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Monday, July 19, 2010
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Foreclosure Time Line
California is a non-judicial state when it comes to the different types of foreclosure.
Although in rare circumstances a lender can pursue a judicial foreclosure in California it
is very rare.
As a non-judicial foreclosure state, the lender can foreclose on the property without involving the legal court system. In California, the foreclosure process starts after the homeowner has defaulted in their loan payments. Although technically, a foreclosure can start as soon as the first payment is reported delinquent; in reality most lenders wait until the loan ages 90 days delinquent before it begins the actual foreclosure process.
The Foreclosure Begins
The period prior to a notice of default payment being recorded and the first missed payment is often referred to as the ‘pre-foreclosure period’. Once the Notice of Default has been file, the actual foreclosure is underway.
The lender must file and record with the County Recorder a Notice of Default (NOD) that specifies everything pertinent about the defaulted loan and the property being held as security. There is of course contact information giving the borrower the opportunity to make contact and redeem the loan. The lender cannot take any further action, unless prompted by the borrower for a minimum of 90 days from the recording date.
Once in the foreclosure process, the borrower not only has to cure the loan payments in arrears with all of the past due interest, late fees and other penalties but now also has to cure the legal fees billed to the account. Inmost cases just to file the NOD, most lenders are billed $1500. As the process continues and the legal department accumulates more billable hours the fees increase and must be paid in full to cure a default.
Within 10 days of the Notice of Default being recorded is sent by certified mail to each borrower, and guarantor of the not at the address provided. Anyone who has requested to be notified of any recorded documents, by special request, will also receive a certified copy of the NOD.
Just Who is Notified?
The next 20 days can be critical for the borrower who is looking to redeem. Within 30 days of the NOD being filed a copy is sent by certified mail to all junior lien holders that the Deed of Trust is being foreclosed on.
During this time period, the lender orders a Trustee’s Sale Guarantee Report, which will provide the mortgage holder with all of the pertinent title information on the property.
The foreclosure remains dormant during the 90 day period that was started by the filing and recording of the Notice of Default. At this point, all the lender can do is sit back and wait. This is the time when they (the lenders) will consider a short sale. So unless the borrower contacts the bank to pay off the arrears or a short sale offer is presented we just watch the clock tick for 90 days.
NOTE: The 90 day clock is not an absolute. There is no rule or law that says something MUST happen on day 91 – the rules of the game just prohibit the bank form taking any action prior to day 90.
The Publication Period
Have you ever seen the pages of PUBLIC NOTICES in the classified sections of the local papers? Each one is about 3 to 6 inches in length. They carry all sorts of notices about events that must be made public…and this is the way they do it. In today’s newspapers lately, more and more space is being devoted to these public notices since homes in the foreclosure process have to be published no less than 3 times before the bank can take the property back.
Once the 90 Day redemption period ends, the publication period begins when a Notice of the Trustees Sale (NOS) is published in an adjudicated newspaper of general circulation in the city where the property is located.
Once a week for three consecutive weeks the NOS is published. The actual sale date is established by adding 20 days to the date it was first published in the newspaper. In addition, a copy of the NOS must be posted on the property and in a public place.
In theory, this prevents a tenant from finding out about the sale of the property after it has taken place. The Notice is posted so all occupants know what is going on.
The NOS must also be recorded with the County Recorder. This must happen no less than 14 days prior to the actual scheduled sale date.
The Trustee’s Sale
Once all of the publication periods have been met, the property is sold to the highest bidder on the auction date. The bidder must have cash (cashier checks). The opening bid must include the complete outstanding mortgage plus all of the arrears plus all of the legal fees and Trustee sale expenses.
If there are not any bids at the Trustee’s Sale then the property will automatically revert back to the lender. The Trustee records a Trustee’s Deed Upon Sale with the County Recorder transferring title to the foreclosing beneficiary and allowing them to immediately start marketing the property to recover as much of their debt as possible. These properties are referred to as Real Estate Owned or REO by the mortgage industry.
What About the Second???
The second or any junior lien holder will in essence be wiped out by a Trustee’s Sale. In order to protect themselves they basically have a choice of three options…none of which are very pretty.
The first choice is to advance the necessary funds to bring the first lien current and then start the foreclosure process themselves for the amount they had to advance.
The second option is to bid at the auction to pay off all of the existing liens that are in front of them.
Third choice is similar to the second in that it involves bidding on the property at the foreclosure sale.
What Does a Borrower Owe at the End of the Day?
In California a lender does not have the right to seek a deficiency balance in foreclosure if the debt is for purchase money of the home. This protection is only for the first lien holder. As far as I can tell, it has not yet been tested if the protection carries forward on a purchase money second – meaning the borrower took out two loans to close the deal when they bought the property – such as an 80-20 split.
Cash out loans leave the borrower vulnerable to collection and litigation efforts to collect on these debts.
FORECLOSURE TIMELINE STEP BY STEP
Day 1
Record Notice of Default
Within 10 business days
Mail and publish Notice of Default
Within 1 Month
Mail Notice of Default
After 3 months
Set sale date
25 days before sale date
Send notice of sale to IRS (when necessary)
Within 10 days from 1st publication
Send beneficiary request for property directions
14 days before sale date
Record Notice of Sale
7 days before sale date
If court action, 7day rule may apply
5 business days before sale date
Expiration of right to re-instate the loan
Sale date
Property is sold to highest bidder at public auction
If Not Sold
Then the property is returned to the lender, as what is called an REO
As a non-judicial foreclosure state, the lender can foreclose on the property without involving the legal court system. In California, the foreclosure process starts after the homeowner has defaulted in their loan payments. Although technically, a foreclosure can start as soon as the first payment is reported delinquent; in reality most lenders wait until the loan ages 90 days delinquent before it begins the actual foreclosure process.
