Whether a borrower or lender, questions on foreclosure will inevitably arise. As a lender, foreclosure is most often the “second way out” – the manner of getting repaid if the borrower fails to continue to make scheduled repayments. Although the practical outcome of judicial and nonjudicial foreclosures are generally the same, the lender repossesses the property following non-payment by the borrower, the laws surrounding foreclosure and the process required varies significantly on a state-by-state basis and whether a judicial or nonjudicial foreclosure is pursued. Rhode Island allows both judicial and nonjudicial foreclosures, while Massachusetts allows only judicial foreclosures and Connecticut allows only nonjudicial foreclosures.
The primary difference between judicial and nonjudicial foreclosures is that judicial foreclosures require the involvement of the courts while nonjudicial foreclosures do not. Rather, nonjudicial foreclosures require the lender to follow a strict set of procedures to ensure a fair and appropriate foreclosure. Some states, like Rhode Island, allow both types of foreclosures depending on the specific lending documents entered into between the lender and borrower.
Judicial Foreclosure Process
In a judicial foreclosure, the lender will file a lawsuit in the local court. The borrower will receive a summons and a copy of the complaint. If the borrower challenges the foreclosure, then both sides will argue their case. Here, the lender will attempt to prove that the borrower is in default and foreclosure is a remedy, whereas the borrower will attempt to disprove this – arguing that they aren’t in default or that the lender doesn’t have the right to foreclose. If the court finds that the borrower defaulted and the lender has the right to foreclose, then a judgment is granted and the foreclosure sale ensues.
Nonjudicial Foreclosure Process
Unlike a judicial foreclosure, a nonjudicial foreclosure does not require the involvement of the court, and thus, no lawsuit is required to be filed. Depending on the state laws, the lender may be able to directly foreclose by sending the borrower a notice of default and notice of sale at the same time. The borrower can challenge the foreclosure by filing a lawsuit against the lender. If no challenge is raised or the court sides with the lender, the foreclosure sale will often quickly follow.
Foreclosure Lawyer in Rhode Island, Massachusetts and Connecticut
The practical differences between a judicial and nonjudicial foreclosure are cost and time. Because of the requirement for a lawsuit to be filed in a judicial foreclosure, costs are usually much higher. Similarly, because the foreclosure is subject to the judicial system, the process often takes significantly longer than in a nonjudicial foreclosure state where the foreclosure can occur right away (pending challenge by the borrower).
In either case, retaining an experienced real estate attorney is essential for a cost-efficient and timely resolution. State foreclosure laws are complex and if not strictly adhered to, will result in the wasting of significant cost and time. If you’re a real estate investor dealing with foreclosure or have foreclosure-related questions in Rhode Island, Massachusetts or Connecticut, please contact our office today to schedule a consultation.