Essentially, there are two types of foreclosure procedures in Alabama; judicial foreclosure and non-judicial foreclosure. Non-judicial foreclosures are more common than judicial foreclosures. This is due to the fact that judicial foreclosures entail a more burdensome process. In order to forgo the burdens of judicial oversight associated with judicial foreclosures, lenders often include a “power of sale” clause in the mortgages entered into with borrowers. The power of sale clause is a necessary instrument in allowing lenders to conduct a non-judicial foreclosure and, thereby, eliminating the drawn out judicial process.
Judicial Process
Generally, states that use mortgages without a power of sale clause conduct judicial foreclosures, using the court system to execute the foreclosure. States that use mortgages containing a power of sale clause conduct non-judicial foreclosures, using an out-of-court procedure defined by state law.
In judicial foreclosure states like Florida, borrowers sign two separate instruments: the note, which is evidence of the borrower’s promise to pay the debt; and the mortgage, which is the legal instrument that creates the lien on the property as security for the debt. If the borrower cannot pay the mortgage, the lender hires an attorney, who begins legal action to protect the lender’s interest. The attorney files several documents with the clerk of the court in the county where the property is located.
If the borrower fails to respond to the notices within the statutory time limit, the attorney submits a report to the court requesting that the court appoint a referee. The referee reviews the facts and circumstances in the foreclosure action and renders a report to the court. Then a judge issues a Judgment of Foreclosure and Sale in favor of the foreclosing lender. The judicial auction is advertised and the property is sold at the auction to the highest bidder.
Non-Judicial Process
Non-judicial foreclosures are based on mortgages that contain a power-of-sale clause. The clause enables the lender to initiate a foreclosure sale of the property, without having to file a lawsuit or go to court. The lender is typically required to issue a notice of default and notify the borrower accordingly about the defaulted loan status. If the borrower does not respond, the lender then initiates the steps for conducting the foreclosure sale of the property. In Alabama, this requires notice of the foreclosure by publication in a newspaper of general circulation for three consecutive weeks, followed by a foreclosure taking place at the front of the courthouse of the county where the property is located, for cash, to the highest bidder.
Click on the New York Times link below for an in depth narrative of how judicial foreclosure states continue to muddle through the court system in the wake of the financial crisis.