Foreclosures

Question 1

Foreclosure is the legal process by which a note-holder enforces its rights under a mortgage to force the sale of real property when a borrower defaults.

The note-holder (often the lender) does this to recover the loan amount secured by the property.

Question 2

Judicial Foreclosure

Requires court involvement: complaint, hearing, and judgment.

Mandatory in some states, like New York.

Costlier and slower than nonjudicial foreclosure.

Allows lender to seek a deficiency judgment—the remaining loan balance plus penalties and fees if the sale doesn’t cover the full debt.

Used strategically when the borrower may have other assets to collect against.

Question 3

Nonjudicial Foreclosure (aka Foreclosure by Advertisement or Self-Help Foreclosure)

Common in many states where allowed by law.

Requires strict adherence to state-mandated steps, including:

Notifying the borrower.

Advertising the sale publicly.

Holding a public auction.

Allowing borrower time to match the winning bid or surrender the property.

If the sale doesn’t cover the debt, the lender cannot pursue a deficiency judgment.

Often, the lender is the only bidder and bids the loan balance to acquire the property for later resale in a better market.

If borrowers believe the foreclosure was improper, they can file a lawsuit to contest it (e.g., the Murphy case).