FORECLOSURES PART 1: NON-JUDICIAL FORECLOSURES

July 19, 2006 · Filed under FINANCIALS, Foreclosures

I get asked about foreclosures alot. 
So, while there are zillions of articles out there, I have found these 2 articles that are published by my association, SRAR, to be the most helpful.  Do you agree? 
Feel free to leave comments/ask questions. 

The following article is an overview of the nonjudicial foreclosure process. This is the foreclosure method most often used in California. No court action is needed and the entire process takes under four months if there are no delays. For a more detailed study of the nonjudicial foreclosure process, please read Sections 2924. ¬2924h. of the California Civil Code.

Three basic steps are involved:
1. Recording of a Notice of Default
2. Recording of a Notice of Trustee’s Sale
3. Trustee’s Sale

Special Note: If you are interested in listing, selling and/or purchasing foreclosure properties, you will have to know how to find and use the notices of default and sale. This will be discussed in future articles.

The nonjudicial foreclosure process begins when the beneficiary (lender) notifies the trustee in writing that the trustor (borrower) is in default and instructs the trustee to initiate foreclosure proceedings. The trustee prepares a Notice of Default and records it in the office of the county recorder of the county in which the property is located.

Within ten days after recording the Notice of Default, the trustee must mail copies of the notice to the trustor and to all parties who recorded a Request for Notice of Default.

Within one month after the recording, the trustee must mail a copy of the notice to the beneficiary of any trust deed recorded prior to or subsequent to the trust deed being foreclosed.

If the trustor is in foreclosure because he is behind in his payments, he has the right to reinstate the loan up to five business days prior to the date set for the sale of the property.  If the sale is postponed, the right of reinstatement is extended to five business days before the new sale date.
In order to reinstate the loan, the trustor must bring all back payments current and pay all costs, fees and penalties attached to the loan. He does not have to pay off the loan balance. Once the loan has been reinstated, the foreclosure process is stopped and the trustor resumes making his regular payments.

If three months have passed since the recording of the Notice of Default and the trustor has not reinstated the loan, the trustee may proceed with the foreclosure by preparing and recording a Notice of Trustee’s Sale.

The Trustee’s Sale cannot be scheduled any sooner than twenty-one days after three months from the recording of the Notice of Default. The Notice of Trustee’s Sale must be recorded at least fourteen days before the date of the sale.
At least twenty days before the sale, the trustee must do the following:

1. Post a copy of the notice of sale in one public place in the city, judicial district, or county in which the property is to be sold – usually the bulletin board of the City Hall or County Courthouse.
2. Post a copy of the notice of sale in a conspicuous place on the property to be sold-usually the front door.
3. Publish a copy of the notice of sale at least once a week for three successive weeks in a newspaper of general circulation in the county where the property is located.
4.  Mail a copy of the notice of sale to the trustor and to all persons who requested a Notice of Default or who are entitled to receive a Notice of Default.

As mentioned earlier, the trustor can reinstate the loan up to five business days before the scheduled sale and stop the foreclosure process.  During the final five business days before the sale, the trustor must redeem the loan if he wants to stop the foreclosure.  In order to redeem the loan, the trustor must pay off the entire loan balance in addition to any past due interest payments, costs, fees and penalties attached to the loan.

Note: The foreclosing beneficiary can allow the trustor to reinstate the loan during the redemption period.  The foreclosing beneficiary can also renegotiate the terms of the loan at this time.

If the trustor is unable to reinstate or redeem the loan, a Trustee’s Sale is held.  The sale is held like a public auction with the property going to the highest bidder.  As mentioned in the first article, if there are no bidders, the property reverts to the foreclosing beneficiary.  This is how REOs (Real Estate Owned by the beneficiary/lender that foreclosed) are created.

WARNING: The Trustee’s Sale is one of the most dangerous ways of buying real estate.  However, this is where you can get the best bargains.  Warning:  If you are not aware of the rules of the game, you could get “killed” instead of  “making a killing”. 

BY LARRY BLACHMAN REAL ESTATE BROKER & FORECLOSURE SPECIALIST