Understanding the two types of foreclosure

| Aug 24, 2020 | Home Ownership

Foreclosure is a legal route lenders can use to repossess mortgaged properties as a way to recover the amount of a defaulted loan. During foreclosure, the lender takes ownership of and sells the home.

Lenders may use one of two types of foreclosure in Tennessee to foreclose on mortgages or deeds of trust in default.

Judicial foreclosure

Judicial foreclosures require a court order. A lender files a civil lawsuit against the borrower and serves him or her with a summons and complaint. The local court system takes care of the foreclosure process. The court gives the borrower a certain amount of time to pay the amount owed but if he or she does not make the payment by the deadline, then the court issues an order for the sale of the property. A court-appointed referee then conducts the foreclosure auction.

Generally, if the borrower cannot repay the loan in time or if no one raises any legal objections, the judicial foreclosure process will last four to eight months.

Nonjudicial foreclosure

The nonjudicial foreclosure process is also available in Tennessee and applies when the mortgage agreement or deed of trust includes a “power of sale” clause. This deed of trust gives a trustee the property to hold as security for repayment of the borrowed amount.

The trustee has the power to proceed with a foreclosure by recording a Notice of Default in with the local county clerk.

The NOD includes notice of foreclosure and the time the borrower has to repay the outstanding amount or object to the lender’s claim. A notice of sale must also appear in a local newspaper publication three times before the foreclosure auction.