People mean different things by the term “foreclosure.” The common meaning is the process of a lender declaring a default on an obligation secured by real property and moving to reclaim the property. But there are really two “flavors” of foreclosure, judicial and non-judicial.
The way lawyers typically use it refers to a judicial foreclosure. That is the process of filing a lawsuit in Superior Court that asks the court to issue a judgment approving the foreclosure, schedule a sheriff’s sale to sell the property, and, finally, waiting out any redemption period (usually six months) the owner or others may have. It can be a long and expensive process. This process is used when a mortgage is involved, however, a Deed of Trust can be foreclosed at the option of the lender. Typically, this is done to accelerate the loan and force the borrower to pay it in full or to clear a title problem.
The private trustee’s sale procedure used under Deeds of Trust is also called a “foreclosure” even though it does not require the filing of a lawsuit to reclaim the property. Reduced to its basics, following a default by the borrower, the lender can instruct the trustee to record, mail to parties in interest, publish and post on the property a Notice of Trustee’s Sale. The statutorily required waiting period is at least 90 days. The Trustee then conducts a sale of the property at a Trustee’s Sale.
Both are commonly referred to as foreclosures. I get questions about this frequently. I hope this helps clarify any confusion.
There is also a process in Arizona called “forfeiture” which is used for terminating a buyer’s interest under a Contract for Sale. In that case rather than the trustee or sheriff conducting a public auction type sale of the property that allows third parties to bid, the buyer’s interest is simply eliminated (that is, forfeited) and the full title to the property is returned to the seller. Contracts for sale can only be used between a buyer and seller. They cannot be used by a lender and, so, have limited utility. The contract for sale is covered in a separate Blog.
Jeffrey M. Neff is a real estate specialist certified by the Arizona Board of Legal Specialization. He has extensive experience in real property transactions and litigation including purchase, sale, lending, eliminating title problems, easements, quiet titles, partitions, foreclosure, workouts, real estate litigation and many other areas of commercial real estate.
