The California Foreclosure Process

In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner's financial situation improves. Let's say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder's office. A copy of the notice is mailed to the property owner. If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a public sale. In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current. If the owner cures the default by making up the payments, the deed of trust will be reinstated and regular monthly payments will continue as before. After this time, it may still be possible for the property owner to work out a postponement on the sale with the lender. However, if no postponement is reached, the property goes "on the block". At the sale, buyers must pay the amount of their bid in cash, cashier's check or other instrument acceptable to the trustee. A lender may "credit bid" up to the amount of the obligation being foreclosed upon. With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property. Foreclosure Process California has a non-judicial system to carry out a foreclosure of a deed of trust. That means that no court procedure is required for a lender to sell the property to satisfy the debt. Some states carry out a formal judicial process which tends to be lengthier, and frequently have a redemption period after the sale. Here in California, the judicial process is available, but rarely used. The following steps will outline what is all involved in a non- judicial foreclosure.

1.) MISSED PAYMENTS OCCUR. Usually after the third missed payment the lender will initiate a foreclosure. There is no law that dictates the number of payments that must be missed, but most trustees wont proceed unless the loan is more than 30 days in arrears. This is done by issuing a Declaration of Default and Demand for Sale which is passed on to the foreclosure trustee. 2.) DEPOSIT DEED OF TRUST AND NOTE WITH TRUSTEE. The lender (beneficiary) deposits the deed of trust and note with a foreclosure trustee. If there has been an assignment of the deed of trust, such assignment must also be deposited. If the original note has been lost, foreclosure can still be commenced, but the beneficiary must post a lost instrument bond in most cases. 3.) The trustee must examine the documents for any special provisions other than those provided by law. 4.) The trustee prepares the NOTICE OF DEFAULT, which must set forth specifically the nature of the breach by the homeowner. It does not have to specify the amount of the default, just the nature of the breach. For instance, it could say Failure to pay the April 2000 and subsequent payments. 5.) The notice of default must then be executed (signed) by either the trustee or the beneficiary. Title companies generally prefer it be executed by the beneficiary(s), but as a practical matter it is usually executed by the trustee. 6.) The trustee will cause the notice to be RECORDED IN THE COUNTY WHERE THE PROPERTY IS LOCATED. In California, this notice does not even have to be notarized, which makes it one of the few documents that do not have to be notarized to be recorded. 7.) After recording the notice, the trustee will obtain a Trustees Sale Guarantee (TSG), which will inform the trustee of all persons who have filed a request for notices of default and sale, all other persons legally entitled to notice by mail, whether the owner of any interest (either the owner of the property of a subordinate lien holder) is either bankrupt or in receivership, and whether there are any subordinate Federal Tax Liens. All of this information is necessary for the trustee to properly conduct the sale. The TSG assures the trustee that they have this data. 8.) 10 DAY NOTICE BY MAIL is made by certified or registered mail, return receipt requested, to all parties specified in step seven above. These parties include junior lien holders as well as any others who have recorded a Request for Notice form with the county recorder. It is the trustee's obligation to make these mailings. Some of these requests may be in the Trust Deed itself, and the trustee must take special note of this. Note: The trustor, or borrower, is someone whose request for notice is most often buried in the Trust Deed. 9.) PERSONAL SERVICE, OR SERVICE BY PUBLICATION WHEN REQUIRED. If the Deed of Trust does not have sufficient information to mail the Notice of Default to the trustor, then this must be accomplished by hand delivery or published in a newspaper of general circulation in the country where the property is located. If published, it must be

