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To fully embrace and succeed in the foreclosure business you must understand:
1.) What is foreclosure?
2.) How it affects the homeowner's credit
3.) How it affects the economy
1 - WHAT IS FORECLOSURE
When a homeowner is granted the trust and privilege of a mortgage company's tens and hundreds of thousands of dollars, the homeowner agrees to pay it back with interest. THE HOMEOWNER IS BUYING THE USE OF THE MORTGAGE COMPANY'S MONEY. FORECLOSURE IS THE LEGAL METHOD AFFORDED TO THEM BY STATE LAW TO TAKE BACK THE PROPERTY THE HOMEOWNER AGREED TO BUY. The length of time for foreclosure varies from state to state.
2 - HOW FORECLOSURE AFFECTS THE HOMEOWNER'S CREDIT
Unlike bankruptcy, foreclosure will affect a homeowner's ability to borrow money. The mortgage companies and banks find it difficult to loan money to a person who has already defaulted on borrowed money. When a person has filed bankruptcy, they cannot default on a loan for seven years and can therefore obtain' a new mortgage loan a day after the bankruptcy has been finalized. Though the interest rate might be high they can obtain. A loan where as with foreclosure people will not own a home for seven to ten years. Thus foreclosure is a financial failure to avoid at all costs.
3 - HOW FORECLOSURE AFFECTS THE ECONOMY
The housing industry is a major piece of a solid economy. When a foreclosure market occurs, it has a devastating ripple effect that is felt clear into the banking industry. Banks make loans to insure their depositors and investors good returns. When a significant percentage of their loans end up in default, it can not only damage the value of their stock, but it also can cause them difficulty with the regulatory agencies that banks answer to.
THE PROBLEM
We have experienced one of the largest marketing booms in U.S. history. Mortgage companies have developed some creative financing enabling homeowners the ability to purchase more house than can typically be afforded that interest rates that are the lowest in ten years. The ARMs (adjustable rate mortgages) are maturing now at increased interest rates and houses are being refinanced at higher interest rates putting the homeowner's personal financial solvency at risk. In the meantime these same homeowners are financing their consumer debt with their equity thus giving them no room to solve their dilemma. We are seeing rising interest rates and high debt to income ratios for
many homeowners. Combined with a slowing economy, these are the major factors contributing to the continuing explosion of foreclosures. Millions of Americans stand to face enormous financial strain or foreclosure when their adjustable-rate mortgages reset this year. The number of mortgage holders slipping behind in monthly payments rose steadily throughout the winter, according to major foreclosure tracking companies. As federal interest rates continue to increase, the number of borrowers defaulting on their mortgages is certain to grow.
In the short term, higher interest rates are the most direct source of strain on mortgage holders. There are several types of unconventional loans that proliferated in the late 1990s after lending standards were relaxed. These loans served to decrease initial mortgage payments, but at the expense of greater risk for much higher payments in the future. The most popular are interest-only and adjustable-rate mortgages (option ARMs).
Option ARMs have been attractive during the low-interest rate period of the past few years because with these loans mortgage payments follow the prevailing rates, varying from month to month. The introductory rates tended to be extremely low, sometimes half that of the traditional 30-year mortgage rate, which itself reached historic lows last year.
But when interest rates increase, as has been the case in the last quarter of 2005 and into this year, many homeowners are confronted with much higher mortgage payments.
Interest-only loans allow borrowers to pay only the interest for a set period, leaving the principal payments as optional. The most common type of interest-only loan is called a 2/28, with a two-year interest¬ only period on a 30-year mortgage. Millions of buyers Relied on this type of loan in the last two years.
For interest-only mortgage holders who made only the minimum payments during the past two years, the principal has actually grown enormously. Now the initial interest-only period is ending for many of these borrowers.
According to Economy.com, more than $2 trillion in US outstanding mortgage debt, nearly a quarter of all mortgage debts, are of the interest-only variety passing the two-year introductory period in 2006 and 2007. The Wall Street Journal reported March 11 that these borrowers will face drastically higher interest rates that may cause their monthly payments to rise by up to 50 percent.
The fluctuations in the housing market are exacerbating the problem. In most areas of the country, average home prices ballooned by thousands of dollars, far outpacing inflation and wages over the past five years. Average monthly payments rose from the already high $779 to more than $1,000. Meeting the
average monthly prime mortgage payments in 2003 required an income of around $37,000, according to National Association of Realtors data. By 2005, buyers needed a qualifying income of nearly $50,000, well above the national median income.
For this reason, first-time or poor credit buyers relied on nontraditional loans in order to afford monthly payments because they would pay only the interest during the introductory period. Meanwhile, the remaining principal on such mortgages grew on interest, presenting an insurmountable burden to borrowers. As home prices in some areas now begin to deflate, many homeowners will find themselves locked into a mortgage worth more than the home's resale value.
The Journal cited a study conducted by First American Real Estate Solutions, a subsidiary of home title insurer First American Corporation, which projected that one in eight households with adjustable-rate mortgages that originated in 2004 and 200S-when home sales and home prices both peaked-will default on their loans in the near future. Because the housing market is slowing, reselling a home without taking a loss will be less likely as time goes on.
Most at risk are the so-called sub-prime borrowers, those with weak credit histories, both because they depended upon non-traditional loans and will now be charged the higher sub-prime interest rates, and because as these rates and bills mount they will face difficulty gaining refinancing approval because of their sub-prime status.
Released March 17, 2005, fourth-quarter foreclosure and mortgage delinquency data from the Mortgage Bankers Association (MBA) underscore the reality of financial constriction. Mortgage payments were behind on an average of 4.7 percent of all residential homes, up from 4.44 percent in the third quarter and 4.38 percent in the fourth quarter of 2004. One in every hundred mortgage loans was in some stage of the foreclosure process-more than 4 million homes.
