| Foreclosure is defined as a
legal procedure whereby a lender gains title or sells a mortgagor’s after
he or she does not pay it in order to satisfy all or part of the unpaid
debt. This obligation is secured by a deed of trust. Foreclosure process
consists of four basic steps:
Step One: The lender or lender’s representative (trustee)
files a
Notice of Default
with the county, after the property owner (trustor) doesn't make
appropriate loan payment. In California the
lender will still accept payments from the owner to reinstate the loan up
until 5 business days before the date of sale of the property. After that
the lender has a right to demand a full loan payment.
Step Two: If the trustor fails to cure the default on the
loan within 90 days, the lender files a Notice of
Trustee Sale
with the county. The notice states that the lender is going to sell the
property at public auction to the highest bidder. Profits
from the sale will be distributed to all lien holders on the property.
Step Three: At the auction,
the buyer required to have the funds (cash or cashiers checks) for the
amount he or she is bidding. The buyer is responsible for any outstanding
loans, tax liens, or other
liens on
the property.
Step Four: The property will revert to the lender if the
lender/trustee is not able to find a bidder for the minimum set amount to
sell the property. The property is now termed
Real Estate Owned
(REO) and is available for purchase directly from the lender.
In California, foreclosure may be done in the form of
judicial or non-judicial procedures.
Judicial Foreclosure Procedure requires
a court action to foreclose. Judicial foreclosure is used when the
mortgage or deed of trust do not contain a clause giving the lender the
right sell the property if the borrower fails to make appropriate loan
payments.
Non-Judicial Foreclosure Procedure is
used when mortgage or deed of trust contain a clause giving the lender or
their trustee the right to sell the property if owner is in default on
his/her loan.
Foreclosure Procedures
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Judicial Foreclosure |
Non-judicial Foreclosure |
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1. Mortgage files for court action. |
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1.Lender informs trustee of default. |
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2. Sale of property is ordered by court. |
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2.Trustee issues "notice of default" to
trustor, subsequent recorded lien holders and all others who have
requested notice. |
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3. Commissioner assigned by the court
publicizes "notice of sale" and posts the notice on property. |
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3. Trustor has 3 months to remedy the default. |
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4. A certificate of sale is issued to the buyer
at time of sale. |
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4. After 3 months, trustee publicizes "notice
of sale" in a newspapers and posts notice on property. |
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5. Mortgagor has 1 year to sell property (pay
loan in full) (statutory right of redemption) and to remain in
possession (liable for reasonable rent). |
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5. Trustor can make payments to reinstate the
loan up until 5 days before the sale. |
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6. A sheriff's deed is issued 1 year after the
sale. |
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6. Trustee sells the property to the highest
bidder. |
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Note:Trustor
owns property until the sale and may sell it him/herself. |
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