State rules impact foreclosures

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There are two main ways each state processes foreclosures, and the different laws can have an impact on the rate and frequency of foreclosures as well as the way mortgage lenders go about taking the house back.

The main types of foreclosure formats:

Judicial foreclosure. In judicial foreclosure states, all foreclosures in the state must go through a traditional court process. Before the lender takes back the property, a judge must sign off on the foreclosure.

Nonjudicial foreclosure. In other states, nonjudicial foreclosures are the norm. In these states, the courts do not supervise foreclosures. This means that mortgage lenders can foreclose on a property by following a series of steps to have the title transferred from the delinquent owner back to the lender — but the courts don’t have to be involved.

A recent Mortgage Bankers Association survey showed that Florida, Illinois and New Jersey had the fastest-rising rates of foreclosures, while foreclosures increased most slowly in California, Arizona and Michigan. Florida, Illinois and New Jersey are all judicial foreclosure states.

In states that have judicial foreclosure, foreclosures take a lot longer to process, and as backlogged foreclosures add up, there will be more of them on the books. On the other hand, because the foreclosure is overseen by the court, borrowers may be better protected than they would be in states that favor nonjudicial foreclosure.