"The increase in delinquencies is not surprising," MBA vice president and chief economist Doug Duncan remarked in the press release announcing the figures. "We have been expecting an up-tick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and sub-prime mortgages, as well as the elevated level of energy prices and rising interest rates."
Regulators have been well aware of the trends, their painful consequences, and the risks predatory lending poses to home-buyers. For this reason, the banking industry has pressed the Federal Reserve Board to impose tighter lending standards. These would restrict refinancing from those borrowers who fall behind, leaving them wide open for foreclosure and seizure of property. Other policy changes are also contributing to the debt burden of average US households. Under a law that took effect January 1, minimum monthly payment requirements have doubled for many credit card users. This follows last October's bankruptcy law changes, which make it more difficult for struggling debtors to hold on to homes or other assets, and with which the increase in foreclosures coincides.
As significant as the national data is, foreclosure and delinquency rates for regions most neglected, abandoned, or destroyed by consequences of capitalism are the most revealing. The MBA survey found nearly 76,000 households in Louisiana and Mississippi were seriously delinquent in late December of last year. A payment 90 days or more overdue constitutes serious delinquency.
In the month after Hurricane Katrina struck, nearly a quarter of all Louisiana mortgages and 17.4 percent of those in Mississippi were delinquent, or 30 days past due. Most of those have fallen into serious delinquency. At the end of the year, more than a fifth of Louisiana mortgages remained delinquent, and Mississippi's proportion of delinquencies had fallen by only half a percent. A third of all sub-prime loans in both states were in this category. Clearly, thousands of families continue to suffer without adequate assistance, months into the supposed reconstruction process.
Latest data from Foreclosure.com indicate that western states such as California, Arizona, and Nevada-among the states which saw explosive growth in construction and inflated home prices in recent years¬ experienced a wave of new foreclosures in February. Foreclosures in California increased by 150 percent from January to February; Arizona saw a rise of 161 percent for the same period; Nevada experienced a 99 percent increase.
Wednesday, March 29, 2006
Mortgage Bankers Association Reports Almost 5% of US Homeowners
is Behind on Their Mortgage
As reported by, Jerry Kronenberg in the Boston Herald earlier this month in The Mortgage Bankers Association reported that 4.7 % of all US homeowners are at least 30 days behind on their mortgage in the last quarter. Also, banks began foreclosure process on 0.42 % of borrowers nationwide.
These numbers are staggering, and if you are facing foreclosure, you're not alone. Increasing interest rates on mortgages and credit cards, along with increasing use of adjustable and interest-only mortgages are fueling this trend.
Historically, households that are faced with either paying the mortgage or the heating bill decide to heat the home," he said. "They figure that they'll catch up on the mortgage when winter heating costs subside,"
Posted in Foreclosures, Foreclosure Statistics on March 14th, 2006
National foreclosure statistics were released today for the month of February, 2006.
Overall, fewer properties are in foreclosure than the month before. According to 88,093 foreclosed residential properties were available for sale in the
United States during February - a decrease of about 7% from January.
The total number of new foreclosures listed for sale in February - 21,402 ¬dropped by 10.8 percent from the prior month. February marks the second consecutive month of declining new foreclosures in the United States. However, a year-to-year comparison of new foreclosures shows a 9% increase in the number of listings in February 2006 as compared to February 2005.
This is not a surprise. February foreclosure numbers are historically lower because they reflect the fewer filings made in December in deference to the holidays.
Before 2005 HUD predicted 7 million foreclosures would be filed in 2005 - it was closer to 12 million. They predict in the next five years up to 40 million foreclosures will be filed in ONE year. The financial devastation will displace hundreds of thousands of families and potentially flood the streets with homeless families costing millions of tax dollars. The Katrina disaster displaced over 400,000 families and will have a dramatic impact on these families and our nation for many years to come. People displaced by foreclosure in the next 5 to 8 years will make the Katrina disaster pale by comparison.
Reasons why people lose their home
A loss of an income, death in the family, medical expenses and other life-altering occurrences can happen to anyone, causing us to fall behind in our loan payments. If we neglect paying our credit cards it hurts our credit rating, but if we stop paying our home loan the situation is even worse, because the lender can foreclose, taking ownership the home. For most families, a home is not only a significant financial investment but also a source of pride. The loss of a home, due to unexpected events which leads to financial problems are most often associated with the following life changes:
. Death of a family member
. Illness,
. Loss of job
. Cuts in work hours or overtime
. Retirement
. Injury
.Divorce or separation
Can be financially and personally devastating which can lead to emotion distress and crisis.
The goal of our network of professionals and alliances is to assist families on the verge of foreclosure with the most viable solution to their financial dilemma and avoid foreclosure.
There. Are four (4) options, in preferred order, to help the homeowner:
1) Refinance- If possible thru conventional and private lenders.
2) Mediate a solution with the current mortgage holder.
Mitigation
If you qualify for loss mitigation, there are basically two solutions:
Mitigation - Loan restructure incorporating the arrearage, penalties
And interest into the existing mortgage and putting the loan by stretching the term, so it can be affordable for the client thus making the loan or note in good standing.
Forbearance - Arrearage, Penalties and Interest paid concurrent with the existing mortgage payment. Once the forbearance is completed the loan is placed in good standing. If the homeowner fails to make the forbearance the property is immediately back in foreclosure.
There are many variations of a mediation solution depending on the lending institution, payment history and financial condition of the homeowner. In most cases the lending institution will require 25-30% of what is owed in arrearage, penalties and interest.
