The Foreclosure Process
The foreclosure process is initiated by the lender. This process can either be via Judicial Foreclosure or Non-Judicial Foreclosure.
Judicial foreclosures are rarely used in California as the process involves attorneys, courts, a lawsuit and a one year right to “redeem the property.”
The Non-judicial foreclosure is simple, inexpensive and, most importantly, rapid, with no redemption rights.
Non-Judicial Foreclosure Process:
First, at the lender’s request, the Trustee files (records) a NOTICE OF DEFAULT. This notice gives the legal description, the borrower’s name, the lender’s name and basically spells out the reason for the default. A typical default might state “Non payment of the installment of principal and interest which became due January 15, 1996 and all subsequent installments of principal and interest, plus late fees, plus delinquent real estate taxes, plus fees and costs.” The notice will further state the amount of default. The trustor (borrower) has 90 days from the date of recording to “cure” the default by paying all the payments due, including the trustee’s foreclosure charges and any unpaid real estate taxes. In some instances, the note maturity date has passed and the entire principal is due in addition to accrued interest, late fees, foreclosure fees, etc.
If the trustor has not “cured” the default within 90 days, the trustee then records a second notice, a NOTICE OF TRUSTEE’S SALE. This notice sets forth the date for a public auction of the property. The terms of that sale (auction) are generally all cash. The sale is usually held 21-30 days after the filing of the NOTICE OF TRUSTEE’S SALE. Due to changes in California law over the last several years, the trustor retains the opportunity to “cure” the default up to five days before the actual trustee’s sale. If the trustor were to attempt to cure the default a day or two prior to the sale, the beneficiary (lender) could demand the entire principal sum, as the “curing period” has passed.
As indicated above, the sale is a public auction and any interested bidders show up with cash or cashier’s checks for 100% of the bid. The opening bid is sometimes the amount of money owed to the beneficiary, including all accrued interest, late fees, foreclosure fees, etc. In recent years, it has become common for the opening bid to be less than the amount owed. In the event that outside bidders are at the auction, the beneficiary (lender) will then join the bidding process until the amount owed has been realized or the lender is satisfied with an amount less than actually owed. At the sale, the trustee collects the winning bid price from the successful bidder and issues a TRUSTEE’S DEED to the successful bidder. In the event that no outside bidders are present at the sale, the property “reverts to beneficiary.” In this instance, the trustee issues a TRUSTEE’S DEED to the original beneficiary and the lender now owns the property. The foreclosure process “wipes out” any junior liens. As an example, if a first trust deed goes to Trustee’s Sale and there are no bidders at the sale, the first trust deed beneficiary would own the property and that sale would extinguish any second or third trust deeds on the property. Conversely, if a second trust deed goes to sale the new owner will acquire the property “subject to” the first trust deed of record.
A Non-judicial foreclosure is a two step process that does not involve attorneys or courts. The trustee’s fees on a trust deed of $90,000 or less would be hundreds of dollars instead of thousands of dollars in attorneys fees with a mortgage. The total length of the foreclosure process is approximately four months. The lender declaring the default will either be “cured,” paid off or become the owner of the property within the four month process.
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