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)
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