3- Pre-foreclosure sale :Purchase the home from the homeowner and rent it back to them while assisting them to reestablish credit and place the homeowner in a place to purchase their house back (often at a price less than they originally owed).
Pre- foreclosure Sale Mediation
Most clients will save their home through pre-foreclosure sale. In this process the mediator/negotiator will assemble and present the hardship package to the lender that the home owner cannot afford to keep the home. They will negotiate with the bank to purchase the home at a discount.
What are my options?
1.) Refinance-Replace your current loan with another (if your credit is good enough and you have equity)
2.) Borrow money to catch up the late costs (if your credit is good enough and you have equity) or (you have family or friends willing to lend)
Loss Mitigation Programs-
Loss mitigation programs were established by the federal government and the mortgage industry in order to stop home foreclosures. They help foreclosure victims in default on their mortgages to find alternatives to home foreclosure. Every homeowner's situation is unique and each lender has their own policies regarding the use of these programs to stop foreclosure. Our extensive experience and solid working relationships with mortgage lenders allows us help you avoid the common pitfalls that many homeowners encounter while trying to work things out directly with their lender. After performing a thorough assessment of your personal finances and analyzing your lender's loss mitigation policies our professional loss mitigators will negotiate with your lender to get you the best possible solution to your home foreclosure problem. We can help you save your home and credit history through a variety of loss mitigation options:
Solutions for Temporary Problems
4.) Reinstatement: Your lender is always willing to discuss accepting the total amount owed to them in a lump sum by a specific date. They will often combine this option with Forbearance.
5.) Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a Reinstatement when you know you will have enough money to bring the account current at a specific time in the future. The money might come from a hiring bonus, investment, insurance settlement, or a tax refund.
Special Forbearance - A special forbearance is a written repayment agreement between a lender and a mortgagor, who contains a plan to reinstate a loan with at least three mortgage payments due and unpaid affect your ability to bring your account current. If you have incurred a short term financial hardship and your loan is 90 days to 365 days past due a special forbearance is designed to provide you with more relief than is possible with a regular repayment plan. Typical approval can result in spreading the repayment over 12 to 18 months. Type II ¬can be utilized in an unemployment situation whereby the promise of future employment is present.
6.) Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.
If it appears that your situation is long-term or will permanently
7.) Mortgage Modification: If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the
Following ways: Adding the missed payments to the existing loan balance.
Changing the interest rate, including making an adjustable rate into a fixed rate. Extending the number of years you have to repay.
LOAN MODIFICATION
(Available on a very limited number of VA loans with lender and/or investor approval) (Called Recast for FHA)
If you have incurred a long term financial hardship, our office can assist you in supplying the appropriate information to lender to take the appropriate measures to modify the term(s) of your mortgage. This could lower the interest rate and/or extend the term of the loan resulting in lower payments. There are costs and fees associated with a modification that you will be responsible for. All property taxes must be current or you must be participating in an approved payment plan with your taxing authority to be eligible for a modification. Any additional liens or mortgagees must agree to be subordinate to the first mortgage. All requests are subject to your lender's approval.
For FHA Loans
The lender might be able to help you receive a one-time payment from the FHA Insurance fund. Your loan must be at least 4 months but no more than 12 months past due and you must show you are able to begin making full mortgage payments. You must sign a promissory note which allows HUD to place a lien on your property for the amount received from the fund. The note is interest fee, but must eventually be repaid. The note becomes due when you payoff the loan or when you sell the property.
VA LOAN MODIFICATION/REFUNDING
(Available for VA loans only) (Need at least 30 days to process)
A refunding is when the VA buys your loan from the lender. Refunding may give VA the flexibility to consider options to help you save your home that your current lender either could not or would not consider. When the VA refunds a loan under 38 U.S.C. 36.4318, the delinquency is added to the principal balance and the loan is re-amortized. Your new loan will be non-transferable without prior approval from the Secretary. If your interest rate was lowered and an assumption is approved, the interest rate will be adjusted back to the previous rate.
8.) Partial Claim - (FHA mortgages only) (Some Freddie Mac Investor loans)
Under the partial claim option, a lender will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and subordinate mortgage payable to HUD. Currently, these promissory or "partial claim" notes carry no interest and are not due and payable until the borrower either pays off the first mortgage or no longer owns the property. The loss mitigation specialist may assist in requesting a partial claim if you qualify. You may be eligible if your loan is 120 to 365 days past due. A partial claim results in placing your past due payments into a subordinate mortgage (2nd mortgage) between you and the Secretary of Housing Urban Development. The partial claim note will require you to start making payments when you payoff the first mortgage. There is no interest. The partial claim can be for no more than 12 months of past due payments.
9.) Extension of Time - To comply with required time frames, an Extension of Time may be granted for a mortgagee to initiate or complete a Loss Mitigation (exception Preforeclosure Sale option) and/or foreclosure action.
Solution for long term problems
10.) Assumptions - A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable. - Assumption of an FHA¬ insured mortgage is a servicing function where the responsibility or paying for a mortgage is taken over by another person through simple assumption or creditworthiness assumption.
11.) Deed-in-Lieu - A Deed in Lieu of foreclosure is a disposition option in which a mortgagor voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from mortgagors who can financially make their mortgage payments. Deed-in-lieu: Your lender may agree to allow you to voluntarily "give back" your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
If you have incurred a long term financial hardship and your house has been on the market (at fair market value) for at least 90 days, you may be eligible for a deed-in lieu of foreclosure. To be considered for this option, you must complete a financial package and provide a copy of your recent active listing agreement. Also, there cannot be any additional claims or liens (other the mortgage) against the property. If you are approved for a deed-in-lieu, you will be giving up all rights to the property and the property will be conveyed to your investor. In exchange for the deed-in-lieu, the lender may waiver all deficiency judgment rights. You may be asked to participate in a Short Payoff program before a deed-in-lieu of foreclosure is accepted.
