the trustee or the lender holds your deed of trust, at the time you pay off your loan, a second deed will be issued to grant you full title and ownership to your home.
HOW DOES THIS AFFECT FORECLOSURE?
In these “title theory states,” if you default on your home loan, your lender can instruct the third-party trustee to sell your home. These proceedings follow a non-judicial format, meaning the courts don’t have to be involved. If you default on your loan, the lenders in most of these states follow a similar process. First, they will send you a Notice of Default and notify you that your home will be sold at auction. The trustee will then proceed to sell the property to the highest bidder. This process favors lenders because it enables them to sell the property while bypassing the time and hassle of going through the courts. In “mortgage states,” the lender must follow a judicial process by successfully suing you before foreclosing. This provides you the opportunity to be heard in court and possibly postpone the foreclosure a while. If the court decides in the lender’s favor, the lender can then auction your home.
DEFICIENCY JUDGMENTS
Whether or not you live in a deed of trust state, the option of pursuing a judicial foreclosure is available to your lender. In some situations, the lender could decide it makes sense to take the longer route of going through the court. This is especially true if there is a deficiency (meaning, if your property does not sell for enough to cover your outstanding mortgage debt). For example, if you owe $350,000, but your home sells for only $330,000, the only way the lender can collect the $20,000 difference is to go through a judicial foreclosure process. That could include
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