Real Estate Foreclosures
California has its own unique foreclosure process that all lenders must follow. Much of this process is unique because California uses Deeds of Trust to secure a mortgage to a piece of real property. Here are some quick California foreclosure or (mispelled) forclosure facts:
Foreclosure Quick Facts
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. This is uncommon with most commercially available real estate loans and most likely would be found when there is a private party lending the money to purchase or finance real property. Generally, once the court declares a foreclosure, the property will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgement in an attempt to recoup some of their losses. Under certain circumstances, the borrower may have up to one (1) year to redeem the property.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. This is uncommon in most other states where there is no "third party" that can execute the sale upon default by the borrower.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
A notice of sale must be:
- Recorded in the county where the property is located at least fourteen (14) days prior to the sale
- Mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale
- Posted on the property itself at least twenty (20) days before the sale
- Posted in one (1) public place in the county where the property is to be sold
The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee's name, address and phone number and a statement that the property will be sold at auction.
The borrower has up until five days before the foreclosure sale to cure the default and stop the process.
The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidders ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
Forclosure Process
1. Notice of Default
Foreclosure proceedings start with a Notice of Default (NOD). The lender (or trustee for the lender) files a Notice of Default with the county, after the property owner (trustor) fails to make his/her loan payment(s). This is done to give, constructive notice to the public which is required by law. The owner may be delinquent anywhere from 15 days to 12 months, or more. This time period is also referred to as the Reinstatement Period.
After the recording of the Notice of Default, in the state of California, the borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current with the lender.
2. Notice of Trustee Sale
If the borrower does not reinstate their account within the 90 day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
After 21 days of the recording of the NOS, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount. Bidders are required to bring cashier's checks or money orders to the sale in an amount equal to or higher than the lenders opening bid. The auctioneer will qualify each bidder and the successful bidder will have to tender full payment at the time of the sale.
The Notice of Trustee's Sale is recorded at the County Recorder's office in the County where the property is located. It contains the date, time. and place where the auction will take place. This notice has to be published in a adjudicated newspaper in the city where the property is located. The NOS is also posted on the property as a requirement of law.
Buying property at a Trustee's Sale is not like purchasing property in a conventional manner. You will not have the opportunity to inspect the property after you have purchased it at sale. Any and all due dilligence must be conducted prior to the Trustee's sale. This means potential purchasers will benefit from tracking the properties as the Notice(s) of Default are filed up until the time they are sold at the Trustee's Sale. There is a great service we have used over the years to track distressed properties called RealtyTrac. You can receive a free one week trial to their real estate foreclosures
tracking service.
3. Disbursement of Funds
After the sale auction is completed and if the property sells to a third party bidder, all funds owed to the lender/beneficiary will be prepared for immediate payout . If the property reverts to the lender/beneficiary at the sale, a Trustee's Deed Upon Sale will be issued and the lender will have ownership to the property securing the debt.
Foreclosure Terms
Foreclosure
The forced sale of property offered as security for a debt that is in default.
Forclosure
Forclosure is acutally foreclosure mispelled. Please see above.
Deficientcy Judgement
A deficiency judgement refers to any difference in the sale amount and the amount owed to a lender in a foreclosure proceeding. A court may issue a deficiency judgement in favor of a lender if there is a deficiency in the proceeds from the sale of real property to cover the costs and amount owed to the lender. The court can issue a 1099 (to the borrower) for the difference or they may send the borrower to a collections agency, or even garhish the borrower's wages.
Trust Deed
In regards to foreclosures, Trust Deeds are a written instrument legally conveying real property to a trustee (or a third party) used to secure a mortgage or promissory note.
Trustee's Sale
A sale conducted by a Trustee, in the case of foreclosures, this refers to the sale of the property in question.
Notice of Default
Written notice sent by a lender notifying the borrower that he/she has not met his/her obligations under the loan contract, and the lender may take legal action to enforce said agreement. In other words, the lender is notifying the borrower that they may start a foreclosure action against them and their property.