12.) Pre-Foreclosure Sale - The Pre-Foreclosure Sale option allows the mortgagor in default to sell his or her home and use the sale proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed.
(Pre-Foreclosure Sale) or (Short Sale) (Compromise of Sale)
If you have suffered a long term financial hardship and are unable to maintain your loan or if you need to sell the property to avoid a default loss on the property, it is possible that the lender may be able to accommodate you with a short payoff This option can also include a period of time to allow you market the property and find a qualified buyer. If the property's sales value is not enough to pay the loan in full, your lender may be able to accept less than the full amount owed.
There may be tax ramifications associated with any short payoff or foreclosure; therefore, we recommend you contact your tax advisor for details. Some states permit lenders to seek a deficiency judgment for the amount the payoff was discounted. See your state's foreclosure law for more information. Check with an attorney for advice on your personal situation.
13.) Foreclosure - Foreclosure should be considered only as a last resort and should not be initiated until all other relief options have been exhausted.
14.) Declare Bankruptcy (caution: this is seldom a solution as most fail and it will negate all other possibilities when filed possibly leaving you homeless, with a life time of debt and financial ruin) . A high percentage that your file will be dismiss (like you never started) due to the recent changes to the bankruptcy laws, causing the foreclosure proceeding to start up again. Please consult your own attorney, if this is an option.
California Foreclosure Timeline
The timeline displayed here is typical in a California non-judicial foreclosure. The foreclosure timeline does not begin until the lender feels they have exhausted all avenues for curing the payment delinquency. Normally, this happens after the borrower has missed 1 to 3 monthly mortgage payments. The borrower has probably been contacted by the lender several times prior to beginning the foreclosure process .The official foreclosure process then begins by the lender contacting a Trustee and instructing them to file a Notice of Default.
NOTICE OF DEFAULT TIME LINE (NOD)
Day 1
Notice of Default recorded with County Recorder.
Within 10
business days
Notice of default is mailed by the Trustee to the borrower and includes the recording date.
Within 1 month
Notice of Default is mailed to borrower again.
90 Days
Notice of Default period ends and Notice of Trustee Sale period begins.
NOTICE OF TRUSTEE SALE (NTS)
After 90 Days
Sale date, time, and location are set.
30 days prior to sale date
Notice of Sale is sent to IRS (if applicable).
20 days prior to sale date
Notice of Sale is published in newspaper and is required to run for 3 consecutive weeks.
20 days prior to sale date
Notice of sale is posted on the property.
20 days prior to sale date
Notice of sale is mailed to borrower and required parties involved.
14 days prior to sale date
Notice of Sale is recorded in County Recorder's office
5 days prior to sale date
The borrower's right to reinstate expires
Auction day
Sale Date
The property is sold to highest bidder or reverts back to lender
Auction time
The final stage of the foreclosure process is the auction. In most cases the borrower has tried every possible way to save the property (refinance, borrowing, sale, joint venture, etc.). Auctions typically take place at the civic center or the courthouse of the county where the property is located. Auctions start at all different times of the day so it is important to do your research and make sure you are prepared before auction day.
The auctioneer usually begins the auction by stating which property sales have been cancelled and/or postponed for that day. Next the property address and/or APN number (assessors parcel number) is announced and the opening bid follows. The opening bid is almost always determined by the principal loan amount that is owed to the lender initiating the foreclosure. This opening bid amount will usually include the principal balance, late fees, interest due, attorney fees, trustee fees, etc.
The auction generally requires a "cash" purchase and it is not uncommon for properties to be sold for substantially less than their current market value. To keep you further informed, ListsPlus.net offers "auction tracking" so that you will know of any auction delays and the new date scheduled for the auction.
Properties are sold "as-is" for cash or cash equivalent. Use extreme caution when buying at a Trustee's Sale; make sure you know everything about the property because you'll own it. You will need to track properties you are interested in, making sure to record postponement dates and reasons for postponement. Keeping an accurate database is essential. When a property sale has been postponed, many times other investors will lose track of the properties, thus reducing competition at the actual sale. ListsPlus.net offers tracking for all properties using a Trustee Sale Number (TS #). When you are seeking information regarding a property, this number is used to reference the property.
Trustees are the ones processing a foreclosure and typically the only information they will give out regarding a property will be the date, time and location of a sale, along with an opening bid price.
Default and Foreclosure Timeline
Example Timeline
1/2/2006 - January payment becomes past due.
2/2/2006 - February payment becomes past due - account is now due for 2 payments.
3/2/2006 - March payment becomes past due - account is now due for 3 payments.
3/5/2006 - Lender sends the Notice of Intent to Foreclose to the mortgagor.
4/8/2006 - Notices have expired - Lender refers account to Foreclosure attorney.
5/8/2006 - Foreclosure attorney begins the legal process by filing a "Complaint" at the county courthouse.
6/23/2006 - Mortgagor does not respond to the complaint - a "Default Judgment" is entered.
6/25/2006 - Sheriff s office schedules a "Sheriff Sale" date.
7/25/2006 - Notice of "Sheriff Sale" is sent to each mortgagor on the loan.
8/25/2006 - "Sheriff Sale" is held.
8/27/2006 - Sheriff prepares and records a deed conveying title to the purchaser. If a third party does not purchase the property, the deed will convey title back to the lender.
8/27/2006 - Eviction process begins if the mortgagor still resides in the property.
