicial foreclosure and the lender chooses to bid, the lender does so in the capacity of a purchaser. The only distinction between the lender and any other bidder is that the lender is not required to pay cash, but is entitled to make a credit bid up to the amount of the outstanding indebtedness. The purpose of this entitlement is to avoid the inefficiency of requiring the lender to tender cash, which would only be immediately returned to it.

If you want more information check out ww.abanet.org/rppt/cmtes/rp/i4/ waldman-Uniform_Nonjudicial_Foreclosure_Act.pdf