The road to real estate ruin

Falling behind; loan modification attempts

When a mortgage payment is missed, the march toward foreclosure begins. California law requires the lender to make a good-faith effort to call or visit the borrower to discuss ways to avoid foreclosure, including free counseling and loan modification possibilities, at least 30 days before declaring default. In California and several other states, the foreclosure process unfolds largely outside a courtroom. Borrowers can find free counseling through the Department of Housing and Urban Development at

Default; more modification attempts

The lender notifies a third-party trustee of the default. The trustee files a notice of default. Now the foreclosure process officially has started. A California borrower has three months to: dispute the default claim; find the money for all past payments, plus late fees and interest; get the lender to agree to a “short sale,” in which the house is sold for less than the amount owed; or win a mortgage modification.


Sale notice; more modification attempts

After three months, the trustee can schedule an auction by filing a notice of trustee sale with the county. The borrower has at least 20 days to get a mortgage modification, find the payment money, arrange a short sale or convince everyone that an error has occurred. If a borrower is being considered for the federal Home Affordable Modification Program, the foreclosure process stops. Bankruptcy may delay but won’t stop the auction.

Auction, eviction

If the sale isn’t canceled or postponed, the house is auctioned. The buyer often is a cash-carrying investor eager to snap up a deeply discounted home. If no qualified bidders emerge, the lender takes the house, which is now considered foreclosed. If the former homeowner is still in the house, a notice to quit will be delivered allowing three days to leave before a notice of unlawful detainer is filed. The borrower can ask for a trial, which is supposed to be held within 20 days.

Foreclosure rescission

Foreclosures aren’t often rescinded, but experts expect more rescissions as lawyers learn to exploit foreclosure mistakes and misdeeds. Consumers are filing more lawsuits challenging banks’ right to foreclose based on faulty paperwork and improper procedures. But beating back foreclosure doesn’t solve the underlying problem if the homeowner couldn’t afford the mortgage payments.

Source:; Times research