California Non-Judicial Foreclosure Flow Chart
California Foreclosure Law Summary
Quick Facts
- Judicial Foreclosure Available: Yes
- Non-Judicial Foreclosure Available: Yes
- Primary Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 120 days
- Right of Redemption: Varies
- Deficiency Judgments Allowed: Varies
Real Estate Foreclosures
California has its own unique foreclosure process that all lenders must follow. Much of this process is unique because California uses Deeds of Trust to secure a mortgage to a piece of real property. Both Judicial foreclosures and
Non-Judicial foreclosures are available in the state of California. From start to finish, a foreclosure can take more than 120 days to complete. California is known to file for judicial foreclosures and Non-Judicial foreclosures.
If borrower does not contest they will drop the judicial foreclosures.
And will go with the least expensive process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to payoff the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
1. A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.
The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee's name, address and phone number and a statement that the property will be sold at auction.
2. The borrower has up until five days before the foreclosure sale to cure the default and stop the process.
3. The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidder’s ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
Foreclosure Process
1. Notice of Default
Foreclosure proceedings start with a Notice of Default (NOD). The lender (or trustee for the lender) files a Notice of Default with the county, after the property owner (trust or) fails to make his/her loan payment(s). This is done to give, constructive notice to the public which is required by law. The owner may be delinquent anywhere from 15 days to 12 months, or more. This time period is also referred to as the Reinstatement Period.
After the recording of the Notice of Default, in the state of California, the borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current with the lender.
2. Notice of Trustee Sale
If the borrower does not reinstate their account within the 90 day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
After 21 days of the recording of the NOS, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount. Bidders are required to bring cashier's checks or money orders to the sale in an amount equal to or higher than the lenders opening bid. The auctioneer will qualify each bidder and the successful bidder will have to tender full payment at the time of the sale.
The Notice of Trustee's Sale is recorded at the County Recorder's office in the County where the property is located. It contains the date, time. and place where the auction will take place. This notice has to be published in an adjudicated newspaper in the city where the property is located. The NOS is also posted on the property as a requirement of law.
Buying property at a Trustee's Sale is not like purchasing property in a conventional manner. You will not have the opportunity to inspect the property after you have purchased it at sale. Any and all due diligence must be conducted prior to the Trustee's sale. This means potential purchasers will benefit from tracking the properties as the Notice(s) of Default are filed up until the time they are sold at the Trustee's Sale. There is a great service we have used over the years to track distressed properties called RealtyTrac. You can receive a free one week trial to their real estate foreclosures tracking service.
3. Disbursement of Funds
After the sale auction is completed and if the property sells to a third party bidder, all funds owed to the lender/beneficiary will be prepared for immediate payout. If the property reverts to the lender/beneficiary at the sale, a Trustee's Deed upon Sale will be issued and the lender will have ownership to the property securing the debt.
Foreclosure Terms
Foreclosure-The forced sale of property offered as security for a debt that is in default.
Deficiency Judgment
A deficiency judgment refers to any difference in the sale amount and the amount owed to a lender in a
foreclosure proceeding. A court may issue a deficiency judgment in favor of a lender if there is a deficiency in the proceeds from the sale of real property to cover the costs and amount owed to the lender. The court can issue a 1099 (to the borrower) for the difference or they may send the borrower to a collections agency, or even garnish the borrower's wages.
In regards to foreclosures, Trust Deeds are a written instrument legally conveying real property to a trustee (or a third party) used to secure a mortgage or promissory note.
Trustee's Sale
A sale conducted by a Trustee, in the case of foreclosures, this refers to the sale of the property in question.
Notice of Default
Written notice sent by a lender notifying the borrower that he/she has not met his/her obligations under the loan contract, and the lender may take legal action to enforce said agreement. In other words, the lender is notifying the borrower that they may start a foreclosure action against them and their property.
In the case of a "power of sale" clause existing in a mortgage or deed of trust, the non¬judicial process of foreclosure is used. The clause "power of sale" in the deed of trust or mortgage pre-authorizes the sale of property to payoff any balance on a loan in the event of a default by the borrower. In such cases, this power, which is given to the lender to sell the property, can be executed either by the lender, their representative or a trustee.
Power of sale California foreclosure guidelines
In the case of the deed containing the power of sale clause that specifies the time, place and term of sale, the procedure has to be followed at the specified time and place. If not, the non-judicial power of sale method of a foreclosure is carried out.
Here, the notice of default has to be recorded in the county the property is located at least 14 days prior to the sale and, has to be mailed by certified, return receipt requested post to the borrower at least 20 days before the sale. It has also got to be posted on the property 20 days before the sale and in one public place in the county it is to be sold in. This notice has to include the time, location and property of the foreclosure sale, the trustee's name, address, phone number and a statement that the property is being sold at an auction. The borrower then has 5 days before the foreclosure to cure the default and thus stop the process. The sale can be held on any business day between 9a.m. and 5p.m. at the location specified in the notice. Anyone can bid at the sale, but the trustee requires proof of the bidders' ability to pay their full bid amount. If necessary, the sale can be postponed by an announcement at the place and time of the original foreclosure.
Typically, a title insurance company is named as the trustee to arrange the sale of the real estate.
Antideficiency Statues
Some states such as California have enacted antideficiecy statues. These statues generally prohibit a lender’s deficiency judgment against a borrower (often in connection with a nonjudical foreclosure action) or limit a deficiency judgment to the difference between the debt and greater of the fair market value of the secured property (as determined to the satisfaction of the court) or the price paid at the foreclosure sale. Depending on the applicable state antidefiecency statue and court decisions interpreting the statue, the protection afforded by the anti deficiency statue may or may not be extended to apply to a guarantor if a lender elects to foreclosure and brings a suit against a guarantor for a deficiency judgment.
