How Foreclosure Works
Foreclosure can happen as a result of several things.
It can stem from the nonpayment of first or second mortgages, in which case the lending party may initiate the foreclosure process.
Or it can result from the nonpayment of property taxes or income tax, as a result of a judgment placed against the property for nonpayment of homeowner association fees or a mechanical lien from nonpayment of a contractor.
In these cases, a lien may be placed on the property so that in case of sale, the debts have to be resolved or a court action could be initiated: judicial foreclosure.
There are two types of foreclosure.
The most common in California is the nonjudicial, or foreclosure by sale, which simply means that the lender can sell the property without going to court.
The second and rarer type, the judicial foreclosure, requires that an action be filed in court and the property owner served with a complaint.
The first legal step in the nonjudicial foreclosure process is the notice of default.
At this point, the lender appoints a trustee to handle the property. The trustee sends the notice to the county recorder and contacts the title company to get the trustee sale guarantee, which will also give information on all the lien holders who must be contacted by regular and certified mail.
As Ira Waldman, partner and specialist in foreclosures at the law firm of Cox, Castle & Nicholson explained, once the notice is recorded, a legal clock starts ticking. It racks up charges for an assortment of fees that the property holder must pay for, no matter what happens. These charges include recording fees, mailing costs, title company fees and trustee fees.
Once the notice of default is recorded, the property owner has 90 days to reinstate, to pay all past payments, late charges and all the fees that have been accumulating.
There are ways for an attorney or a private party to extend this time period, but this also increases all the payments and charges that will have to be paid off. An individual’s credit rating is, of course, affected by these nonpayments.
After the 90 days, public notice of sale must be given. Following that, the property owner has 18 more days to reinstate, make the catch-up payments and pay accrued charges.
After this time period ends, everything changes. For the five days remaining before the sale, the property owner who wants to retain the property must pay the beneficiary or the aggrieved lien holder in full.
It is obvious that the sooner a person realizes he or she is having problems that may ultimately affect the roof over his or her head, the quicker they should find help.
This information comes from a variety of legal sources. Further details can be obtained from “Real Estate in California” by James Smith, Howard Martin and Douglas Temple, or from a real estate attorney.
TRENDS IN DEFAULTS AND FORECLOSURES
Notice of Default Foreclosure Sale 1986 35,198 8,421 1987 29,542 6,639 1988 26,497 4,494 Jan.-June ’89 8,904 1,559
