Properties can be repossessed by banks or other creditors under certain clearly-defined circumstances, which vary from state to state. While the processes of repossession and re-sale differ from one type to the next, the general premise for these repossessions being initiated is unpaid debt.
Two of the most common forms of re-sale for repossessed properties are execution sales and foreclosure sales. While the two operate fairly similarly, there are many differences — including how the process starts, how it proceeds and how it ends.
Below, we’ll define what an execution sale and a foreclosure sale is, as well as point out the major differences between them.
What is an Execution Sale?
An execution sale is also commonly referred to as a sheriff’s sale. These sales auction off properties that have been repossessed due to unpaid debt or other obligations.
An execution sale can only be conducted after a court has issued what’s known as a writ of execution. That’s why execution sales are often referred to as being court ordered.
During an execution sale, a public auction will occur at a public place, such as the courthouse steps of the municipality in which the property is located. It’s also managed by law enforcement officials in the local municipality, which is why they’re called sheriff’s sales.
Before an execution sale is held, it will be advertised at various online sites and in some local newspapers, with a specific date, time and location for the auction. Any member of the public can attend the auction and bid on the property.
The auction itself proceeds like any other, with the highest bidder becoming the new owner of the property once payment has been satisfied. Generally speaking, the highest bidder will have to pay in cash or have funding already secured before paying for such a property.
These types of sales are rare in Michigan as most creditors and courts follow the foreclosure process, which allows the borrower a redemption interest in the home after foreclosure.
What is a Foreclosure Sale?
As mentioned earlier, some foreclosures will end in execution sales, though not all will. Sometimes, the mortgage company will follow specific procedures that are laid out in their state to obtain possession of a home and then sell it. This is called a non-judicial foreclosure, since it happens outside of court.
Each state has a slightly different rules and regulations for how foreclosure proceedings must occur, and the mortgage company must follow those procedures exactly to finalize the foreclosure.
Every mortgage is referred to as a secured loan, since it uses the actual property as collateral. When the borrower isn’t able to repay the mortgage per the terms of the loan, then the lender has the right to start foreclosure proceedings to repossess the property.
When Can a Lender Foreclose on a Property?
Generally speaking, a lender tries to avoid the foreclosure proceedings. That’s because foreclosures can be expensive, and forces lenders to become property owners, which is outside of their core competency.
When a borrower misses a payment, they’ll typically receive a missed payment notice. Once they miss a second payment, they might be sent a demand letter that advises the borrower of the dangers of continuing to miss payments. The letter may also offer payment arrangements.
Notices of default may be sent in many cases once the borrower has missed payments for 90 days, and this is when the foreclosure process will typically start in earnest. There are different notification timelines and steps the lender must take to satisfy the foreclosure criteria.
There are 22 states where the normal process includes judicial foreclosure, which requires the lender to seek relief from the court system. The other 28 states can use non-judicial foreclosure. This provides a quicker process for the lender to foreclose on the home and re-sell it at auction.
Both execution sales and foreclosure sales are processes that are taken to allow creditors to reclaim unpaid debt quickly. They are completed when a borrower doesn’t pay an obligation that they are legally required to repay — such as mortgage or tax bill.
Both sales will transfer the ownership of the property, and they are typically done at an auction format. Some foreclosure sales actually may end up as execution sales, which are referred to as judicial foreclosures.
Non-judicial foreclosures can be carried out in 28 states without the need for court intervention. Execution sales, by contrast, can only be conducted once a court has made a judgment that forces the sale.
Because execution sales are ordered by the court, there isn’t much a borrower can do to stop them. In essence, one of the only options a borrower might have to stop an execution sale is to appeal the decision or satisfy the court’s demands.
Non-judicial foreclosure proceedings provide the lender with a shorter timeframe to take possession of the property and sell it at auction. At the same time, the lender will often try to work with the borrower to allow them to avoid foreclosure along the way.
There’s a reinstatement period during the foreclosure process, during which the borrower may catch up with what they owe, find outside financing to satisfy the outstanding amount, obtain a short refinance and have a portion of the loan forgiven, or even obtain special forbearance in the case of a temporary hardship.
In non-judicial foreclosures, the borrower has more options to keep ownership of the property going forward, while they have little control during an execution sale.