Foreclosure is an incremental process that follows state-specific guidelines based upon individual state laws.
Since most properties in California are held with a Deed of Trust, the foreclosure process is generally handled as a Non Judicial proceeding, meaning the process takes place outside of the courts. Listed below are five basic steps for a State of California, Non Judicial Foreclosure:
Step 1: Notice of Default
If you are delinquent by a minimum of one payment, lenders have the right to file a "Notice of Default" (NOD). The Notice of Default is recorded at the County Recorder's office and is a public record. With the new laws passed in July 2008, a lender must attempt to notify the owner 30 days prior to filing the NOD. This change means that the foreclosure process in California will take a minimum of five (5) months.
Within a specified number of days of being recorded, the Notice of Default is sent by registered or certified mail, and separately by regular mail, to the property address and to any other person who requested notification. After it is recorded, copies are mailed to any people or entities that are identified as having an interest in your property (i.e., the holder of your second or additional mortgage). If there are liens on your property for delinquent property taxes or delinquent federal or state taxes, the appropriate government entity will also be notified.
NOTE: If you have not contacted your lender(s) and have received a NOD, it may not be too late to stop the foreclosure process. The lender may work with you to modify your loan or delay your payments temporarily.
Step 2: Notice of Sale
After receiving the Notice of Default, if you do not bring your loan current or make other arrangements with the lender within a minimum of 90 days, the lender will direct a Trustee (entity acting on behalf of the lender) to file a "Notice of Sale" (NOS). The Notice of Sale will be published in a general circulation newspaper for no less than 20 days. The notice will also be mailed to the property address and posted on the property. The notice will indicate the time, date and location of the sale as well as the amount due as well as contact information for the lender. The sale is called a Trustee Sale and is often referred to as an Auction.
Step 3: Right of Reinstatement
In California you have the right to reinstate your loan up to five (5) days prior to the Trustee Sale. To reinstate the loan, you will need to "Cure the Default" by making the lender whole. This means you will need to pay the lender more than just the missed payments. You will be required to pay all late charges, and any fees or expenses incurred by the lender in the foreclosure process.
It is important to note that the lender will only accept a certified check or bank wire during this process. Once you reinstate the loan you can continue to make payments as if the loan had never been in default. If at some future point you miss another payment, the lender must start the foreclosure process from the beginning.
In California you also have the Right of Redemption. To exercise the Right of Redemption, a borrower can "redeem" the property by paying off the lender in full prior to the actual Trustee Sale. Again, in addition to the amount due on the loan, the payoff will include any penalties, fee and costs associated with the foreclosure process. Once the Trustee Sale takes place, you have no recourse and can't get the property back.
Step 4: Trustee Sale or Auction
On the advertised date and time, the lender will put your house up for sale. The Trustee Sale is usually held on the courthouse steps or other public location in the county the property is located in. The property will be sold in "as is" condition. The proceeding is conducted like any other auction, with an auctioneer asking for bids. The lender in first position (the one with the most at stake) is almost always the lender conducting the foreclosure.
The lender will place a minimum bid, generally for the value of the debt , including principle, interest, late charges, and cost of the foreclosure. All the bidders except the foreclosing lender must have cash or a cashier's check for payment. Once the highest bid is accepted, the trustee's deed is executed and the trustee's deed transfers title to the winning bidder free and clear of all junior liens. Because the lender opens the bidding with the minimum amount acceptable, any higher bid will pay the lender off in full.
According to the California Association of Realtors®, 97% of the foreclosure properties revert back to the lender and become REO's (Real Estate Owned).
Step 5: Eviction
Failing to leave the property will require the new owner to initiate a "lock out", declaring you a "hold-over tenant". The traditional means of handling a holdover tenant is by issuing an unlawful detainer (which is the same procedure used by a landlord to evict a renter). If you have not left the property by the specified date, a lockout will take place in which a sheriff is hired to remove you from the property. The locks will be changed on site by a locksmith.
You can always ask for more time to move out of the home. If you have taken good care of the home, the auction buyer may wish to keep you there until the buyer's plans for the property can be finalized and may want to rent the property back to you. The new owner may consider this a good deal based on the number of bad things that can happen to vacant properties, such as vandalism, weather damage, and so on. In short, it preserves the new owner's interest in the property by having a trusted occupant in the home. Another common tactic by the new owner is to offer Cash for Keys. In exchange for an agreed upon amount, you would move out of the home quickly and leave the property in "broom clean condition".
NOTE: The eviction requirements for a prior owner and a tenant are different. For more information contact the California Department of Consumer Affairs.
The foreclosure process has many legal and tax ramifications. If you are facing foreclosure, it is recommended that you seek legal and financial advice from a trusted professional
The information contained in this report is deemed to be accurate but is not guaranteed.
Sources: "The Foreclosure Bible" and the California Association of Realtors®