Save Your Home… Avoid Foreclosure

What is a FORECLOSURE?

"Foreclosure" is a common term used to describe a trustee's sale proceeding- the correct terminology to use when

describing the procedure for enforcing a lender's rights once an obligation secured by a Deed Of Trust (or similar

instrument) is in default. It is a legal process by which a defaulted borrower is deprived of his or her interest in the

mortgaged property.

Reasons for Foreclosure

There are numerous underlying reasons for foreclosure. These include, but not limited to, the following:

Job loss

Business failure

Payment increase or mortgage adjustment

Divorce or death of a spouse

Illness

Relocation

Reduced income

Mortgage fraud

Predatory lending

For most owners, mortgage default and foreclosure proceedings represent unchartered, nerve-wracking territory.

Consequences of Foreclosure

The Effects of Foreclosure on

Distressed Homeowners Neighboring Homeowners Surrounding Community

Loss of home

Loss of equity

Damage to credit:

- Lowers credit score by 200

points or more, up to 400

points

- Remains on credit history for

7 years

Declining home values

Loss of equity

Increased possibility for

vandalism and theft

Declining home values

Reduced taxpayer base

Increased possibility for

vandalism and theft

Foreclosures are often expressed in popular media as occurring in “waves”, e.g., the foreclosure wave due to the reset of

option adjustable-rate mortgage (ARM) interest rates, the foreclosure wave due to increases in unemployment, etc. While

it may be adequate to describe the number of foreclosures as waves, the individuals who have experienced foreclosure

first-hand might describe a foreclosure more in terms of a tsunami. In some situations, owners may be forcibly evicted

from their homes. Abandoned properties may be boarded up, gutted, or vandalized.

A Look At Terminology and Process

1. Pre-foreclosure- the period beginning with initial mortgage default up to when the distressed

property is sold. The length of what is considered pre-foreclosure varies, depending on the state

laws.

2. NOD – short for Notice of Default (NOD), this is an official notice from the lender that the borrower

has defaulted on the mortgage. The NOD formally begins the foreclosure process. The NOD also

outlines the reinstatement period.

3. Reinstatement Period- the time stipulated in the NOD in which the borrower may reinstate the

loan-making required payments and bringing one’s account into good standing.

4. Short Sale- a situation in which the seller (1) owes more money on the loan than the sale of the

property will likely produce on the market and (2) is unable or unwilling to bring money to closing.

The seller may or may not be in pre-foreclosure.

5. Notice of Sale- if, after receiving the Notice if Default, the borrower does not or is unable to

reinstate the loan, a notice of sale is recorded. The notice of sale explains when and where the

foreclosure sale will be held.

6. Foreclosure Sale- also known as the Sheriff’s auction, sheriff’s sale, or Trustee’s sale, this is

when a property is auctioned for sale to the highest bidder.

7. Redemption Period- the time that gives a distressed owner has the right to redeem real estate

after the foreclosure sale. Redemption typically requires that the owner pay the sales price,

interest, and other costs. Note: not all states provide for redemption periods.

8. REO- acronym for Real Estate Owned, REO is the status of the property when the foreclosure

sale is not successful and when ownership of the property is transferred involuntarily to the lender.

FORECLOSURE PROCESS & TIMELINE

Jan Feb Mar April 1 May 1 June 1 July 1 July 21

PRE-FORECLOSURE

PERIOD

90-DAY FORECLOSURE

PERIOD

AUCTION

(HOME IS SOLD

TO HIGHEST

BIDDER)

The homeowner is not

making any mortgage

payments during this

period.

A 90-day

Notice of Default

is sent to the

homeowner to bring the

loan current.

A 21-day

Notice of Trustee

Sale is sent to the

homeowner.

