Steps to the Foreclosure Process
The steps and terminology involved in the foreclosure process in California are often misunderstood. Here’s a quick summary of the basics:
In California, the majority of foreclosures are non-judicial. This means they are processed outside of the courts.
Once a home owner falls 31 days behind on their payment, the lender has the right to file a Notice of Default (“NOD”). Many lenders do not act that quickly and home owners often go 3+ months before the NOD is filed. In some cases, we have seen them go over a year before the NOD is filed! When an NOD is filed, it is recorded with the county (so it is then noted on the property’s title report) AND sent to the home owner. The NOD notifies the hoem owner that they are behind on their payments, the amount that is due to cure the account and officially starts the foreclosure process.
Once a NOD has been filed, the home owner then has approximately 90 days to cure the account. The account can be “cured” through several methods; a home owner with the funds can simply pay the amount due, a home owner can work out terms of a loan modification, short sale or similar-type program, a home owner with equity can sell the home and payoff the mortgage in full or can refinance (if they can find an agreeable lender), etc.
If the account is not cured at the end of the 3 month period, the lender then has the right to file a Notice of Trustee Sale (“NTS”). Again, many lenders to do not act immediately on this but it is within their rights. When an NTS is filed, it is recorded with the county AND sent to the home owner. The NTS notifies the home owner that the account has not been cured and assigns a foreclosure auction date to the property. The assigned auction date must be at least 20 days after the date of the NTS filing. The home owner can continue to work on curing the account up until the 5th business day prior to the auction. Between that point and the auction date, the homw owner’s options are limited to paying off the account in full (they are no longer allowed to “catch up” payments and continue the mortgage).
On the assigned auction date, the lender has the right to auction the property for as much as they are owed on the mortgage. The “published bid” for the auction will default to the full amount the lender is owed (including late fees and foreclosure costs). However, the lender will have the right to drop the minimum bid to a lower amount if needed to be in line with current market value. If the lender chooses to drop the minimum bid, it is normally done the morning of the auction. The final bid amount will be labeled the “opening bid”.
It is extremely common for a lender to postpone the auction date of a property. If they do not have their paperwork in order, or if they believe the home owner is working on a solution, they will often opt to allow more time and will reset a new auction date. The auction dates are normally postponed 30 days at a time. Postponements are normally confirmed the morning of the existing auction date. It is extremely common for auction dates to be postponed 3-6 times. We’ve seen them go over a year at times!
In many cases, the home owners do not have the funds or equity to cure their accounts. They will often look at short selling or bankruptcy as alternative options. We feel strongly that short selling is the preferred option in most cases. Check out our Short Sale FAQ page to see why. When a home owner is in the process of short selling their home, MOST lenders will continue to move through the foreclosure process up to the filing of the NTS. At that point, they often postpone the auction date, as needed, until the short sale is completed, cancelled, or denied.
Please note:
*There is an existing California law that requires lenders to allow an additional 30 day period before filing a NOD on loans that were originated between January 1, 2003 and December 31, 3007.
*The “trustee” is a 3rd party company that handles the foreclosure and auction. The Trustee is the one that actually files the NOD, NTS and directs the foreclosure auction proceedings at the instruction of the lender. For simplicity’s sake, I left them out of the explanation above but it’s important to note the part the trustee plays in the process.
To see a copy of the complete Foreclosure Timeline as presented by the California Association of Realtors legal department, click here.
For a glossary of basic foreclosure terms, click here.
Although a small part of me would LIKE to be an attorney, I am not! Nothing in this article is intended to be legal advice. While the information included is deemed reliable, it is NOT guaranteed, warranted or anything else of that sort!
