What is Statutory Foreclosure?
Statutory foreclosure, also known as non-judicial foreclosure, is a lender-initiated process that permits the lender to repossess and sell a borrower’s property without court involvement. This form of foreclosure is governed by state statutes and often utilized when deeds of trust are the instruments securing the mortgage loan. Under statutory foreclosure, a trustee—assigned in the mortgage contract—carries out the foreclosure process in compliance with relevant state laws and the terms outlined in the mortgage agreement.
Examples
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California: In California, non-judicial foreclosure is the most common method. Here, the lender (via the trustee) uses statutory procedures outlined in the state’s Civil Code to conduct foreclosure auctions without court oversight.
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Texas: In Texas, a deed of trust includes a power-of-sale clause, allowing a trustee to sell the property if the borrower defaults. The process requires notice of sale to be given according to state laws, but it doesn’t require court supervision.
Frequently Asked Questions (FAQs)
Q: How is statutory foreclosure different from judicial foreclosure? A: Statutory foreclosure does not involve court proceedings, thus it is typically quicker and less expensive than judicial foreclosure, which requires court intervention and approval throughout the process.
Q: What states use statutory foreclosure? A: States like California, Texas, Georgia, and Nevada use statutory foreclosure processes due to their reliance on deeds of trust with built-in power-of-sale clauses.
Q: What is a power-of-sale clause? A: This is a clause within a mortgage document or deed of trust that permits the lender or trustee to sell the property upon borrower default, without having to go through court.
Q: What are the basic steps in statutory foreclosure? A: The basic steps include filing a notice of default, providing an opportunity for the borrower to cure the default, issuing a notice of sale, and conducting the public auction.
Q: Can a borrower stop a statutory foreclosure? A: Yes, borrowers can stop a statutory foreclosure by paying off the default amount, renegotiating the terms of the loan, or filing for bankruptcy before the sale.
Related Terms with Definitions
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Judicial Foreclosure: A foreclosure process requiring court intervention where the lender sues the borrower in court to initiate foreclosure.
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Deed of Trust: A legal instrument in real estate that transfers title in real property to a trustee, who holds it as security for a loan (debt) between a borrower and lender.
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Power-of-Sale Clause: A clause in a mortgage/deed of trust that permits the lender or trustee to sell the property to recover the loan amount without court proceedings.
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Trustee: An entity or person appointed to manage a trust. In real estate, a trustee carries out the statutory foreclosure process based on the terms of the deed of trust.
Online Resources
- Nolo’s Guide to Foreclosure Types
- California Department of Real Estate: Non-judicial Foreclosure Process
- Consumer Financial Protection Bureau: Understanding Foreclosure
References
- Consumer Financial Protection Bureau (CFPB)
- Nolo, “Foreclosure Overview”
- Investopedia’s Mortgage Foreclosure Process Guide
Suggested Books for Further Studies
- “The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket” by Amy Loftsgordon.
- “Foreclosure Investing For Dummies” by Ralph R. Roberts.
- “The Mortgage Wars: Inside Fannie Mae, Big-Money Politics, and the Collapse of the American Dream” by Timothy Howard.