One – Action States
Some states such as California have also enacted” one action” statues or rules, that a lender to one lender to one lawsuit to collect its debt and enforce its security interest. In certain states that enacted one –action statues or rules such as California, a lender must commerce a foreclosure action (judicial or, if permitted, nonjudical) contemporaneously with or before any action for monetary judgment against a borrower.
California is famous for its one-action rule, in which a lender must carefully elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order, and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance. Such a suit is permitted as the lender's one action.
California lenders rarely elect judicial foreclosures.
A copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least 20 days before the sale. If access to the property is restricted by means of a central guard gate, then the notice must be posted on the guard gate. A copy of the notice must be posted at one public place in the city where the property is to be sold (or judicial district in rural areas) at least 20 days before the sale.
Recording
A notice of trustee sale must be recorded at least 14 days before the sale.
Mailing
A notice of trustee sale must be mailed by certified mail, return receipt requested, 20 days before the foreclosure sale to the borrower, to anyone who requests notice or recorded a request and to the trustors, beneficiaries or parties at interest.
Sale Procedures: Non-judicial
Time
All sales under a power of sale in a deed of trust will be made between the hours of 9:00 a.m. and 5:00 p.m. on any business day, Monday through Friday, at the time specified in the notice of trustee sale.
Place
The sale shall commence at the location specified in the notice of sale.
Manner
The sale must be made a public auction to the highest bidder. The trustee has the right to require every bidder to show evidence of ability to pay the full bid in cash, cashier's check or certain bank checks. Each bid is by law an irrevocable offer to purchase. However, a higher bid cancels an earlier bid. It is unlawful and a criminal offense (a fine of $10,000 or up to one year in jail) to offer anyone consideration not to bid, or to fix or restrain the bidding process in any manner.
Postponement
Sales may be postponed by announcement at the time and location specified for the intended sale. The borrower may postpone the sale in order to obtain cash, provided the written request for postponement identifies source from which the funds are to be obtained, and the postponement is only for one business day. The borrower may obtain one such postponement.
Reinstatement
Debtors may reinstate up to five days before non-judicial foreclosure sale.
Junior
Junior lien holders may no longer redeem, so they may try to protect themselves by (1) advancing funds to bring the senior loan payments current, then foreclosing for the sums advanced; (2) bidding at the foreclosure sale so the price will be sufficient to payoff the senior and the junior liens; or (3) acquire the property by bidding at the foreclosure. If the debtor has a right to redeem and does so, the junior who purchased the home must be reimbursed. Junior liens do not reattach the property if a borrower redeems a senior lien whose foreclosure extinguished the junior. This helps borrowers by encouraging the junior to bid up to the property to fair market value at the foreclosure sale, or else lose out, giving borrowers closer to fair value at sale.
Deficiency
Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure is on a purchase money obligation. The same rules do not apply to guarantee or later lien holders. The lenders may seize alternative collateral. If the lender forecloses by filing a lawsuit, then the lender can obtain both a foreclosure sale order and a judgment against the borrower for a deficiency after the court-ordered sale, but only for the difference between the judgment and the fair value of the security.
Redemption
A borrower's right to redemption is terminated when a deficiency judgment is waived or prohibited. When redemption is permitted, after judicial foreclosure, only the borrower can now redeem and junior lien holders or "redemptionors" may not. When the lender is permitted to seek a deficiency, elects to pursue a
deficiency and forecloses judicially, the borrower may redeem 12 months after sale, but a full credit bid by the lender cuts it to 3 months
Foreclosure FAQ
Q. Can the bank just come and kick me out of my house?
A. No. Only an order of the court can force you to leave your home. Ultimately you may be evicted but there are procedures within the court system that the mortgage holder must follow first for the foreclosure and then another set for the eviction.
Q. Can you explain some of these steps?
A. Other states may have similar procedures but almost all states have a fairly unique system of foreclosure. If you are already in the foreclosure process you would be well advised to consult with an attorney that is familiar with the laws in your state.)
Pre-Foreclosure
1. Customer misses mortgage payment.
2. Late notice send by bank.
3. Customer misses additional payments.
4. Bank attempts in writing and by phone to contact customer and resolve
situation.
5. No arrangements are agreed upon and customer continues to miss payments. 6. Bank issues demand for payment under the note in full, based on the acceleration clause. Most mortgage notes contain language which basically says if you fail to pay the bank under the terms of the note with monthly payments as promised they can accelerate the note, meaning that the full amount is due on demand. For example if your mortgage is $100,000 with payments of $1000.00 per month you are only required to pay $1000.00 per month unless you miss these payments and the bank subsequently demands the balance based on this acceleration. Once this happens you legally owe the full balance of $100,000.00 plus back interest, plus late charges, plus legal fees all at once. You will find from this stage on the bank will not accept monthly payments. They will instead demand much more to reinstate the
loan. Although I consider this step in the pre foreclosure category, once demand has been made and the note has been accelerated you should already have contacted an attorney who is an expert in dealing with these matters. 7. No payments or arrangements acceptable to the bank are made.
Formal Legal Foreclosure Process
1. Bank sends by sheriff or by certified mail Notice of Intent to Foreclose.
2. Bank begins action in the court system to foreclose.
3. Legal notices (see soldiers and sailors notice below) as required by laws begin
to be published in local papers.
4. No payment or settlement arrangements are made with the lender.
5. Notice and waiting periods expire.
6. Court holds hearing regarding banks claim.
7. Court issues order allowing bank to foreclose. (Beware, one foreclosure firm
Will begin 2 and 6 at the same time shortening the process.)