published once a week for four weeks, commencing no later than ten days from the date when the Notice was recorded. 10.) ONE MONTH NOTICE BY MAIL. Within one month of the recording of the notice of default, copies must be sent to the following: the successor in interest (current record owner) as of the recording date of the Notice, the beneficiary of any junior lien to the one being foreclosed, any assignee of such junior lien described above, the vendee of any contract of sale or the lessee of any lease of the estate or interest being foreclosed which is recorded and which is subordinate to the deed of trust being foreclosed, the successor to any interest in the above. The notices to these parties must also be mailed by registered or certified mail, return receipt requested. 11.) REINSTATEMENT WAITING PERIOD. The beneficiary must then wait three months from the recording of the notice of default before he proceeds any further. During this time, the trustor may reinstate the mortgage by simply catching up the back payments plus the costs already incurred in the foreclosure proceedings. The loan may also be reinstated by one of the junior lien or trust deed holders. The made-up payments then become part of what the trustor owes him, and the junior lien holder may then initiate foreclosure proceedings of his own. When the foreclosure proceedings are stopped by the reinstatement, a Rescission of Notice of Default is recorded by the trustee to clear the record of the notice of default. 12.) FINAL CHECK BEFORE NOTICE OF SALE IS ISSUED. After the three months noted above have elapsed, the trustee then contacts the beneficiary to confirm that the default continues and has not been waived or impaired, which might be done by accepting a payment on the obligation after the filing of the notice of default. In most cases, the acceptance of a payment not sufficient to make up (cure) the default does not constitute a waiver. The waiver is usually granted only where the trustor can prove he was misled by the beneficiary into believing a partial payment would stop the proceedings. If the default has not been cured, the trustee should contact the title company for a date down to see if any recent bankruptcies or federal tax liens have appeared. The trustee must then get an affidavit from the beneficiary setting forth factual data that leads to the conclusion that the trustor is not a member of the armed forces, nor has been discharged as a member of the armed forces within the past three months. 13.) PREPARATION AND PUBLICATION OF THE NOTICE OF SALE. The trustee must then prepare and publish, in a newspaper of general circulation in the country where the property is located a notice of sale. The notice must be published once per week for a period of at least 20 days prior to the sale date. 14.) POSTING NOTICE OF SALE. The notice must be posted in a conspicuous place both on the property and in at least one public place in the city where the property is to be sold. The trustee should then prepare and have executed an affidavit of posting. 15.) MAILING THE NOTICE OF SALE. The trustee should mail by certified or registered mail copies of the notice of sale to all of those that were entitled to receive both the ten day and the one month mailings.

16.) The trustee must RECORD THE NOTICE OF SALE with the county recorder at least fourteen days prior to the date of the sale. The trustee may also postpone the sale at any time up until the date of sale at his discretion or if the beneficiary so instructs him. The trustee need merely announce the postponement at the original time, date and place of the sale, and give the new date and time (the place must be the same). 17.) TRUSTEE'S SALE. The Trustees sale is an auction. The trustee will start the sale by reading aloud the complete notice of sale. He will announce the amount of the opening bid, which is usually the value of the unpaid principal and interest on the trust deed being foreclosed, along with any advances and trustee's fees paid. The amount of the opening bid is dictated by the Beneficiary. If there are bids over the opening bid, the successful bidder must be pay at the drop of the hammer, either in cash, money order, certified check, or cashier's check. If the beneficiary is the purchaser, the balance due on his trust deed may offset against the bid price. A junior note holder, however, cannot offset his trust deed in this way. Such a junior lien holder may arrange with the trustee for a credit bid for the amount of his deed of trust over the amount due the holder of the lien being foreclosed. In other words, the junior lien holder still has to produce the cash to pay the loan being foreclosed. The trustee does not guarantee title nor express an opinion as to the condition of title. During the sale, the trustee has the right to require every bidder to show evidence of his ability to deposit with the trustee his full bid in cash prior to accepting the bid. If the last and highest bidder fails to deliver to the trustee the amount of his final bid in cash or the equivalent of cash in satisfactory form, such bidder shall be liable to the trustee for all damages which the trustee may sustain by the refusal to deliver to the trustee said amount of the final bid, including any court costs and attorney's fees. In addition, in the State of California such bidder may be guilty of a misdemeanor. 18.) PREPARATION OF TRUSTEE'S DEED. This deed may be delivered to the highest bidder at the close of the sale and the payment of the bid price, or the trustee may record it as a courtesy. 19.) ENDORSEMENT OF NOTE: The trustee must place on the face of the note the amount of the indebtedness and the amount for which the property was sold. 20.) DISBURSEMENT OF SALE PROCEEDS. Should the property sell for more than the amount of the fees, and the principal and interest owed, then the proceeds of the sale shall be paid first to any junior lien holders, and when these are satisfied, to the trustor or current owner of record. . These, then, are the 20 steps of the foreclosure process. As a final word, in the State of California, the sale cuts off all rights of redemption. The purchaser has right to immediate possession. After the required three day notice, the new owner may evict any person remaining on the premises by unlawful detainer procedures. The purchaser receives all fixtures and improvements, whether installed before or after the commencement of foreclosure. Even though the sale eliminates all junior liens, if the maker of such note shall come back into ownership of the property, that lien can be revived.