Each state in the U.S. handles it's real estate foreclosures differently, it's important to understand those differences and know your specific state's procedures.  The terms used and timeframes vary greatly from state to state, but the following information provides a general overview of the different processes and considerations. 

To begin you will want to know your state law regarding foreclosure. Will your foreclosure be judicial or non-judicial?  You will also want to know which type of loan you have, a recourse loan or a nonrecourse loan.  Once you know these important facts, you can then decide which option is appropriate for you and your family.

Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint and recording a notice of Lis Pendens.  The complaint will state what the debt is, and why the default should allow the lender to foreclose and take the property given as security.  The homeowner will be served notice of the complaint, either by mailing, direct service, or publication of the notice, and will have the opportunity to be heard before the court.  If the court finds the debt valid, and in default, it will issue  a judgment for the total amount owed, including the costs of the foreclosure process.  After the judgment has been entered, a writ will be issued by the court authorizing a sheriff's sale.  The sheriff's sale is an auction, open to anyone, and is held in a public place, which can range from in front of the courthouse steps, to in front of the property being auctioned.   Sheriff's sales will require either cash to be paid at the time of sale, or a substantial deposit, with the balance paid from later that same day up to 30 days after the sale.  Check your local procedures carefully.  At the end of the auction, the highest bidder will be the owner of the property, subject to the court's confirmation of the sale.  After the court has confirmed the sale, a sheriff's deed will be prepared and delivered to the highest bidder, when that deed is recorded, the highest bidder is the owner of the property.

Non-Judicial Foreclosures

Non-judicial foreclosures are processed without court intervention, with the requirements for the foreclosure established by state statutes.  When a loan default occurs, the homeowner will be mailed a default letter, and in many states, a Notice of Default will be recorded at approximately the same time.   If the homeowner does not cure the default, a Notice of Sale will be mailed to the homeowner, posted in public places, recorded at the county recorder's office, and published in area legal publications.  After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property, subject to their receipt and recordation of the deed.  Auctions of non-judicial foreclosures will generally require cash, or cash equivalent either at the sale, or very shortly thereafter.

It is important to note that each non-judicial foreclosure state has different procedures.   Some do not require a Notice of Default, but start with a Notice of Sale.   Others require only the publication of the Notice of Sale to announce the sale, with no direct owner notification required.  You need to know the specific procedure for your state.

Recourse Loans

Your state of residence will determine if you have a recourse loan.  A recourse loan is an obligation where the borrower is liable for the full amount of the remaining balance of the loan, even if the collateral value is less than the remaining balance.  Refinanced loans are typically recourse loans, and always, what it says on the Note.


Nonrecourse Loans

In a nonrecourse state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure. However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss.

Each state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statutes do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property)

Note however, that in some states (such as California) nonrecourse laws apply only to 'purchase money' loans (i.e. original home loans that are used to purchase property)  Almost all refinanced loans, and home equity loans (HELOC) are considered recourse loans.  If there is a recourse loan, a lender may sue borrowers to recoup loss.