The Foreclosure Begins
The period prior to a notice of default payment being recorded and the first missed payment is often referred to as the ‘pre-foreclosure period’. Once the Notice of Default has been file, the actual foreclosure is underway.
The lender must file and record with the County Recorder a Notice of Default (NOD) that specifies everything pertinent about the defaulted loan and the property being held as security. There is of course contact information giving the borrower the opportunity to make contact and redeem the loan. The lender cannot take any further action, unless prompted by the borrower for a minimum of 90 days from the recording date.
Once in the foreclosure process, the borrower not only has to cure the loan payments in arrears with all of the past due interest, late fees and other penalties but now also has to cure the legal fees billed to the account. Inmost cases just to file the NOD, most lenders are billed $1500. As the process continues and the legal department accumulates more billable hours the fees increase and must be paid in full to cure a default.
Within 10 days of the Notice of Default being recorded is sent by certified mail to each borrower, and guarantor of the not at the address provided. Anyone who has requested to be notified of any recorded documents, by special request, will also receive a certified copy of the NOD.
Just Who is Notified?
The next 20 days can be critical for the borrower who is looking to redeem. Within 30 days of the NOD being filed a copy is sent by certified mail to all junior lien holders that the Deed of Trust is being foreclosed on.
During this time period, the lender orders a Trustee’s Sale Guarantee Report, which will provide the mortgage holder with all of the pertinent title information on the property.
The foreclosure remains dormant during the 90 day period that was started by the filing and recording of the Notice of Default. At this point, all the lender can do is sit back and wait. This is the time when they (the lenders) will consider a short sale. So unless the borrower contacts the bank to pay off the arrears or a short sale offer is presented we just watch the clock tick for 90 days.
NOTE: The 90 day clock is not an absolute. There is no rule or law that says something MUST happen on day 91 – the rules of the game just prohibit the bank form taking any action prior to day 90.
The Publication Period
Have you ever seen the pages of PUBLIC NOTICES in the classified sections of the local papers? Each one is about 3 to 6 inches in length. They carry all sorts of notices about events that must be made public…and this is the way they do it. In today’s newspapers lately, more and more space is being devoted to these public notices since homes in the foreclosure process have to be published no less than 3 times before the bank can take the property back.
Once the 90 Day redemption period ends, the publication period begins when a Notice of the Trustees Sale (NOS) is published in an adjudicated newspaper of general circulation in the city where the property is located.
Once a week for three consecutive weeks the NOS is published. The actual sale date is established by adding 20 days to the date it was first published in the newspaper. In addition, a copy of the NOS must be posted on the property and in a public place.
In theory, this prevents a tenant from finding out about the sale of the property after it has taken place. The Notice is posted so all occupants know what is going on.
The NOS must also be recorded with the County Recorder. This must happen no less than 14 days prior to the actual scheduled sale date.
The Trustee’s Sale
Once all of the publication periods have been met, the property is sold to the highest bidder on the auction date. The bidder must have cash (cashier checks). The opening bid must include the complete outstanding mortgage plus all of the arrears plus all of the legal fees and Trustee sale expenses.
If there are not any bids at the Trustee’s Sale then the property will automatically revert back to the lender. The Trustee records a Trustee’s Deed Upon Sale with the County Recorder transferring title to the foreclosing beneficiary and allowing them to immediately start marketing the property to recover as much of their debt as possible. These properties are referred to as Real Estate Owned or REO by the mortgage industry.
What About the Second???
The second or any junior lien holder will in essence be wiped out by a Trustee’s Sale. In order to protect themselves they basically have a choice of three options…none of which are very pretty.
The first choice is to advance the necessary funds to bring the first lien current and then start the foreclosure process themselves for the amount they had to advance.
The second option is to bid at the auction to pay off all of the existing liens that are in front of them.
Third choice is similar to the second in that it involves bidding on the property at the foreclosure sale.
What Does a Borrower Owe at the End of the Day?
In California a lender does not have the right to seek a deficiency balance in foreclosure if the debt is for purchase money of the home. This protection is only for the first lien holder. As far as I can tell, it has not yet been tested if the protection carries forward on a purchase money second – meaning the borrower took out two loans to close the deal when they bought the property – such as an 80-20 split.
Cash out loans leave the borrower vulnerable to collection and litigation efforts to collect on these debts.
FORECLOSURE TIMELINE STEP BY STEP
Day 1
Record Notice of Default
Within 10 business days
Mail and publish Notice of Default
Within 1 Month
Mail Notice of Default
After 3 months
Set sale date
25 days before sale date
Send notice of sale to IRS (when necessary)
Within 10 days from 1st publication
Send beneficiary request for property directions
14 days before sale date
Record Notice of Sale
7 days before sale date
If court action, 7day rule may apply
5 business days before sale date
Expiration of right to re-instate the loan
Sale date
Property is sold to highest bidder at public auction
If Not Sold
Then the property is returned to the lender, as what is called an REO
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