I'm getting alot of buyers inquiring about presale forclosures with an excited interest. It's kinda like meeting a new guy/girl and you just like EVERYTHING about them! But we all know only fools rush in, and momma always told you find out what you want to know about folks before you start making commitments!
Even more so with dealing with presales/foreclosures. I did some research for all the new "foreclosure lovers" out there, so you know what you're really dealing with when you decide to make that special commitment to invest in this particular market. There will be other articles to follow, so make sure you add this blog to your favorites!
Let's start with the basics:
California Foreclosure Procedure:
Judicial Foreclosure Available: Yes
Non-judicial Foreclosure Available: Yes
Non-judicial Sale Typically, a title insurance company is named as the trustee to arrange the sale of the real estate.
California is famous for its one-action rule, in which a lender must carefully elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order, and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance. Such a suit is permitted as the lender's one action.
California lenders rarely elect judicial foreclosures.
Preliminary Notice: Non-judicial:
Notice of Sale
The notice of sale must contain the name, street address and phone number of the trustee conducting the sale and the original trustor, along with a statement warning borrowers that their property is about to be lost at a public foreclosure sale and to contact a lawyer for an explanation.
The notice must give the street address. If no street address exists, the notice must state the address of the beneficiary from whom a set of directions to the property may be obtained I they are requested in writing within ten days from the first publications of the foreclosure notice.
Advertising
A copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least 20 days before the sale. If access to the property is restricted by means of a central guard gate, then the notice must be posted on the guard gate. A copy of the notice must be posted at one public place in the city where the property is to be sold (or judicial district in rural areas) at least 20 days before the sale.
Recording
A notice of trustee sale must be recorded at least 14 days before the sale.
Mailing
A notice of trustee sale must be mailed by certified mail, return receipt requested, 20 days before the foreclosure sale to the borrower, to anyone who requests notice or recorded a request and to the trustors, beneficiaries or parties at interest.
SaleProcedures: Non-judicial:
Time
All sales under a power of sale in a deed o f trust will be made between the hours of 9:00 a.m. and 5:00 p.m. on any business day, Monday through Friday, at the time specified in the notice of trustee sale.
Place
The sale shall commence at the location specified in the notice of sale.
Manner
The sale must be made a public auction to the highest bidder. The trustee has the right to require every bidder to show evidence of ability to pay the full bid in cash, cashier's check or certain bank checks. Each bid is by law an irrevocable offer to purchase. However, a higher bid cancels an earlier bid. It is unlawful and a criminal offense (a fine of $10,000 or up to one year in jail) to offer anyone consideration not to bid, or to fix or restrain the bidding process in any manner.
Postponement
Sales may be postponed by announcement at the time and location specified for the intended sale. The borrower may postpone the sale in order to obtain cash, provided the written request for postponement identifies source from which the funds are to be obtained, and the postponement is only for one business day. The borrower may obtain one such postponement.
Reinstatement
Debtors may reinstate up to five (5) days before non-judicial foreclosure sale. The sooner a homeowner consults with the Lender, the greater the chances for this option. This allows the homeowner to restore their credit standing to a reasonably acceptable condition.
Junior
Junior lien holders may no longer redeem, so they may try to protect themselves by (1) advancing funds to bring the senior loan payments current, then foreclosing for the sums advanced; (2) bidding at the foreclosure sale so the price will be sufficient to pay off the senor and the junior liens; or (3) acquire the property by bidding at the foreclosure. If the debtor has a right to redeem and does so, the junior who purchased the home must be reimbursed. Junior liens do not reattach the property if a borrower redeems a senior lien whose foreclosure extinguished the junior. This helps borrowers by encouraging the junior to bid up to the property to fair market value at the foreclosure sale, or else lose out, giving borrowers closer to fair value at sale.
Deficiency
Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure is on a purchase money obligation. The same rules do not apply to guarantee or later lien holders. The lenders may seize alternative collateral. If the lender forecloses by filing a lawsuit, then the lender can obtain both a foreclosure sale order and a judgment against the borrower for a deficiency after the court-ordered sale, but only for the difference between the judgment and the fair value of the security.
Redemption
A borrower's right to redemption is terminated when a deficiency judgment is waived or prohibited. When redemption is permitted, after judicial foreclosure, only the borrower can now redeem and junior lien holders or "redemptionors" may not. When the lender is permitted to seek a deficiency, elects to pursue a deficiency and forecloses judicially, the borrower may redeem 12 months after sale, but a full credit bid by the lender cuts it to 3 months.
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Useful information. Thanks, Toya.
I have a question. If a homeowner is staring foreclosure in the face, and said homeowner already has messed up his/her credit, which is common since homeowners will forsake credit card payments, etc., in order to try to keep the house, is it possible to simply throw up one's hands and say, "Enough is enough. Here are the keys to the house, Mr. Lender. Do with it what you will." and walk away rather than fighting, or trying to fight, foreclosure? Seems that the Lender would be appreciative in a certain way by not having to spend money on the foreclosure process. Or is the foreclosure process an absolute necessity for the Lender if the homeowner is in default.