Also known as: foreclosures by judicial sale · judicial foreclosure
Written by attorneys · grounded in primary & secondary sources — see below
An equitable proceeding in which a court orders the public sale of mortgaged property to satisfy a debt after the mortgagor defaults. The mortgagee initiates the action to terminate the mortgagor's equity of redemption and realize the property's value. The mortgage instrument and applicable state statute govern notice, sale procedures, and any remaining redemption rights.
Francisco Frost defaulted on payments secured by a mortgage on his warehouse. Frontier Capital filed a complaint in state court naming Frost and all junior lienholders as defendants. The court entered a decree of foreclosure and directed the sheriff to conduct a public auction. Proceeds from the sale satisfied the debt and extinguished Frost's equity of redemption.
Fumiko Fujimoto borrowed from Foxfire Biotech and granted a mortgage on her factory. After default Foxfire Biotech commenced a judicial foreclosure action. The court approved the sale and the property sold for less than the debt. Foxfire Biotech then pursued Fujimoto personally for the deficiency under the note.
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Judicial foreclosure requires a court action that terminates the equity of redemption through a supervised sale. Power-of-sale foreclosure proceeds under the mortgage or deed of trust without court supervision when state law permits.
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The mortgagee typically brings the action. The mortgagor and all junior lienholders must receive notice and be joined so that their interests are cut off by the sale.
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A foreclosure sale price does not render the proceeding defective unless the price is grossly inadequate and the sale was not regularly conducted under applicable law.
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