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Help… the Bank Foreclosed on My Home, Now What?

Dec 8, 2015

trustee's sale
If you are actively working as a short sale listing agent in the state of California, then it helps quite a bit to be familiar with the California foreclosure process. That’s because you want to be equipped to address any questions and assess whether a distressed borrower might be able to participate in a short sale. I had a Realtor® friend call me the other day and get some clarification on what happens when the bank forecloses. If the bank forecloses on a home, a number of different things can occur, When the bank forecloses on a property because the owner has not made mortgage payments, one of two things will happen:
  • The property will revert back to the bank and the bank is now the owner.
  • The property will be sold at auction to a private party.
If the property reverts back to the bank, then the bank is now the new owner of the property. A bank representative (usually a REO listing agent hired by the bank) will contact the previous owner. If the previous owner is still residing on the property, then the bank representative will attempt to make arrangements for the previous owner to move out. If suitable arrangements cannot be made, then the bank will likely begin eviction proceedings. Note that often these “suitable arrangements” involve a negotiation of cash for keys. Other times, you may be surprised to learn that a fair amount of time may elapse (maybe months or even a year) before a bank representative shows up at the door. If the property is sold to a private party, the private party should take all legal steps to remove the tenant (previous owner). This would include working out a suitable arrangement or filing eviction proceedings. That being said, some private parties do not know all of the laws, and may take matters into their own hands. If you have a client that is facing foreclosure, it is helpful if both you and your client understand the process. As you can see, that process may go a few different directions.

The California Foreclosure Process

Here is some really great information about the California Foreclosure Process, written by Nef Cortez, a licensed real estate broker and has held various positions in the real estate and mortgage industry for over 25 years.

Defaulting on one’s loan causes the start of foreclosure, the process by which the lender takes over the home in order to recover their principal investment. Once the house is either sold at auction or “repossessed” by the lender, it is sold and the former owner must vacate at the discretion of the new owner. When there is a power of sale clause in the deed of trust, the non-judicial process of foreclosure is used.

In California, the timeline of non-judicial foreclosure begins when the trustee files a Notice of Default. This is a letter, which is sent to the owner/trustor notifying him or her of their default of the loan. This notifies the owner of the intent of the lender to follow through on their right to collect on the debt. The copy of the notice, which is recorded at the County Recorder’s Office of the appropriate county, is mailed to the address of notice as per the deed of trust. Recording of the Notice of Default can vary greatly depending on the beneficiary.

The recording of the Notice of Default can occur anywhere between a week to many months after one misses their first mortgage payment. In most cases in the state of California, the Notice of Default is filed approximately 90 days after the first missed payment.

The step that follows next is the stage of the foreclosure process in which there is a filing of the Notice of Trustee’s Sale. No sooner than ninety (90) days after the trustee records the Notice of Default, the Trustee must publish a Notice of Trustee’s Sale in the local paper and simultaneously file that notice with the County Recorder’s Office. No sooner than twenty days (20) after the Notice of Trustee Sale is filed, the home may be sold at public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property, and may dispose of that property to recover their cash investment.

A homeowner should keep in mind that with each succeeding legal action, that these filings are formally recorded and become part of the legal record. Very often these filings can and do have damaging effects to a homeowner’s credit for a period of seven years. The earlier a homeowner can address the situation, the better the overall result will be regardless of the outcome.

Short sale agents need to also be aware of the fact that often times the Trustee’s Sale is postponed or cancelled. However, if that occurs, no additional legal filings will be recorded against the property. This information can only be confirmed by contacting the short sale lender. When you take your next short sale listing, make sure to keep an eye on the property and determine whether there has been any foreclosure activity.
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