In California the Foreclosure Process for a home unfolds in a sequence of timed events, each of which provides a certain set of opportunities for remedying, resolving, or rescinding the foreclosure before the home is sold at auction.
Notice of Default
This is the start of the pre-foreclosure process. An initial Notice of Default is publicly recorded at the county recorder’s office after a borrower fails to meet the terms of their loan.
The Notice of Default provides a window of 90 days during which the homeowner can work with the lender to resolve the foreclosure.
Typical options include negotiating new loan terms (a loan modification) that are more amenable to the homeowner’s current income situation, working with one of the few legitimate non-profit homeowner assistance agencies (like Keep Your Home California), or listing the home for sale via a traditional real estate listing (if there is equity in the property), or via a short sale (if the amount owned on the property is more than the home is worth).
Please be aware that it is against the law for anyone (other than an Attorney or a licensed Foreclosure Consultant) to charge a homeowner for loan modification services or assistance. There are many illegitimate organizations out there that trick homeowners into paying them money and make false promises and guarantees that they’ll be able to help them keep their home.
In addition to unscrupulously taking homeowners’ money at a time when they need it most and are most vulnerable, not only do many of these individuals fail to prevent the foreclosure, they also waste the precious little time the homeowner actually has to honestly resolve the foreclosure in their favor.
If you suspect you are or have been the victim of such a scam, you should contact one or all of the following enforcement organizations to file a complaint and pursue recourse:
Office of the Attorney General at www.oag.ca.gov/contact/consumer-complaint-against-business-or-company
Federal Trade Commission at www.ftc.gov/ftc/contact.shtm
The Consumer Financial Protection Bureau at www.cfpb.gov
Notice of Trustee Sale
The NTS sets an auction date to sell the property. It can be recorded 3 months after the Notice of Default filing date.
At this stage, time is beginning to run out. Many lenders will not consider or accept a Short Sale offer if it is made with less than 30 days remaining before the auction date. Each lender is different however. We have seen lenders postpone an auction date the day before the auction was scheduled to take place, if the home has been listed for sale by a licensed Real Estate Agent and an offer to purchase the property has been made by a potential buyer.
Some homeowners file for bankruptcy at this stage, and while a bankruptcy can temporarily halt the sale, if is used solely as a postponement tactic, generally the court will eventually rescind the stay of the sale and the auction process will pick up right where it left off, with no additional delay.
The initial auction date can be no sooner than 20 days after the Notice of Trustee Sale is recorded.
Auctions can postpone for up to one year at the discretion of the lender.
Postponed / Sold to Bank / Sold to 3rd Party / Cancelled
In California, foreclosure sales can be postponed for up to one year per CA Civil Code section 2924g.(c)(1).
The following are the most common types of and reasons for postponement:
Mutual Agreement. The most common postponement reason it simply indicates that the homeowner and the lender have agreed to postpone the sale. This may be the result of a simple call by the homeowner requesting a little more time, or a more formal agreement like a forbearance.
Many homeowners do not realize when they enter a forbearance agreement or a loan modification trial that the foreclosure process continues; and if they miss an agreed upon payment, the property can be sold on the next scheduled sale date with no further notice.
Bankruptcy. When a homeowner files for bankruptcy protection, it puts an automatic stay on all debt collection actions, including foreclosure. Note that bankruptcy does not stop foreclosure, as many believe. Instead, it simply delays the sale of the property until the homeowner resolves the debt, or in many cases, the lender gets approval from the bankruptcy court to continue the sale – an order granting motion for relief from stay.
The bottom line is that a home is a secured debt, and the lender has the right to take the security (the home) if the homeowner lacks the ability to pay the debt as agreed. Bankruptcy is only an effective tool against foreclosure if the homeowner will have sufficient income to pay their home loan and make up past due amounts once the bankruptcy plan is completed.
Beneficiary’s Request. A simple decision by the lender (beneficiary) to postpone the sale. This could be for any reason, including that they simply aren’t prepared to take the property to sale, or because they have reason to believe they are about to be paid (a closed escrow for which they have not yet received payment, for example).
Trustee’s Discretion. A simple decision by the trustee to postpone the sale. The most typical reason is that they are unable to reach the lender for sale instructions.
Operation of Law. Fairly rare, but used when a court orders the postponement of the sale. The most likely reasons for a court to make such an order would be in cases where there is a plausible allegation of fraud against the lender, or there are questions of material fact around the right of the lender to foreclose.
No matter what the postponement reason, a new notice of trustee sale must be posted and filed if the sale is postponed for more than 365 days.
The Bottom Line:
In our experience, if a loan modification cannot be made with new terms that work within the homeowner’s current or anticipated monthly income situation, and if they do not qualify for Keep Your Home California assistance (see qualifying questions here), and if Bankruptcy has been tried or is not an option, a traditional real estate sale or short sale of the home can be a successful approach.
The benefits of a traditional sale of the home include saving the equity within the property. The longer the foreclosure process takes or is postponed, the more equity is used up in lender late payments, penalties, interest, and attached foreclosure and auction service fees.
When there is no equity in the property, the benefits of a short sale include minimizing the impact on the homeowner’s credit score in the long run, and allowing the homeowner to stay in the home during the short sale negotiation process (which can take anywhere from 6 months to 2 years in some cases).
The homeowner is able to save the money they would otherwise be ‘throwing away’ in making payments on a property that has no equity, putting them in a superior financial position once the short sale concludes, and allowing them to re-enter the home-owning or renting field with a decent amount saved for a down-payment.
With more than 150 traditional real estate home sales in Southern California, and more than 250 short sales successfully negotiated and brought to closure, we’re one of the few specialized organizations out there that not only helps homeowners utilize every no-cost option available to keep their home, but that also helps resolve the foreclosure and home sale in their financial favor if all other options have been exhausted.
Whatever the case, we will steer you in the right direction. If your goal is to keep your home, we will do everything possible to bring that goal to fruition. We use proceeds from traditional real estate and short sales to help fund the department that provides no-cost services to homeowners for foreclosure prevention and resolution. Our ultimate goal is to reduce the amount of foreclosures that occur, prevent homeowners from being taken advantage of by unscrupulous individuals and fake homeowner assistance organizations, and to educate homeowners about the legitimate options they do have.
If you have any questions, or want to discuss the unique situation you are facing, give us a call, or send us a message. We’re here to help.