Judicial foreclosure is a lawsuit that the lender (mortgagee) brings against the borrower (mortgagor) to get the property. About half of the states use judicial foreclosure. Like all lawsuits, foreclosure starts with a summons and a complaint served upon the borrower and any other parties with inferior rights in the property (remember, all junior liens, including tenancies, are wiped out by the foreclosure).

If the borrower does not file an answer to the lawsuit, the lender gets a judgement by default. A referee is then appointed by the court to compute the total amount (including interest and attorney's fee) that is due. The lender then must advertise a notice of sale in the newspaper for four to six weeks. If the total amount due is not paid, the referee conducts a public sale on the court house steps. The entire process can take as little as 3 months and as many as 12 months depending on the volume of court cases in the county.

The sale is conducted like an auction, because the property goes to the highest bidder. Unless there is significant equity in the property, the only bidder at the sale will be representative of the lender. The lender can bid up to the amount it is owned, without having to actually come out of pocket with cash to purchase the property.

If the proceeds does the sale are insufficient to satisfy the amount owed to the lender, the lender may be entitled to a deficiency judgement against the borrower and any one else who guaranteed the loan. Some states (e.g. California) prohibit a lender from obtaining a deficiency judgement against a borrower.