8. Legal notice of actual foreclosure sale and advertisements published in local
papers. 9. No payment arrangements or settlements reached with the bank. 10. House sold at auction to highest bidder.
Q. How long does this process usually take?
A. From the time you miss your first payment to the final foreclosure sale it’s not uncommon for six months or more to pass. In some state this could be more and in others considerably less. It will also depend a great deal on your mortgage holder and how aggressively they pursue your case.
Q. When in the foreclosure process do I have to move out of my house?
A. YOU DON'T!!!!!!!!! The foreclosure process even when followed through to completion only transfers ownership of the house from you to the high bidder. This transfer of ownership becomes complete at a closing following the foreclosure auction. After the auction you automatically become a tenant in the house you formally owned. At this point the new owner must follow the legal procedures in your state for eviction.
Q. What is the eviction process?
A. Again this will vary widely from state to state and you should be consulting with an attorney with expertise in this field if your case has gone this far.
1. When someone has taken your house at foreclosure they can send you a legal notice to leave the premises under a 72 hour notice.
2. If you fail to leave after the 72 hours has elapsed the new owner must go to
court to present his case before a judge that you should be evicted.
3. At a hearing the judge will decide if you are to be evicted or not as well as
how long you may stay in the house before you must go. Your willingness to
pay rent will playa large role in granting more time.
4. If the judge finds against you and you are unhappy with his ruling you have
10 days to appeal his decision.
5. If you have been ordered evicted and you have not moved out on your own by the day designated by the court the new owner may obtain an execution of the eviction judgment which will give a sheriff the right to physically remove
you from the premises.
6. A sheriff gives you notice of the execution and as little as 48 hours to move. 7. Anything left in the house is moved by the sheriff into storage, where you will have to pay fees to get it back, locks are changed; resistance at this point may subject you to arrest.
Q. How long does the eviction process take?
A. From the day you are given you notice until a sheriff might pack up and move your possessions out of your house you can expect a 6 week to 6 month time frame, with the average coming closer to 10 weeks.
Q. Once the foreclosure process starts is there anything I can do to stop it?
A. Yes. If working from your first late payment there are at least 10 or 20 different ways to resolve the situation. The longer you wait, however, the more some of these options will become unavailable.
A. Never. You have not lost until you have decided the fight is over. Even after a foreclosure, even after an eviction you still have as much right to buy your house back in the open market as anyone else. Realistically if you have not been able to save the house before a sheriff evicts you, chances are strong you will never be able to structure a deal to buy the house back. This is largely based on the assumption that you hired a capable attorney and had the ability to strike a deal. If so, you would have done so long before a sheriff removed you from the house. I actually handle many cases which have been resolved after the foreclosure auction with the result that the homeowner keeps their house. Although possible, I have not yet seen anyone repurchase a home after a physical eviction.
Q. I am receiving a lot of mail from people that claim they can help me where are they getting my address?
A. Because of the legal nature of the foreclosure process your name and address may be part of public information offered through the court system and ultimately published in certain journals and publications.
Q. What kind of people sends these letters and can they really help me?
A. Many groups of people try to contact homeowners in foreclosures:
Mortgage Brokers. If there is enough equity in your home they can help you to refinance and stop the foreclosure by paying off your current mortgage in full. This solution often works well, but you must be careful because the interest rate and closing costs on these types of loans can be high. Due to your credit situation you will pay much more than at a bank, but some brokers may try to charge even more points or interest then another just to gouge the debtor for more fees if they think they can get it. Keep your eyes open and a foreclosure prevention loan can save the day.
Chapter 13 Attorneys. If you have the financial ability to complete the
chapter 13 plan and this also a valid way to save the house, just beware that many of these attorneys will be more than happy to file a chapter 13 for you whether it is the best option or not. It is my personal feeling that this should be an option of last resort unless your personal circumstances dictate this as the best solution for you. Keep away from lawyers running "bankruptcy
mills" as I call them. These firms may offer low fees but will let paralegals handle your entire case, never really getting to know your situation or giving you the personal attention you need.
Mortgage Negotiators. Some people hold themselves out as professionals who can save you from foreclosure, other than those who fall into the crooks category below, some can be quite skilled at negotiating "repayment plans". Homeowners can arrange these plans with the banks themselves in easy cases. These professional foreclosure ne20tiators can help in cases where the people seem to be failing at getting a "repayment plan" done with the bank on their own or where the bank's terms seem too demanding. Often more favorable terms can be reached by a professional.
Private Financiers. Two very distinct groups fall into this category. The most useful for people wanting to save their home from foreclosure will be private mortgage financiers who will help arrange a new home loan, even when they have been turned down by other high risk lenders. Other investors will want to buy the house from you. Keep a sharp eye on what they are doing for you and what they want for themselves. Sometimes these people can help save your home, other times they don't care about anyone else and depending on how they set things up they can make your situation even worse. Remember there are many ways to save a house from foreclosure. You do not need to sell your house unless you do not want to live there anymore or you can not afford the payments even if you got a new mortgage or could catch up on the old mortgage.
Your Mortgage Holder. Especially those involved with government backed mortgages will offer ways for you to reinstate your existing mortgage. While I have seen some of these letters which can be down right misleading compared to what the banks will realistically do, reinstating an existing mortgage is a viable option and in many cases the best option.
Crooks and Con Artists. I include in this group not only those who will take your money with promises to keep the house take your money and provide no services but also groups which do no more than take your money as an illegal referral fee and then pass your name onto a chapter 13 attorney. In the worst cases I have heard of groups that will take title to your home, force you to pay them rent with the promise that they can save your home, with the result that either they save your home keeping any equity for themselves or in the alternative collect rent from you until the home is sold. Furthermore, since you would no longer own your home Chapter 13 would be lost as an option.
