Foreclosure: How It Works

Two pieces of paper

A home loan usually involves two documents. The promissory note is the borrower’s promise to repay. The mortgage or deed of trust is the security instrument that gives the lender an interest in the property to secure that promise.

Who may enforce the note, and who holds the security instrument, are central questions in many foreclosure cases.

Judicial and nonjudicial foreclosure

Judicial foreclosure happens through a lawsuit: the lender files a complaint in court, the borrower can respond, and a judge must enter a judgment before a sale. Nonjudicial foreclosure (also called foreclosure by power of sale) happens outside court under a power-of-sale clause in the mortgage or deed of trust, following the notice and sale procedures set by state statute.

Some states use mainly one method, and some allow both. See foreclosure by state.

Federal rules that apply before foreclosure

Federal mortgage servicing rules apply in addition to state law for most residential mortgage loans. See federal pre-foreclosure protections.

After the sale

Depending on state law, the borrower may have a right to redeem the property after the sale, the lender may or may not be able to seek a deficiency judgment for any shortfall, and the buyer may need a separate eviction or possession proceeding. These rules vary widely by state.

Key questions to research in your state

• Is foreclosure in your state judicial, nonjudicial, or both — and which method was used?
• What notices does the state statute require, and when?
• Is there a right of redemption, and for how long?
• Are deficiency judgments allowed?
• What mediation or foreclosure-prevention programs does your state or county offer?

Researching how foreclosure works in your state

First, find the statute or rule that governs how foreclosure works where you live. State law controls most of these questions, so the answer can change from one state to the next. Next, read recent decisions from the appellate courts in your state. They show how judges apply the law today. Also, check the local rules of the court that would hear your case. Our state procedures guide links to each state’s official rules. In addition, the Research Center explains how to confirm a source is still good law.

Sources and further reading

Official sources used on this page:

• Current federal rules of practice and procedure (uscourts.gov)

Related reading on Lawtopolis:

• Judicial Foreclosure
• Nonjudicial Foreclosure (Power of Sale)
• Federal Pre-Foreclosure Protections (Regulation X)
• Foreclosure by State
• Standing