A foreclosure is a process by which a lender takes away a mortgaged property when the borrower defaults on loan payments. There are two principal processes used for foreclosure in the United States: judicial and nonjudicial. It is in the judicial process that a final judgment is issued.
Where the Judicial Process is Used
State law in about half the states requires lenders to use a judicial foreclosure process. In a few states the law requires lenders use a nonjudicial process and in about 20 states lenders are permitted to choose between the two processes. Because the judicial process is cumbersome and expensive, generally lenders only use this process in states in which it is required.
The Judicial Process
The judicial process begins with the lender filing a lawsuit against the borrower for his failure to live up to the terms to repay the loan. The lender or lender's representative serves a copy of the complaint and a summons on the borrower. The borrower is permitted a short period of time to respond, or answer, the complaint. If he does not respond, the lender may ask the court for a shortened process leading directly to a judgment against the borrower. If the borrower does respond, the court schedules a hearing on the matter, at which time the borrower can challenge the complaint or ask for more time before the foreclosure is granted. When the judge issues a decision, if it is favorable to the lender, it is called a judgment.
The Final Judgment
The final judgment is the written determination of the foreclosure lawsuit by the presiding judge. It is issued at the end of the lawsuit, assuming the foreclosure is granted, and effectively ends the case. The party against whom the final judgment is made may appeal the decision to a higher court.
After the Judgment
After the judgment is entered, in most states the property is scheduled for sale at auction. In a few states, such as Connecticut, the judge can order the property title be transferred to the lender without a sale if the property value is less than the balance of the loan. At auction, the property is sold to the highest bidder. In most states the lender puts in a bid at the amount of the loan, such that when the property value is more than the loan the lender usually ends up as the property's new owner.