Which States Use Judicial Foreclosure? Which Use Power of Sale?
Judicial Foreclosure and Power of Sale By State
When it comes to home foreclosures, some states allow lenders to sell a home without going through the court system using a provision in a mortgage called “power of sale.” States which don’t allow power of sale force lenders to attempt a judicial foreclosure in order to repossess and eventually sell the property.
States That Only Allow Judicial Foreclosure
Currently, 22 states in the U.S. only allow banks to attempt judicial foreclosures, including Arkansas, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, Virginia, and Wisconsin.
States That Allow Power of Sale
Right now, 28 states and the District of Columbia allow power of sale, including: Alabama, Alaska, Arizona, California, Colorado, Georgia, Hawaii, Idaho, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming.
How Power of Sale Actually Works
While every state that allows it has slightly different rules when it comes to power of sale, a few things are usually necessary for it to occur, including:
The borrower has defaulted by failing to make payments
The lender must provide limited notice of the foreclosure
After a specific period of time, a third party trustee can sell the home at a foreclosure sale
Power of Sale Has Some Benefits for Foreclosed Homeowners
Power of sale is typically a bad thing for homeowners since it limits the amount of time they have before a foreclosure sale occurs. However, it can still have a few upsides. For example, some states prohibit lenders from seeking out a deficiency judgment if power of sale foreclosure is used. When the proceeds from a foreclosure sale cannot fully cover the amount of the outstanding loan, the remainder is called the deficiency. Deficiency judgments are personal legal judgments allowed in some states that allow a lender to go after a borrower for the amount of that deficiency. In addition, in states with power of sale, borrowers can still seek judicial review of the foreclosure, but it will require the borrower to file a lawsuit against the lender.
Statutory Redemption Laws Exist in Some States
If your home has been sold in a foreclosure sale (whether via power of sale or judicial foreclosure), about half of states allow for something called statutory redemption -- a period of time in which the borrower can reclaim their home if they are able to pay the full price of the home as it was sold in the foreclosure sale. This time usually varies from six months to one year, and typically, the homeowner can stay on the property during this period.