About Foreclosures

Please note that when buying or selling a property in foreclosure, there could be serious tax and/or legal consequences involved.  As we are not attorneys, we highly recommend that you consult with your own tax/legal advisor.  Please contact us today for an initial consultation so that we may help you move forward in the right direction.  Together, we CAN help you if you are facing a financial hardship of any kind.  You may not have to sell your property or lose your home. 

About California Real Estate Foreclosures

California has its own unique forclosure process that all lenders must follow. Much of this process is unique because California uses Deed of Trusts to secure a mortgage to a piece of real property.  Both Judicial and Non-Judicial foreclosures are available in the State of California.  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.

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. This is uncommon with most commercially available real estate loans and most likely would be found when there is a private party lending the money to purchase or finance real property. Generally, once the court declares a foreclosure, the property will be auctioned off to the highest bidder.

Using this type of foreclosure process, lenders may seek a deficiency judgment in an attempt to recoup some of their losses. California does allow for deficiency judgments, which 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.  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 pay off 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. This is uncommon in most other states where there is no "third party" that can execute the sale upon default by the borrower.

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:

A notice of sale must be:

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.

The borrower has up until five days before the foreclosure sale to cure the default and stop the process.

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 bidders ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.

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 or NOD.  A Notice of Default is 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.

The lender (or trustee for the lender) files a Notice of Default with the county, after the property owner (trustor) 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

A Trustee Sale is a sale conducted by a Trustee, in the case of foreclosures, this refers to the sale of the property in question.  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 a 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 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.

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.

TIMELINE:
Day 1
Record Notice of Default

Within 10 business days
Mail and publish Notice of Default

Within 1 month
Mail Notice of Default

After 3 months
Set sale date

25 days before sale date
Send notice of sale to I.R.S.(when necessary)

Within 10 days from 1st publication
Send beneficiary request for property directions

14 days before sale date
Record Notice of Sale

7 days before sale date
If court action, 7day rule may apply

5 business days before sale date
Expiration of right to re-instate the loan

Sale date
Property is sold to highest bidder at public auction

If you are in the early stages of the foreclosure process and would like to consult with a representative as to how you can stop the foreclosure by requesting a Short Pay-Off or Short Sale, call 805-279-0143 for a free consultation.  You may have options. 

If you are looking to purchase a distressed property in foreclosure or Short Pay-Off or Short Sale request, call 805-279-0143 for more information or for a list of available properties.

REO vs. FORECLOSURE

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction.  You see, most foreclosure auctions do not even result in bids.  After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank.  That is why the property ends up at a foreclosure or trustee sale.

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process.  In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid.  If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property.  There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth,  very few foreclosure auctions result in a successful sale.  Then the property "reverts" to the bank.  It becomes an REO, or "real estate owned" property.

REO PROPERTIES FOR SALE

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property. 

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain. 

HOW BANKS SELL REO's

Each bank/lender works a little differently, but they all have similar goals.  They want to get the best price possible and have no interest in "dumping" real estate cheaply.  Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a "counter-offer."  It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible.  You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies.  Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."

PROPERTY CONDITION

Banks always want to sell a property in "as is" condition.  Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point.  They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.

Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.

Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."

MAKING AN OFFER

Before making an offer, have your agent contact the the listing agent and ask the following:

Are there any inspection reports?

What work has the bank agreed to?

Is there a special "as is" form?

How long does it take the bank to accept an offer?

How does your agent deliver the offer? 

Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation.  Keep in mind: nothing happens evenings and weekends (banks are closed).

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography.  Make your offer easy to accept.

Hopefully these tips will manage your expectations.  Remember that REO's sell at pretty close to full market value and are not always the best deal.  

Finding the right home, negotiating the right terms, making an offer and getting through buying an foreclosure is a unique and complicated process. We welcome you to contact us if you're thinking of buying or selling a bank owned home or one in the process of a foreclosure. 

Call us today for a free consultation at 805-577-7902.