First-quarter foreclosure activity in California increased to the highest level in more than two years and lenders sent 18,668 default notices to California homeowners during the January-to-March period. That was up 23.4 percent from the prior quarter and up 28.7 percent from 2005's first quarter, according to DataQuick Information Systems. Home sales and appreciation have slowed, a larger number of homes are available, California has lost several large employers to other states, interest rates have risen sharply in the last two years, rising consumer debt, and creative financing are all contributing to the ever-increasing number of foreclosures. Since a larger number of us might be experiencing foreclosure at some point or know someone else who is already involved in one, it is more important than ever to understand the foreclosure process in California. Background California has an unusual foreclosure process that all lenders must follow. Much of this process is unique because a Deed of Trust is used to secure a Real Estate Mortgage. A Trust Deed is a written instrument legally conveying real property to a Trustee and is used to secure a mortgage or promissory note. Under this system, there are three parties to the Deed: the Trustor (the borrower), the Beneficiary (the Lender) and the Trustee (the Lenders representative for this particular transaction). Trustees are typically other companies that specialize in providing those services. In California, lenders may foreclose on loans in default using either a judicial or a non-judicial process. Judicial Foreclosure The Judicial Foreclosure is used when the Mortgage or Deed of Trust does not contain a Power of Sale and it involves filing a lawsuit to obtain a court order to foreclose. It is uncommon with most commercially available real estate loans and more typically occurs where a private party loaned the money rather than a traditional lender like a bank. Typically, once the court authorizes the foreclosure, a property is auctioned to the highest bidder. With a Judicial Foreclosure, a lender may seek a Deficiency Judgment to recoup some of their losses. That simply means that when the high bid on the property is less than the amount owed to the lender, a judgment may be entered against the foreclosed owner for any remaining balances. That lender could then pursue other assets and/or garnishments against the original owner to satisfy the deficiency. The court may also issue a 1099 to the Borrower for the difference because the deficiency amount is taxable as income. Non-Judicial Foreclosure The Non-Judicial Foreclosure is used when the Mortgage or Deed of Trust includes a Power of Sale clause where the borrower has pre-authorized the lender to sell the property to satisfy the loan should they default. That power may be performed by the lender or the Trustee. Non-Judicial Foreclosure Process The stages of the Non-Judicial Foreclosure process include: Notice of Default (NOD) After the property owner fails to make the loan payments as scheduled; the foreclosure process begins by the Lender or the Trustee filing a NOD with the County Recorder in which the property is located. This document serves to provide public notice of the foreclosure as required by law. It is simply a written notice notifying the Borrower that he/she has not met his/her obligations under the loan contract and that the lender may take legal action for enforcement. The owner may be delinquent anywhere from 15 days to 12 months or more, but it is quite common that the first NOD will be filed after a loan is delinquent for three months. Once the NOD is recorded, the borrower and any junior lien holders are also given proper notification and the Borrower has 90 days to bring the account current with the lender. Notice of Trustee Sale (NTS) If the loan default is not resolved within the 90 days, the Lender will instruct the Trustee to record a NTS with the County Recorder's office. By law, the NTS must contain the date, time, and place for the auction, the property address, a statement that the property will be sold at public auction, and the Trustees name, address and telephone number. The NTS must also be published in a local newspaper and posted on the property. Trustees Sale After the NTS has been recorded and the requisite waiting period, a public auction of the property can be held. At the auction, the property may be sold to a third party bidder or it may revert back to the Lender for the outstanding balance of principal, interest, late fees, legal expenses, etc. In order to qualify for bidding on the property, a bidder must present cashier's checks for an amount equal to or greater than the Lenders opening bid. Each bidder will be qualified by the auctioneer before bidding can begin and the full payment is due at the time of the sale. Disbursement of Funds Once the auction is completed and if the property sells to a third party bidder, all funds owed to the Lender will be forwarded. If the property reverts to the Lender, a Trustee's Deed Upon Sale will be issued in favor of the Lender who then has ownership of the property. Lenders may not seek Deficiency Judgments in the Non-Judicial Foreclosure process and the Borrower has no rights of redemption. If you become involved in a foreclosure or know someone that has, it is important to not delay dealing with it right away because options may become more limited as time passes. DISCLAIMER: Although knowledgeable about the foreclosure process, the author is not an attorney and provides this general information only to help readers better understand how it works and how to safely cope with their own legal needs. However, legal information is not the same as legal advice. The application of law varies with every individual's specific circumstances. Although great lengths have been expended to make sure this information is accurate and useful, it is strongly recommend that you consult a lawyer if you want professional assurance that this information, and your interpretation of it, is appropriate to your particular situation. For more information, visit www.ocforeclosurehelp.com or call (949) 963-9021 for 24-hour recorded information. |
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