Again, you hate for your area to make national headlines on a negative note. CNN reports that more than 101,000 homeowners in California received foreclosure notices in August, about 1 in every 130 households. And Stockton still leads the country with 1 in 50 households received a foreclosure filing during the month. "You go up and down the [central valley] and that's where you're seeing the carnage," said Rick Sharga, RealtyTrac's director of marketing.
Since I get a lot of questions about the foreclosure process, here are three stages of foreclosures:
Notice of Default. This is what the “Trustee” (a Trustee holds naked legal title to property, is a neutral third party between the lender [beneficiary] and the borrower [debtor, homeowner or trustor]) records with the county in which the home is located and becomes public record. This happens after the homeowner, or “Trustor” becomes behind in their payments. A copy of this notice must be sent to the homeowner within 30 days of recording. How far behind until a Notice of Default is recorded? Who knows, it depends on how much equity is in the home, how willing the owner and the bank are to work together, and how busy the lender is with other business. It could be a month or a year. One important note is that once the Notice of Default has been recorded, the Trustee has to wait three months until going to the next step. So, Notice of Default doesn’t mean a whole lot because the homeowner has three months to get current on payments again, but could be a sign that they are getting distressed.
Notice of Sale or Notice of Trustee’s Sale. A minimum of three months after the Notice of Default was recorded, the lender can then record the Notice of Sale or Notice of Trustee’s Sale with the county. This means that they can take the home to auction after a minimum of 20 days. There is a requirement that the Trustee must publish this notice of sale in a “newspaper of general circulation in the area where the property is located” at least once a week for 20 days, not more than 7 days apart and must be publicly posted in the city in which the home is located. Important: The homeowner has until 5 days before the Trustee’s sale to get current on payments, also known as the “reinstatement period”.
Trustee’s Sale. This is also known as the “auction”. The primary lender (first mortgage) can bid on the property without paying any money at all. Whether they bid or not depends on how much equity is in the home. The junior lender(s), (second mortgage, etc.) if any, can also bid on the property. Any old “Joe-Schmoe” can bid on the property, but has to pay cash on the spot, no escrow, no contingencies, no nothing. Pretty risky because there is no protection for the bidder especially if the foreclosed homeowner trashes the place prior to getting booted out, but could be a good deal if one does one’s homework prior to the sale.
When a home is foreclosed where does the money go? First, proceeds go to the Trustee’s fees, costs, and sale expenses, which can run around 40% of the value of the home, one of the reasons lenders don’t like homes to go to foreclosure. Next the primary lender (first mortgage) gets paid, and depending on how much equity, will be enough to satisfy the loan or not. If there is anything left over, the junior lien holders get paid (which is why second mortgages have higher interest rates because they are at higher risk of not getting paid at a foreclosure) then the borrower gets paid. In this market, nobody past the primary lender is getting paid, and seldom they are getting the full amount. So a short sale can be good for everybody because the lender doesn’t have to pay Trustee’s costs.