Q. From your experience how do you find that most of these cases are settled?
A. Our older statistics indicate the following: Approximately 40% of clients refinance Approximately 35% of clients file a chapter 13 Approximately 20% reinstate their existing mortgage, most with the help of a professional foreclosure negotiator and about 5% are unable to save their homes or use a more unusual method. More recent trends and lending criteria indicate fewer people refinancing.
Q. What is a "Soldiers and Sailors" answer date?
A. World War Two -an act was passed to stop foreclosures on anyone in active military service. Unless the debtor is in active service this is just one hearing in the process. In most cases it's significance is that the real foreclosure date will be 3-6 weeks following the soldiers and sailors answer date. You do not need to appear at the hearing or answer unless you are currently in the military.
Q. What happens at the actual foreclosure sale?
A. Although any given sale may be a bit different it will go like this:
1. The Auctioneer will read various legal notices and legal descriptions of the
property. 2. He or she begins taking bids on the property. 3. If the Auctioneer has not already pre-qualified bidders by asking for their
deposit checks, when a bid is made by a party the Auctioneer will ask for
their deposit check. For most residential auctions this will be $5,000.00
4. The Auctioneer will solicit bids for higher amounts. Depending on the auction increments will be set by the Auctioneer. Examples of increments maybe $100.00, $500.00 or $1,000.00. This process will continue until it has become clear to the Auctioneer that the high price has been reached.
5. The Auctioneer will announce the standard "going once, going twice, and going
three times, sold!" and the auction is concluded.
6. Foreclosure deeds and purchase papers will be drawn up by the new
purchaser and the mortgage holder.
7. A grace period will be given to allow the purchaser to line up financing. In
most cases this should be thirty days.
8. A closing will take place and the new owner will formally take title to the
property.
Q. What happens to the money paid by the new purchaser?
A. Monies will be distributed in order of priority. First priority will be real estate taxes. If monies are available after taxes monies will go to the first mortgage then the second mortgage, third mortgage etc., etc. The next money will go to any lien
holders or attaching creditors. This process will continue until all liens and encumbrances on the property are paid. If by some chance there is still money left over it goes to the former home owner.
Q. May I bid at my own auction?
A. Yes if you have the required deposit. Remember this is a non-refundable deposit and if you are the successful bidder you must be able to refinance the home within the specified period of time required under the terms of the auction. Also beware that some of the old debts may merge and become reinstated.
Q. What does this mean when debts merge?
A. Let's say for example that the first mortgage is foreclosing and forecloses out the second and third mortgage. The second and third mortgage holder no longer has any right or title to your home. You may still owe this money but they have no right to foreclose on the home nor do they have any security interest in the home in any way. If you had filed a chapter 7 bankruptcy prior to the sale and received a discharge after the sale you would not only not owe them any money and they would no longer have a security interest either. Your debt for all intents and purposes will be extinguished completely. If someone else buys your home at the auction the bank, the second and third mortgage holders have lost all their right to the property but on the other hand if you buy the property back the debt may" merge" back to the property with you and reattach, as if the auction never foreclosed them out.
Q. What happens when a property is auctioned subject to a first mortgage?
A. This happens when the mortgage is being foreclosed by the second mortgage holder. They can only foreclose from their position. Let us say for example there are outstanding taxes of $10,000.00 and a first mortgage of $90,000.00 on the property with the second mortgage foreclosing. At the auction the second mortgage would foreclose from their position subject to the first mortgage and the taxes. You find at this type of auction at a bid of $1.00 is the same as bidding $100,000.00. To own the house out right one would have to satisfy the first mortgage and the taxes.
Q. What happens if no one at the auction bids an amount high enough to cover my debt?
A. lf the mortgage were $150,000.00 and the high bid at the auction was $100,000.00 the $50,000.00 balance would be called a deficiency. Under most loans in most states you would still be responsible for the $50,000.00 as an unsecured debt and the bank
would have legal rights roughly the same as what would exist on a credit card debt to pursue you.
Q. Is there any special redemption period after the foreclosure during which I could buy the house back?
A. Many states have such a redemption period. In Massachusetts there is no redemption period for the foreclosure of a real estate mortgage. There is however a redemption period if your house is sold at a sheriff’s sale or for back real estate taxes.
Q. What is the difference between a foreclosure and a sheriff’s sale?
A. Foreclosure auctions will be held by a mortgage holder after a default. A sheriff’s sale would be held by a lien holder or attaching creditor after default.
Q. At the foreclosure sale will the attorney's and potential bidders have to come into the house?
A.) No. More than likely they will come onto the front lawn. If you would like to invite them inside the house you are welcome to but you are under no obligation to and they can not make you do so. If you are going to lose the home and are hoping for a high bid so you will have little or no deficiency you may invite them in (assuming the house is nice inside) otherwise don't.
Definitions
Foreclosure - A legal process in which, against the wishes of the owner, real property is sold to satisfy a public or private debt for which the real property has been pledged as security.
Notice of default (NOD) - a notice that is filed with the county recorder when a homeowner is not current on the loan that is secured by the homeowner's property. If the default is not cured within a statutory period of time, the lender can move to auction the property to the highest bidder.
Foreclosure Sale (NTS) - The actual sale of real property at the conclusion of a foreclosure proceeding. The sale may be to a third party as a result of a high bid, or to the foreclosing creditor (the lender) if there are no bids higher than the amount of the defaulted debt plus foreclosure costs. If the sale generates proceeds beyond the satisfaction of the debt and foreclosure costs, the balance generally must be refunded to the party who has lost title to the property. (the homeowner)
Real Estate Owned - Real property that has been foreclosed by a lender and is now owned by the lender.
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