Types of Foreclosure
Arizona, California and Nevada permit two types of foreclosure proceed¬ings, non-judicial and judicial. The non-judicial foreclosure is the most common. Non-judicial means that the process is administered without court supervision, which greatly streamlines the foreclosure time line while still protecting the rights of the lender and the borrower.
Non-judicial foreclosures are enabled through the Deed of Trust, which contains a power of sale clause. The Deed of Trust is signed by the bor¬rower at the time the loan is given. The power of sale clause may identify the trustee, plus the time line and other terms of any foreclosure actions that might take place. The lender must proceed according to the strict procedures and time line of notifications and waiting periods, then may take back the home and sell it to recoup the debt. By electing the non-judicial procedure, the lender agrees that the sale of the home will completely fulfill all obligations of the debt.
Judicial foreclosure is a more complicated, expensive and time consum¬ing route toward the same end. The lender files for foreclosure in court and then records a notice of the pending lawsuit (lis pendens). After service of the lawsuit upon the parties named as defendants, those parties have an opportunity to answer. There will be a trial and at the conclusion of the trial the judgment for foreclosure will be issued. Then the judicial sale process begins. The auction proceeds are used to reduce the debt and pay off penalties, costs and attorney fees, but in specific situations, the lender may also ask for a deficiency judgment against the borrower, which means that if the auction did not cover the amount owed plus all the associated costs, then the lender can pursue the borrower for the additional amount. Sometimes a judicial foreclosure allows a right of redemption period in which the borrower is allowed to buy the property back from the successful bidder, often up to one year following the sale (six months in Arizona). In Nevada, however, there is no redemption period; after the auction, it is over.
Whether the lender chooses to foreclose under non-judicial or judicial proceedings, in most states it is an “either-or” situation in which only one action may be taken for the recovery of any debt or enforcement of any right secured by a mortgage or other lien upon real estate.
