Foreclosure: Judicial vs. Non-Judicial
In both Washington and Oregon, community associations that have lien rights for nonpayment of assessments have two options when considering foreclosing on units or lots: judicial or non-judicial foreclosure. Whether a foreclosure is judicial or non-judicial is significant as each have their own processes, procedures, and timelines for terminating the owner’s ownership interest in the property.
A judicial foreclosure is basically a foreclosure that goes through the courts. The Association would file a lawsuit and serve the foreclosure summons and complaint on the owner and all other lienholders whose interest is junior to the one being foreclosed. Once the court enters judgment and “decree of foreclosure,” the Association can initiate the sheriff’s sale process where the property is auctioned by the sheriff and the winning bidder ultimately becomes the legal title owner of the property. However, the buyer only obtains title after the “redemption period,” which is the time period in which the owner can keep the unit or lot by paying the winning bidder essentially everything the bidder paid. The length of the redemption period is determined by state law. In Washington, the redemption period is generally 8 or 12 months after the date of the sheriff’s sale. The redemption period in Oregon is 180 days after the date of the sheriff’s sale. Once the redemption period expires, the sheriff will issue a “sheriff’s deed” to the winning bidder, who then becomes the legal, title owner of the property.
As the name implies, a non-judicial foreclosure does not go through the courts. Instead, it is administered by a third party “trustee,” ultimately resulting in a “trustee’s sale.” If an Association wants to do a non-judicial foreclosure, the governing documents have to specifically authorize that option and contain certain language required by state law. Because the process is not overseen by the courts, additional steps must be taken and very strict notice requirements must be met. Prior to initiating the non-judicial foreclosure sale, the Association must serve notice of default on the owner that contains specific information. If the owner does not cure the default during the time period prescribed in the notice of default, then the Association must mail a notice of trustee’s sale containing the date, time and place of the trustee’s sale to the owner, all junior lienholders, and any other parties of interest. If the owner does not submit payment to cure the default, the property is then auctioned by the trustee at the trustee’s sale. Unlike the judicial foreclosure, there is no right of redemption for non-judicial foreclosures, which means that the trustee’s deed is issued to the winning bidder immediately upon the sale, and the buyer becomes the legal, title owner of the property.
There are many pros and cons of each process and the type of foreclosure an Association may be proscribed by the governing documents. If you have any questions about the foreclosure process, whether judicial or non-judicial, please do not hesitate to contact our office.