Judicial vs. Non-Judicial States: What You Need to Know
When investigating note investment opportunities, it’s important that investors take the necessary time to understand the foreclosure process. Should a homeowner leave you with no option but to foreclose after failing to follow through with the agreed upon terms, you might decide it is necessary to begin the process of acquiring the deed.
The timescale to get that deed varies greatly between states. This is because there are principally two different methods for foreclosing on a homeowner; judicial and non-judicial. Each method has their own respective advantages and disadvantages, so let’s cover judicial vs. non-judicial states in a little more detail.
Judicial Foreclosure States
As the name suggests, foreclosures in judicial states have to proceed through the court system. The owner of the loan files a foreclosure lawsuit in court after which the homeowner receives a summons to court and a copy of the official complaint. At this point, the homeowner has two options; they can either let the foreclosure happen, or they can contest it in court.
If they contest the foreclosure there can be a lengthy wait to set up a court date for the hearing, at which point a judge will make a ruling, and if they agree to a sale, they’ll also set the date. If the foreclosure is uncontested, a default judgement will be made and a date set for the sale of the property. The property then goes up for auction and if no bid meets the asking price, then it is returned as a Real Estate Owned (REO) property back to the lender. Learn more about purchasing pre-auction homes here.
In non-judicial states, the process is slightly different.
Non-Judicial Foreclosure States
In non-judicial states, foreclosures are initiated by “trustees” (those who hold the deed of trust) in the event of a homeowner defaulting on their loan. Each individual state law determines each milestone in the foreclosure process, and stipulates how much notice the trustee must give the homeowner and in which manner the property can be sold.
Even after the lender issues a notice of default, the homeowner may still have up to three or four months to make up payments under the protection of state law. After that period, if the payments haven’t been made up, or a new payment plan fails to materialize, homeowners will receive a notice indicating the intention to sell the property. This notice will also usually specify the intended date of the sale.
A non-judicidal property auction does not have to be undertaken by an officer of the court, and so third-party sales agents are often enlisted to do so. Once again, if no one meets the minimum bid the property is returned back to the deed-holder (lender) and becomes a so-called “bank-owned” property.
Which Method is Better for Owners of Distressed Notes?
First and foremost, there is a clear time advantage for targeting notes in states that operate a non-judicial foreclosure process. Lenders who foreclosure in states such as Texas, Georgia or Tennessee can have the keys to a family-sized property for 40-50% of its market value in just 60 – 75 days. Therefore, as a dollars-in, dollars-out, investment non-judicial foreclosures are clearly preferable.
However, it’s not quite as simple as that. Lenders know this fact, and therefore may charge a premium on notes in non-judicial states. That same knowledge is reflected when it comes to notes sold in judicial states. Because proceeding through the court system can take several months, investors can pick up houses for as little as 30% of their market value to reflect the extra hoops that have to be jumped through.
But some judicial states are notoriously tough for lenders. For instance, in New York, it’s not uncommon for the foreclosure process to take upwards of two years. So whilst a $100,000 house sounds amazing for a sale price of $30,000, can you really afford to tie up your investment for at least two years? The answer will depend on your particular financial situation.
Achieve over 40% Returns with Distressed Notes Direct from The Banks
Whether you opt to focus on much higher returns achieved over a longer period, or prefer to achieve lower returns at a more frequent rate, we can offer you expert advice so that you maximize the potential of each and every distressed note you obtain from us. Our team has intimate knowledge of each state’s processes, making them ideally positioned to give you realistic timelines to deed acquisition.
Here at Revolve Capital, we cut out the middlemen. We take notes straight from the banks and present them directly to you, the investor. Our note investment opportunities are 100% transparent and we even provide you with the due diligence documents to make sure you are getting great value for your investment.
When it comes to judicial vs non-judicial states, it is a case of each to his own. But with our expertise and advice we can help you to align your financial goals with our product offerings. So if you are ready to achieve market-beating returns on your investments, don’t hesitate to contact a member of our team today to discuss note investment opportunities.