What Are the Steps in a Non-Judicial Foreclosure Procedure?

In a non-judicial foreclosure, a trustee sells your home at a public auction without a lawsuit, using the power-of-sale clause in your deed of trust. The steps are a notice of default, a notice of sale that is recorded, mailed, posted, and often published, and then the auction, and state law sets how far apart they must be: at least 21 days of sale notice in Texas, 90 days in Arizona, and 120 days for a home loan on a property of up to four units in Washington. You can usually stop the sale by catching up on the missed payments and fees before a state deadline, but in states such as Texas, Arizona, and Washington no judge reviews the case unless you file your own lawsuit.

How does a power-of-sale foreclosure work?

A deed of trust is the document that secures your loan in many states. It names a trustee, a neutral party who holds the right to sell the home if you default, and its power-of-sale clause lets the trustee hold the sale after the notices state law requires.

Federal servicing rules apply first. Your servicer, the company that collects your payments, cannot make the first notice or filing that starts the foreclosure until your loan is more than 120 days delinquent. That is the first document state law requires to be recorded or published, or, if none is, the first one that sets a sale date. Letters mailed only to you, such as a notice of default that does not set a sale date, can arrive earlier. The pre-foreclosure steps cover the letters and calls during those months.

What are the steps?

1. Pre-default contact, in some states. Washington requires the lender to contact you by letter and phone before a notice of default on a home loan of up to four units. It cannot issue the notice of default until 30 days after those attempts if you do not respond, or 90 days after first contact if you respond within the 30 days the letter gives you.
2. Notice of default. This notice states what you owe and how to cure it. In Texas, the servicer must send it by certified mail and give you at least 20 days to cure before the sale can be noticed. In Washington, it must go out at least 30 days before the notice of sale.
3. Notice of sale. The trustee sets the date and place and gives public notice:

• Texas: at least 21 days before the sale, posted at the county courthouse door, filed with the county clerk, and mailed to you by certified mail. Sales happen between 10 a.m. and 4 p.m. on the first Tuesday of the month.
• Arizona: recorded with the county recorder, with the sale no sooner than the 91st day after recording, posted on the property and at the courthouse at least 20 days before the sale, and published once a week for 4 weeks.
• Washington: recorded, mailed, and posted on the property at least 120 days before the sale for a home loan of up to four units (90 days for other deeds of trust).

1. Auction. The trustee sells to the highest bidder. The lender can bid with the debt you owe instead of cash (a credit bid), and it becomes the owner if no one bids more. In Arizona, the winning bidder must pay by 5 p.m. the next business day, and the trustee must send the trustee's deed for recording within 7 business days after payment.
2. After the sale. The trustee's deed transfers the home to the buyer. If the sale price is less than you owed, the lender may be able to seek the shortfall, called a deficiency. In Texas, it must sue for it within 2 years, and you can ask the court to credit you with the home's fair market value if that is higher than the sale price.

A few states let you buy the home back for a period after the sale. How redemption works covers which ones and the cost.

How long do you have to reinstate before the sale?

Reinstating means paying the missed payments, late charges, and the trustee's costs so the foreclosure stops and your loan continues as if you had not defaulted. You do not have to pay off the whole loan. State deadlines differ:

In Arizona, the trustee must give you the exact reinstatement amount within 5 business days of a written request made after the notice of sale is recorded. Ask early, because that request does not extend the deadline.

Your servicer may also postpone the sale while it reviews you for help. If it receives a complete loss mitigation application (a request for help such as a loan modification, with every document the servicer asks for) more than 37 days before the sale, federal rules bar it from holding the sale until it finds you ineligible for every option and any appeal is over, you turn down every offer, or you stop making payments under an option you accepted.

How do you challenge a non-judicial foreclosure?

In Texas, Arizona, and Washington, no court is involved, so you have to start a lawsuit yourself and ask a judge to stop the sale. North Carolina is one exception: before a power-of-sale foreclosure can go ahead, the clerk of superior court holds a hearing, you have the right to appear and contest the evidence, and the clerk must find a valid debt held by the party foreclosing, a default, a right to foreclose, and proper notice. Arizona shows how strict this can be: you waive every defense and objection to the sale unless you get a court order stopping it by 5 p.m. on the last business day before the sale, and the notice of sale has to tell you so in bold capital letters. Valid grounds depend on state law, such as a required notice that was never sent or a claimed default that did not happen.

Before suing, ask about these options:

• Mediation. In Washington, a housing counselor or attorney can refer you to the state's foreclosure mediation program any time after the notice of default and up to 90 days before the sale date.
• Counseling. A HUD-approved housing counselor can help you work with your lender and, in Washington, make the mediation referral; the Consumer Financial Protection Bureau lists them through its Find a Counselor tool and the HOPE Hotline, (888) 995-4673.
• Alternatives. A modification, short sale, or deed in lieu can end the process before the auction. Alternatives to foreclosure compares them.

How is this different from a judicial foreclosure?

In a judicial foreclosure, the lender sues you, you get a deadline to answer, and a judge must rule before the sale, which adds court time. A non-judicial sale can move from notice of sale to auction in the minimum periods above if you do nothing. Whether your loan can be foreclosed without a court depends on your state and whether your loan documents include a power of sale; how foreclosure works covers both processes.