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FORECLOSURE - It Can't Be Happening To Me!
There can be no doubt that the business of California real estate has changed dramatically in recent years. News of industry shutdowns, mergers, layoffs, depressed real estate values, bankruptcies, foreclosures and shot-sales constantly swirl in your mind. To meet the challenge of changing times, proper education is vital in order to help you. Here is an example of a telephone call I received from a client.
Worried Client: "Listen, I need your help. I just received a Notice of Default from my real estate lender. I can't pay the $2,000 per month loan payments, and I owe my lender over $200,000. To make things worse, the property is only worth $190,000. What will happen, and how much time do I have before they throw me out? What is the process?"
Educated and Concerned Counselor/Broker/Agent: "I'm sorry to hear you're experiencing financial difficulties but you still have time to find solutions and avoid losing your property. You know that I am not an attorney or an accountant. You should always consult qualified professionals for legal or tax advice. I can, however, give you a general overview of the non-judicial foreclosure process pursuant to California Civil Code Section 2924: Maybe the knowledge will help take away some of the fear factor and reassure you.
Section 2924 allows lenders to foreclose upon real property securing their loans without the necessity of going to court and incurring costly attorney's fees. More importantly, the non-judicial foreclosure process is quick. It normally takes around 4 months to complete from start to finish. Once the foreclosure sale auction is completed, it is final. (Exception: An Internal Revenue tax lien can cause delay in the finality of the sale). The purchaser at the sale takes the property and the borrower must vacate.
Here is a brief step by step overview of the process:
STEP 1
NOTICE OF DEFAULT:
A) Once the lender decides it can no longer tolerate the delinquencies in the loan payments, it will begin the foreclosure process as spelled out in Civil Code Section 2924. Specifically, it will force the repayment of its loan through the foreclosure of its trust deed, which was recorded against the bower's property when the loan was first made. The trust deed functions as the lender's security device for its loan. Lenders will often hire a new trustee to replace the trustee named in the trust deed and then instruct the trustee to issue a Notice of Default ("NOD"). The NOD warns the borrower to take action or else face the consequences of losing the property.
B) Trustee sends the NOD for recording to county recorder's office.
C) Trustee sends copies of the recorded NOD, within 10 business days of its recordation, to the borrower and to any party who timely recorded a Request for Notice of Default form. The trustee causes the personal delivery of a copy of the recorded NOD to the borrower.
D) Trustee also sends copies of the recorded NOD by certified or registered mail to all holders of junior trust deeds, to the borrower's successor in interest, if any, (as of the date recordation of the NOD) and to other legally entitled parties, no later than one month following the recordation of the NOD.
STEP 2
REINSTATEMENT OF LOAN AND RIGHT OF REDEMPTION
A) From the date of the NOD recordation, the borrower has the right to reinstate the loan by tendering to the lender or trustee the delinquent loan payments, plus any outstanding trustee's fees and costs.
B) Upon receipt of the proper payment, the trustee is obligated to rescind the NOD.
C) The loan is thus reinstated and returns to normal status. The loan can be reinstated until five (5) business days before the scheduled foreclosure sale.
D) If not reinstated, the lender isn't required to stop the foreclosure. In such case, the lender may demand that the borrower exercise the right of redemption under California Civil Code Section 2903. That means the borrower would have to pay-in-full the total outstanding principal balance and accrued interest on the loan, plus trustee's fees. This may be done until the moment before the sale is completed.
STEP 3
SET FORECLOSURE SALE DATE:
If three months pass following the NOD's recordation and the borrower fails to reinstate the loan, the lender will instruct the trustee to set a time, place and date for the foreclosure sale. The sale is usually set three to four weeks from that time. For example, if the NOD recorded 02/01/06, on 05/01/06 the trustee may set the foreclosure sale date for 05/24/06.
STEP 4
PREPARE NOTICE OF TRUSTEE'S SALE:
Upon setting the sale date, the trustee prepares a Notice of Trustee's Sale ("NOS") which must be given to the borrower and other legally entitled parties. The NOS must contain various statements of information, which include but are not limited to:
A) Time and specific place, where the sale will be held, and name address and telephone number of trustee;
B) Description of property to be sold, including street address;
C) Warning to borrower that the property will be sold at public sale and advice to consult with an attorney;
D) A statement of the total amount of the unpaid balance plus estimated costs, expenses and advances made.
STEP 5
GIVE NOTCE OF TRUSTEE'S SALE TO THOSE LEGALLY ENTITLED TO IT.
A) Mailing - 20 days before the sale date, mail NOS by registered or certified mail to borrower and each party who timely recorded a Request for Notice referenced above. An additional copy of The NOS is sent by regular mail to the borrower; (exception, if an IRS lien exists, a copy of the NOS is sent to the IRS 25 days before sale date.)
B) Posting - 20 days before the sale date, post the property to be sold with copy of NOS and post another copy in a public place within the judicial district of the property.
C) Publication - The trustee must publish a copy of the NOS in a newspaper of general circulation which newspaper itself is published in the city where the property is located. The NOS must be published once a week for 3 consecutive weeks, within the first date of publication being at least 20 days before sale date.
D) Recording - The NOS must be recorded with the county recorder at least 14 days prior to the sale date.
STEP 6
AUCTION SALE DATE:
At the appointed time, the trustee arrives at the location specified in the NOS and conducts the sale at public auction.
Worried Client: Thanks for the information, now I can relax a little. Maybe I can find enough money to reinstate the loan. If I can't, I will contact my attorney, thank to your advice. Maybe I'll call again to discuss a new concept I've heard about called a "Pre-foreclosure Sale".*
Educated Counselor/Broker/Agent: I'm glad I could help. Call me any time. (714) 544-5445
WARNING: The above foreclosure information is only a generalized version of the entire complicated process.
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