OPTIONS for Distressed Homeowners in Avoiding a Foreclosure:

1) STAY IN YOUR HOME: The following are options than can be explored to retain your home:

A. Refinance, if eligible.

B. Sell the property and pay the deficit out of personal funds.

C. Substitute other property as collateral for the over-encumbered trust deed.

D. Work with your current lender with mortgage loan workout options:

a. Forbearance

b. Reinstatement

c. Repayment Plan

d. Loan Modification

e. Sign over property to the lender in exchange for Debt Forgiveness

E. Rent the property to help with the mortgage payments until the equity builds.

F. Deed the property back to the lender in "deed in lieu" of foreclosure.

2) File for bankruptcy (please consult with a Real Estate and/or Bankruptcy Attorney first). This DOES NOT prevent your

home from foreclosure.

3) SELL YOUR HOME or obtain lender(s) approval to do a SHORT SALE TRANSACTION.

4) Do nothing, walk away and let the property go into FORECLOSURE.

***It is highly advisable that you discuss your options with a trusted Realtor or Real Estate Professional to determine

the best solution to your situation***

Stages in Foreclosure

Stage One: Missed Payments (Default)

In most states, a homeowner must fall 90 days behind on their mortgage before the mortgage lender can legally initiate

the foreclosure process. So if you have missed fewer than three payments, you're not actually in foreclosure. However,

this phase is very important, because (a) you have to go through it before the foreclosure process can start, and (b) this is

the phase in which you as a homeowner have the most options at your disposal.

If you are in the missed payment stage, this is the best time to rework your finances, to call your lender to work out a

compromise, and to put your home on the market for a fast sale.

Stage Two: Pre-Foreclosure

Once a homeowner's mortgage payments have not been made for at least 90 days, the lender records a public notice that

the owner has defaulted on their mortgage, and then mails the notice to the homeowner. In some states this notice is

called a Notice of Default (NOD); in others, it is a Lis Pendens. Depending on the law in your state, the lender might be

required to post the notice on your front door.

This pre-foreclosure stage is really a grace period; it gives a homeowner three calendar months to "cure" your default.

What's the cure? You can either work out an arrangement with the lender, sell the place or come up with the cash you

owe.

Stage Three: Auction

If the default is not cured within three months after the Notice of Default is issued, the lender or their representative (the

foreclosure trustee) sets a date for the home to be sold at an auction called a Trustee Sale. The Notice of Trustee Sale is

recorded with the County Recorder's Office, delivered to the homeowner, posted on the door of the property and

published in a local newspaper -- to make sure everyone knows when and where the auction will be.

This auction is either held on the steps of the county courthouse or in the trustee's office. In many states, the homeowner

has the "right to redemption" (he can come up with the outstanding cash and stop the foreclosure process) up to the

moment the home is sold at the auction.

At the auction, the home is sold to the highest bidder. The big catch is that these auctions require cash payment in most

states; few third-party buyers can afford to bring enough cash to the courthouse to pay in full. As a result, many lenders

either simply ink an agreement with the homeowner to take the property back (called a deed-in-lieu of foreclosure) or buy

it back themselves at the auction.

Stage Four: Post-Foreclosure

If a third party has not purchased the property at the foreclosure auction, the lender takes ownership of it. Then, the

property becomes what is called a bank-owned property, also known as REO, short for Real Estate Owned (by lender).

REOs are sold in one of two ways. Most often, they are listed with a local real estate agent for sale on the open market;

they are usually put on the multiple listing service (MLS) so that local buyers' agents can show and sell the property to a

qualified buyer for a commission. Some lenders prefer to sell their REO properties at an REO liquidation auction, often

held in auction houses, at convention centers or at the property.

The California FORECLOSURE Process

Notice of

Default

Postponed

Sold to BANK

Sold to 3RD

Cancelled

Notice of

Trustee

Sale

AUCTION

TRUSTEE’S

DEED

Start of

foreclosure

process. Initial

notice recorded

when borrower

does not meet

terms of loan.

CC2924c.(a)(1)

Sets auction

date. Can be

recorded 90

days after

Notice of

Default.

CC2924c.(b)(1)

Initial auction

date can be 14

days after Notice

of Trustee Sale

is recorded.

CC2924f.(b)(1)

Auctions can be

postponed for up

to 1 year.

CC2924g.(c)(1)

Transfers

property to

winning bidder or

foreclosing bank

if no bids are

received.

CC2924h.(c)(1)