The Foreclosure Process

Foreclosures are conducted two ways, judicial (by the court with court approval) or non-judicial foreclosure sale (trustee sale) depending on the laws of the state where the property is located.

Trustee Sales (Non-judicial Foreclosures)

Starting the Process

  • The process starts once the property owner is in default on their mortgage payment.
  • The lender will order a Trustee Sale Guaranty (TSG) Report from the title company which lists all the parties that have an interest in the property, including all current liens, encumbrances and judgments.
  • Lender initiates the foreclosure action by recording a Notice of Trustee Sale or Substitution of Trustee with the County Recorder's office in the county where the property is located, and sending a copy of the notice to all interested parties on the deed. This is the only document used to initiate a trustee sale.
  • A writ will be issued by the court authorizing the sheriff's or trustee's sale.
  • The borrower will have the choice to reinstate his loan by paying back the outstanding balance and any late fees and costs. If this happens, then the foreclosure process is stopped by the lender. If the borrower cannot pay the default amount, the lender forces a trustee's sale.
  • A copy of the notice is then placed on the property and at the courthouse or a public place where the auction will take place. By law, the notice must be published in a newspaper of general circulation in the county where the property is located usually for four consecutive weeks. All properties are issued a trustee sale number. In order to find information and track the property, you will need this number. No information other than the date, time and place of the sale or postponed dates are given out to the public.
  • Properties that have IRS tax liens or other claims require additional procedures that lenders must take. Bankruptcy properties are under the jurisdiction of the bankruptcy court and cannot be sold at auction until the court so orders. Since there are no real estate commissions paid at trustee foreclosure auctions, no real estate agents are involved.

Properties are Sold "As Is"

Properties are sold at an auction sale in an as is condition. Sometimes inspections of the property are allowed prior to the sale. There are no guarantees of clear title either, and no title insurance is available. The highest bidder acquires the property will all liens that had priority prior to the sale. Title is transferred to the new buyer by power of trustee sale.

Redemption Periods

Redemption laws in certain states allow the borrower to redeem their home prior to or after the sale depending on the laws in a particular state.

Day of the Auction

Most auctions are held on the courthouse steps and conducted either by the trustee or the sheriff. Typically before the auction starts or before auctioning each property, the auctioneer will inquire who is qualified to bid on the property. In order to qualify, bidders must show their cashier's check to the auctioneer. Each state has different trustee sale rules and regulations. Generally, biddder's are required to bring a cashier's check of at least 10% of the purchase price. Some states require an all cash payment for the property after the sale. Others will allow the new buyer to finance the property within a 30 days period.

Judicial Foreclosures

Starting the Process

  • In a judicial proceeding, a lawsuit is commenced by the lender (a lis pendens) if the borrower has default on their mortgage payments. Typically, the lender will initiate the action after 90 to 180 days from the time the borrower defaulted. In today's market, the lenders are trying to work with the borrowers to keep them their homes by either giving them a mortgage modification or refinancing the loan if the borrower has the ability to make the reduced payments.
  • Copies of the paperwork must be sent to the borrower and any junior lien holder.
  • The lender must prove that the borrower is in default. The borrower is given an opportunity to respond to the action.
  • If the court finds that there is cause for a foreclosure action, the court will issue an order setting forth the terms and the conditions of the sale. Majority of judicial foreclosures are conducted at the courthouse steps by either the sheriff or auctioneer.
  • After the sale, the court must approve the terms.

Properties are Sold "As Is"

Properties are sold at an auction sale in an as is condition and without any warranties or guarantees like the Trustee Sale. No title insurance is available either.

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