There is a lot of “Mis-Information” out there regarding the different ways to stop foreclosure. Many clients that Short Sale with me started the foreclosure process thinking that there was an “Easy Fix” or some “Government Program” that their bank would reach out to offer them before it was “Too Late.”
What people don’t realize is that these “Government Programs” were a catastrophic failure.
I have seen so many people lose their house because they thought they were ‘Working It Out” with their lender.
However, while their lender said that they were working with them, they kept the foreclosure process going.
Stats show that the majority of homeowners that try a loan mod, don’t get one and by the time they found out that their lender turned them down, it was too late in the process to execute any kind of “Plan B.”
So, 1st you must understand the foreclosure process in this state and second you need to find out what your options are.
California Foreclosure FACTS
- Judicial Foreclosure: Yes
- Non-Judicial Foreclosure: Yes
- Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 120 days
- Right of Redemption: Varies
- Deficiency Judgments: Varies
In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.
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.
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 the 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:
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.
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.
BELOW IS A VIDEO & TIMELINE OF THE FORECLOSURE PROCESS IN CALIFORNIA
The process begins when a lender files a Notice of Default with the county recorder identifying the default amount and the date the borrower must pay off the default. The notice is mailed to the borrower and other affected parties. Up to five business days before the trustee’s sale, the borrower may pay off the default plus any applicable costs of foreclosure and stop the foreclosure process. Ninety days after the notice of default is filed, the lender can schedule a trustee’s sale of the property.
Ninety days after the Notice of Default is recorded, a Notice of Sale must be posted on the property and in one local public location. The Notice of Sale is also published once a week for three weeks in a local newspaper, starting at least 20 days before the sale date. The notice is mailed to the borrower at least 20 days before the sale and to anyone who requests the notice. The Notice of Sale must contain the date, time, and location of the sale, the property address, and the trustee’s contact information. In addition, the Notice of Sale must be recorded with the county recorder at least 14 days before the sale.
The Trustee Sale Auction is held as a public auction at the time and place designated in the Notice of Sale, and conducted by the lender’s representative. The successful bidder must pay immediately with cash or cashier’s checks in the full amount of the bid. The successful bidder receives a trustee’s deed on completion of the sale. The lender usually bids in the amount of the balance due plus costs. If no one else bids, the property reverts to the lender.
8 WAYS TO STOP FORECLOSURE IN CALIFORNIA
OPTION #1 Contact your Existing Lender
(These Option Do Not Guarantee That The Lender Will STOP The Process)
- Also remember that by nature you and your lender have an adversarial relationship if you are in default. So consider the source, as your lender is giving you advice. They will ALWAYS advise you in THEIR best interest.
- The first thing an owner in foreclosure may want to do is contact their existing lender. Some lenders are willing to work with those who have fallen behind on their payments and have defaulted on their loans.
Below are explanations of options that your lender may extend to you.
Forbearance is an agreement between the lender and the borrower that reinstates the delinquent loan through the payment of a lump sum or a schedule of payments over a period of time. If a borrower is behind in his or her payment by $2,000, for example, the lender may allow the borrower to pay the money back through installment payments over six months. The lender may decide, on the other hand, to allow the borrower to pay a reduced monthly payment until the borrower has an opportunity to get back on his or her feet and pay any remaining arrearages in one lump sum.
The forbearance may be an oral agreement or written contract between the lender and the borrower. Generally these agreements will not exceed more than 12 months.
- PAYMENT PLANS
A payment plan is similar to forbearance. In some cases when a borrower has fallen behind on their payments due to unforeseen circumstances including loss of employment, medical bills, or other financial hardships, the lender may agree to a short term payment plan, normally between 6 and 18 months.
Typically a payment plan will include the normal monthly payment amount, plus the back payments divided by the length of the term of the payment plan.
For example, if the monthly mortgage payment is $2,000 per month, and the borrower is $12,000 behind on their payments, a payment plan of $1,000 additional per month over 12 months may be offered. This would result in a new monthly payment of $3,000 per month over the next year.
- LOAN MODIFICATION
A loan modification is a change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the loan, or other options at the lender’s discretion to assist the borrower through a temporary set back.
Generally a lender will consider a loan modification when foreclosure is eminent and the borrower’s income has been decreased or unable to make the mortgage payments, but will be able to keep the loan current after the loan modification.
- DEED IN LIEU OF FORECLOSURE
A deed-in-lieu of foreclosure is a voluntary conveyance of title to the lender. Generally this is a last ditch effort by the borrower to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the borrower is often released of any personal responsibility for the mortgage.
In order to qualify for a DIL, most lenders state that there must not be a second mortgage or junior liens on the property. Properties with values in excess of the amount owed against the home (to include normal closing costs) should consider selling the property before voluntarily conveying the home to the lender. A deed in lieu of foreclosure can have a slightly less negative impact on the homeowner’s credit score.
OPTION #2 Mortgage Refinancing
Mortgage refinancing is an option where the lender would allow the borrower to refinance his or her existing mortgage, wrap in any late payments and fees, and cash out part of his or her equity in the home to allow the borrower to regain control of a debilitating financial situation.
Refinances are generally open to borrowers that face a temporary set back in their financial situation, have shown outstanding credit history in the past, and can prove that he or she can support the new mortgage payment.
Typically working with a broker who specializes in refinancing for owners in default is the best option as they have access to a large number of lenders who are more willing to work with borrowers who have fallen behind on their payments.
SECOND MORTGAGE / LINE OF CREDIT
A lender may offer a second loan or junior lien to a borrower in order to make up any back payments, late fees and other charges necessary to reinstate the loan. The borrower, in return, will be required to make an additional mortgage payment to cover the principal and interest payments on the second loan. Interest rates often rival credit cards and should be looked at with caution.
A borrower may also be able to borrower money from his or her bank or against a 401K or pension to use to repay the deficiency and reinstate the loan. Conditions generally do apply to these types of arrangements.
OPTION #3 Sell your home
Selling a home is a good alternative for borrowers that are unable to reinstate their loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan(s), and retain any remaining equity in the home for starting new. There are two ways that a homeowner in default may want to sell their home.SELLING VIA THE “TRADITIONAL METHOD”
Listing with an agent can be advantageous, especially in a hot market. By selling on the open market for full retail value, the homeowner can maximize their retention of equity. In a cooling market, however, it can be very difficult to sell a home before the auction date is set. Buyers can make lower offers, include multiple contingencies, and/or can demand that costly repairs are completed prior to the close of escrow.
SELLING TO AN INVESTOR
Selling to an investor has its advantages. Reputable investors have the ability to quickly and quietly buy your home at a fair price, saving your existing credit and allowing you to walk away with a lump sum of cash to start fresh. There are no fees, commissions, no long escrows, no home inspections, and no buyer contingencies. Though the selling price is typically less, the problem can go away almost immediately and virtually all risk in the transaction is removed.
OPTION #4 File bankruptcy
Filing bankruptcy should be considered with great care. It stays on your record for 10 years and can have significant negative impact on your life for this duration. Due to recent law changes, many of the previous benefits of filing bankruptcy have been removed.
What Happens To The Lost Money When I Sell My Home For Less Than I Owe?
LASTLY: Consult with a Licensed Realtor that can advise you off all of your options and has experience dealing with each of these situations.
I specialize in Short Sales but my main focus is to help guide homeowners that are in trouble.
If short sale is not the best option for you, I have a specialist on my team that can help you with each of the options above.