Foreclosures are amongst the most local kind of law there is: every state and county has its own procedure for allowing lien creditors the right to force a sale of property to pay down the debts secured by the real property in its jurisdiction. In judicial foreclosure states, the note holder files a lawsuit asking the court for a judgment in mortgage foreclosure. After entry of the judgment, the creditor obtains a writ of execution authorizing and directing the sheriff to conduct the auction.
Sheriffs typically develop rigid procedures for allowing creditors to sell their collateral. This process can take months or years to navigate through. In many states and counties, the sheriff holds sales only every other month, usually requiring up to 120 days’ notice before the sale will be scheduled. In some counties, the sheriff won’t even hold a sale in December in deference to a holiday spirit.
Under the right circumstances, lenders can take the judicial process into their own hands by conducting sales in federal court. This procedure is genrally only available under the federal diversity rules, where the lender and the property owner reside in different states and the amount in controversy exceeds $75,000. When these stars align, the lender can file its foreclosure action in the United States District Court in the district where the property resides.
The advantages can be significant. The U.S. Marshal conducts very few foreclosure sales, so its staff is not likely to be overwhelmed by the backlog of pending sales. As a result, the lender can schedule (or adjourn) a sale with much greater flexibility than in the state proceeding. For example, a lender who suspends a sale in September may have to wait until the November sale date to have its sale in jurisdictions that schedule sheriff sales every other month. However, in federal court if the lender so prefers the Marshal can set the date only far enough in advance to allow the mandatory four weeks’ advertising to be completed. This flexibilty can make a huge diffference for the parties.
In some situations though filing federal foreclosure cases may be more trouble than they’re worth. This can happen in states where mediation is mandatory (or heavily encouraged) if the property to be sold is owner occupied residential property. Most such states have detailed and complex pre-sale procedures to ensure that a homeowner is not ousted from their residence without the chance to obtain a loan modification or other loss mitigation opportunity to keep the family in their abode. State courts are much more familiar with these procedures than federal courts, so in such circumstances choosing the federal option may actually slow the process down.
For many cases, however, choosing the federal option can offer a tremendous savings of time and money to complete the foreclosure process.